When it comes to checking accounts, one trend is to charge your customers to use your branch. The idea sounds crazy, but it is a very sane response to a difficult problem. There are a group of banks, most recently BBVA Compass that have introduced checking accounts such as their ClearConnect that has no monthly fee and free online/mobile banking, but comes with a $1 fee for each check processed, $1 fee for in-branch withdrawals and a $4 charge for each deposit completed in the branch after the first per statement cycle. The idea of charging your customers for branch use has been around for several years, but recently we have seen more traction for this trend.
In short, BBVA Compass is moving a segment of their customer base online, but giving them access to the branch for a fee. The sales pitch is that the 2-3 checks per month and the one branch visit per quarter (the average for this customer segment) comes out to be an average cost of about $3.83 per month which is cheaper than alternative monthly fees.
To understand if BBVA Compass is on the right track, consider some other similar offerings. Fifth Third’s eAccess account prohibits paper checks and is focused almost exclusively on online banking. Here, customers segment themselves into a group that elects not to use a branch or paper checks. PNC’s Virtual Wallet will also go that way in December imposing a $7 fee for customers to use the branch. BBVA Compass’ product is similar but with the option to write paper checks and a lower branch fee.
On the other side of the equation is Bank of America that has discontinued its eBanking account structure that required customers to not use bank tellers in order to waive the monthly fee. Bank of America cited its customers still want full-service branch banking. Upon inquiry, we learned that after garnering about 10% of its customers in this account type, the numbers have been running off, as customers either go back to basic checking or have left the bank. So, the question arises, what should your bank do?
One thing we don’t recommend is playing ostrich, as the problem each of these banks are trying to solve is very real and if your bank doesn’t get proactive, the math is going to work against you. As more and more payments move online and to mobile, the incremental cost is sky rocketing. Here at CenterState, at some branches, our fixed costs have remained steady over the years while branch activity and processed items in the branches has decreased. The result is double digit increases in the incremental cost of processing. This trend isn’t likely to reverse, so if 70% of the transactions occur away from the branch, are banks still going to pay $740k+ per year to keep their branch open? At an average cost of about $370 per customer per year, can you afford to keep a branch open for the occasional visit?
From a strategic point of view, your bank has to make a choice. Either proactively choose to reduce your branch footprint and consolidate customers so that your branches average above 3,000 customers, or choose to hang on to the traditional model as long as you can and seek ways to utilize your branch space for other important items such as sales, community engagement or customer education.
If you don’t have a path, then BBVA Compass’ approach is logical – start segmenting your customer base, charge for the delivery channel, take steps to restructure the branch to a more sales-oriented environment and let the market decide. If your customers migrate to the full electronic product, then the decision to close branches will be easier. If your customers resist, like Bank of America’s did, then you either have to relook at the problem and take another run at solving product and service issues or come to the conclusion that you will continue to use your branch structure as a competitive advantage.
However, if you choose the latter, understand that you will have a myriad of headwinds. There are major trends such as bank competition, demographics changes, mobile technology, chat, video chat, online conflict resolution and predictive analytics that are all working against you. When we talked to Bank of America’s customers that stopped using the eBanking product, it was a result of an issue that needed to be solved in the branch. Like the video, travel, retail and other industries, service problems will be overcome as technology advances. We loved the travel agency because they could change seats, flights, upgrades, etc. much easier than having to go to the airport or the airline’s ticket office. However, overtime, each problem resolution set got moved online. When it did satisfaction increased and travelers stopped going to agencies. Now, it is a major failure on the airline’s part if they can’t resolve the issue over the web or phone.
We suspect that Bank of America, like many banks, is in that interim transition step of moving customers from the traditional branch to fully online. BBVA Compass learned from that experience and now has a product to make that transition easier.
Submitted by Chris Nichols on October 22, 2013