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THIS MONTH IN RETAIL BANKING: SPEEDING THROUGH THE YEAR

 * September 23, 2021


 * September 23, 2021

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Welcome to the September issue of This Month in Retail Banking. The summer
slowdown has passed and bankers are focused on revving up the business as we
speed toward the end of the year. And there’s a lot happening, as this meaty
issue reveals.

First, we take a fresh look at branches. We all know that sales and transactions
are down – and likely aren’t returning to pre-pandemic levels. So why are
branches still open such long hours?

Then we provide some new context on the overdraft policies that are being shaken
up around the U.S. In the latest development, some smaller institutions are
following the lead of their larger brethren.

Next, it’s time to take a look at deposits, which are still flooding bank
coffers as the spreading Delta variant cut into the anticipated summer spending
season.

Finally, we offer up two perspectives on small and medium-sized businesses.
These owners have specific digital demands, but banks usually aren’t meeting
them. And it’s not just digital. There’s a whole new generation of
small-business owners, many of them women, who are very different from their
predecessors. We’ll have more research on that topic soon.



Agenda

Hours | Overdraft | Deposits | Small Business | Next-Gen Owners




BRANCHES: OPEN TOO MANY HOURS WITH NOT ENOUGH ACTIVITY

As discussed repeatedly in This Month in Retail Banking, there has been a
dramatic reduction in branch activity due to COVID-19. Teller transactions are
down 25% from pre-pandemic levels and, for many banks, branch-based account
sales haven’t fully rebounded either.

With 69% of branches in our SalesScape benchmark now processing fewer than 4,000
teller transactions per month, banks are unable to further achieve staffing
efficiencies because they are bumping against minimum-staffing levels.
Productivity levels are depressed, so banks are no longer staffing for volume.
Instead, they are staffing merely for coverage.

The problem is that most bank branches are just open too many hours. Very few
banks have taken advantage of customer shifts associated with COVID-19 to
consider reducing their branch hours. In other countries, bank branches operate
differently. In fact, the U.S. has fewer branches with shorter hours (< 35
hours/week) hours than Australia and Canada (pre-COVID-19). (See Figure 1.) In
recent months, multiple banks in Australia have announced halving their branch
hours in rural locations, amounting to roughly 10-15% of their networks. 

While that may seem extreme to some, it is at least worth investigating
substantive downshifts in branch hours to allow for further reductions in
staffing levels that align with the reduced branch activity.


FIGURE 1: U.S. BRANCHES HAVE LONGER OPERATING HOURS THAN OTHER COUNTRIES

Source: Curinos CWP, Curinos SalesScape, Australia BranchScape, Curinos Analysis




CREDIT UNIONS JOIN OTHERS IN SLASHING OVERDRAFT FEES

The momentum for changing overdraft policies and creating new liquidity products
shows no sign of abating. And now, the changes that have stemmed from regulatory
pressure and large financial institutions (e.g., PNC, Huntington, Bank of
America and Ally) are trickling down to credit unions and smaller players.

A few credit unions recently have announced changes to their overdraft
practices. For example, Oklahoma City-based WEOKIE Federal Credit Union earlier
this month cut its overdraft fee almost in half, lowering it from $27.50 per
occurrence to $15.00. UW Credit Union in Madison, WI slashed overdraft and NSF
fees by more than 80% from $30.00 per occurrence to $5.00. And Alliant Credit
Union, the largest credit union in Illinois, has taken the bold step of
eliminating overdraft and NSF fees on its checking and savings accounts
altogether.

Credit unions are making many of these decisions in the hopes of helping members
who are experiencing financial hardship and to support their members’ overall
financial wellbeing.

Retailers are adding even more competitive pressure with solutions that provide
access to liquidity. Retail juggernaut Walmart is adding to that pressure by
pricing overdrafts on its MoneyCard at $15.00, which is about half of the U.S.
average based on the institutions tracked by Curinos. Walmart’s strategy is to
try win over consumers who maintain low balances and are heavy transactors.

The growing competitive pressure is likely to drive down overdraft pricing and
revenue throughout the industry. Curinos has found that inaction can lead to a
decline in new-to-bank acquisition power by 27% and a decline in overdraft
revenue by 40-60%. (See Figure 2.)

Is your institution willing to take that risk?


