Online forums and periodicals are filled with debates over the future of the branch. On one side are advocates for remodeling strategies that lower costs by providing the minimum needed to support those members who continue to frequent the branch. The other side argues that turning the branch into something more akin to shopping at an Apple store will drive more revenues through personalized member experiences.
With branch traffic flat or declining, it is remarkable how much thought and planning is given to a channel whose future is questionable. This effort to sort out how to build the branch of the future too often eclipses the amount of time being spent by institutions on developing a digital strategy for delivering e-channel services.
Today more than 60 percent of those with access to the Internet access and manage their accounts online. A third of this number also use mobile devices to conduct banking services,
As expected, financial institutions have worked hard to provide the digital tools and services demanded by their customers and members.
They have developed an impressive range of e-channel offerings, but all too often these services have been rolled out – one on top of the other – with the absence of a long-term strategy. This has resulted in a model for delivering digital services that is not sustainable. With disparate service channels resulting in a poorly optimized member experience, increasing per user costs and rising complexity within their operational environments, banks and credit unions in this situation are sacrificing their competitive advantage.
For financial institutions, improving their competitive edge by gaining better access to customer data and providing those same customers with a more seamless experience might be enough reason to invest in taking the steps necessary to develop a sustainable digital strategy. However, most organizations need cost justifications for such undertakings.
To properly analyze the cost, it is important to first understand what is currently being spent on e-banking services. In many cases, the consortium of vendors a bank or credit union depends on for their digital service offerings, coupled with different reporting and pricing structures – ranging from one-time charges to usage fees – make it difficult to track the total cost. Those who have waded into the morass of pricing strategies and fee levels have been shocked at what they discovered.
By the time they add up the costs associated with all the digital services they offer, including online, mobile, bill pay, PFM services and more, some organizations are paying up to $5 a month for each digital user. Of course, that is not necessarily the worst of it. As customers continue to adopt new digital devices that demand their own point solutions, this price per user will go up. Continuing along this path only creates an increasing cost of operations that most organizations cannot sustain.
Let’s break this situation down using a real world example. One financial institution I spoke with has 70,000 online users. They are paying $1.10 per month for each online user, plus an average of fifty cents for bill pay transactions and an additional $1.50 for mobile banking users and transactions. By the time the price they pay for PFM, person-to-person and account-to-account services is added in, this institution is paying more than $4 per user per month. The executive I spoke with at this organization said that it was cheaper to service his customers at the branch than to give them all the digital access they wanted.
You may find yourself in a similar position and, for now perhaps, the cost structure is acceptable. The catch is even if this approach is acceptable for your organization today, as digital adoption continues to grow, a breaking point is inevitable as digitally savvy Millennials join in the fray. For example, assume that the previously mentioned financial institution doubled its mobile users, not a stretch given current adoption rates. Within a very short time, the organization would see the cost to serve its customers via smartphones rise dramatically with little to no decrease in the charges associated with servicing those same customers via the other e-channels they use, such as online banking.
Another area where costs multiply for credit unions is around implementation fees. One-time implementation fees have become excessive and stack up quickly when working with multiple vendors. These fees are derived from various components, including:
- Online and/or mobile banking implementation
- Host system certification
- Fees charged by the core vendor
- Security entitlements and integration
- Payments solutions and single sign-on implementation
- Secondary language options
- Data conversion
- Mobile optimization
- App development
Estimating conservatively, gradual e-banking implementation costs can range from $225,000 to more than a million dollars in one-time fees depending on the size of the institution.
In addition to implementation and user fees, keeping disparate e-channels updated and in compliance can be a serious drain on valuable IT resources. The idea of managing apps and sites for online, mobile and tablet devices, each with unique qualities and usage preferences, is overwhelming.
According to Javelin Strategy, while consumer tablet adoption is 38 percent, which is much faster than the adoption of smartphones, more than half of the top 25 banks do not have specific apps for tablets. This is a sign of app fatigue – reluctance by financial institutions to provide native apps for each new digital device, due to the overhead involved in app upkeep across multiple devices, for multiple app stores.
If the largest 25 banks cannot seem to manage these volumes, it is difficult to see how other institutions will have the resources or the means to do so in the long term. That is why many banks and credit unions depend on one or more vendors to deliver and maintain their apps. Of course, the downside to that approach is that you are captive to the vendors’ timelines for upgrades and new features/functions. With one in six consumers changing financial institutions based on their digital experience, this limitation is not insignificant.
It takes a comprehensive digital strategy to get out of this quandary if credit unions are to live up to the customer’s expectation of an “Amazon-like” experience across all digital channels whether they are using a PC, smartphone, tablet, Google Glass or other devices able to access the Internet. More on that in the next blog: “Why Financial Institutions Cannot Provide Digital Customers With An Amazon-Like Experience.”