FIGURE 2: THERE ARE CONCRETE IMPLICATIONS FOR PROVIDERS THAT DON’T KEEP UP



Source: Curinos Research, Curinos Benchmarking Fee Data




THE SPENDING SURGE THAT WASN’T

With vaccination rates rising and cases declining across much of the country,
many predicted a spending surge through the summer. The theory: pent-up demand
for travel and recreation would drive consumers to spend their stimulus checks. 
Indeed, this prediction seemed to come true in the first half of the summer as
spending peaked above pre-pandemic trendlines and retail deposits started to run
off meaningfully for the first time since March 2020. (See Figure 3.)




FIGURE 3: EARLY SUMMER SPENDING HAS RECEDED, LEADING TO DEPOSIT GROWTH

Source: Curinos Comparative Deposit Analytics (CDA) Database, April ‘21 | Simple
average used to protect participant anonymity | Stimulus customers tagged in
April 2020


It has been a different story since mid-July, however. The emergence of the
Delta variant has prompted a slowdown, spending has again receded and savings
behaviors have come back to the forefront. As a result, retail deposits have
resumed a growth trajectory since mid-July as caution has returned.

Data compiled by Curinos Comparative Deposit Analytics (CDA) show that
approximately one-third of customers who received stimulus payments had spent
the entire amount by May. That rose to a peak of 44% on July 10 due to summer
spending, but then savings trends re-emerged.

Curinos will continue to closely watch these trends, especially to see whether
the end of expanded federal unemployment benefits in September has an impact on
deposits.




BANKS OVERLOOK DIGITAL NEEDS OF SMALL BUSINESS

Mobile adoption among small businesses has skyrocketed in recent months, but
banks have been slow to introduce services that directly meet their specific
needs.

That’s not to say banks haven’t been busy. Within the first six months of the
year there were more than 160 separate mobile app alterations and enhancements
across 20 major U.S. banks, regional providers and digital challengers. Of
those, however, only a quarter of providers offer a standalone, business bank
dedicated app. The majority offer combined consumer and small-business apps.

Drilling into the stats suggests a story of neglect. On average, providers that
offer a standalone business app have implemented just 0.5 change to the app so
far this year. By comparison, the combined personal and small business app
providers made on average 10 changes. Clearly the majority of changes are being
implemented with retail consumers in mind.

Analyzing the mobile data further into key online journeys reveals how few
changes and developments are introduced with business needs in mind. (See Figure
4.)


FIGURE 4: NUMBER OF APP DEVELOPMENTS BY JOURNEY

Source: Curinos Digital Banking Hub


The journeys with the most limited developments thus far this year have been
services-oriented around critical business needs and requirements. Issues such
as cash flow management, invoicing solutions, tax support, payment controls,
payroll and ACH services, receipt capture or employee management services just
aren’t getting attention. And to make matters worse, these are the very areas in
which small businesses need critical help – managing cash flow, acquiring
visibility over the financials of the entire enterprise or simply streamlining
the administrative burdens associated with expense reporting.

While the consumer digital banking market has exploded over the past few years,
so too has demand for quality business banking solutions, in-app and online.
Without doubt, a lot of user experiences have improved, but businesses have come
to need much more.

This is a market that has huge growth potential for forward-thinking providers.
Banks would be wise to give their business customers due attention.




THE NEW SMALL-BUSINESS OWNER HAS UNIQUE DEMANDS, NEEDS

Small-business owners are demanding more from their banks. Not only are digital
capabilities becoming more critical to bank choice and bank engagement,
but businesses are increasingly looking for more differentiated product and
experience propositions from their financial providers.

Next-generation business owners, in particular, are fundamentally different from
their predecessors. Not only are they more likely to be women, but their
companies are also more likely to be headquartered in metropolitan areas.
Furthermore, more than half of these business owners are growth-oriented and use
fintechs in their financial management – a vastly different trend than those who
have been in business for at least 10 years. These trends are only accelerating
during the COVID-19 pandemic.



As a result, a growing number of providers are paying attention. American
Express bought small-business lender Kabbage last year and started offering
small-business checking accounts in June. And payments provider Square began
providing banking services in March after receiving a bank charter.

Given the importance of small businesses to growth of customers, deposits and
assets, it will be critical for banks to develop a differentiated value
proposition and strategy to truly win and compete in the space. 

Stay tuned for more on this subject. Curinos is currently conducting research
that tracks the shifting attitudes and behaviors of small businesses and
identifies the critical white spaces that providers can tap to drive value
proposition innovation. 

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