Where is Banking’s Prime Account?

amazon prime cardOf the 227 reports I authored at the helm of Online Banking Report, I am proudest of Building the Amazon.com of Financial Services written in mid-1998 (see notes 1, 2). The gist of it was that in the Internet era banks should broaden their offerings beyond checking, savings and loans. And importantly, that many of these opportunities did not require a banking charter. In fact, in many cases it would be better to not have one.

While many of those Amazon-like opportunities are still available today, there is also a massive new one. Amazon Prime which accounts for about $6 billion in annual revenue across 70 million subscribers. And that’s just the subscription revenue. It doesn’t include the sales lift across the Amazon marketplace. Considering that Amazon reported $2.4 billion in net income last year, just 40% of estimated Prime revenue, you can see how important it is.

So banks, where is your Prime program? Not free shipping, of course, but the ever-improving bundle of value-add services available for an annual/monthly fee. The price that your most engaged customers will pay to get the very best services you offer.

It’s a classic marketing strategy, right of Mktg 101 or maybe 201. And one that banks used themselves in the 1980s and 1990s when they created Gold, and then Platinum, credit cards chock full of so-called benefits even their product managers didn’t fully understand.

Retail banking, which has left more than $10 billion on the table by offering digital banking services free of charge, can employ this strategy with a bundle of digital services such as:

  • Extra security
  • Credit report alerts
  • Plain language security guarantees & insurance against account theft/fraud
  • Enhanced debit/credit cards
  • Free overdraft protection
  • Ultra-fast server
  • Same-hour customer service response via text/email/voice
  • VIP look-and-feel across all channels

It’s high time to turn digital banking into its own profit center. It will help you properly allocate capital to the growth channels, while investing less in those that are tanking a bit less robust.

Author: Jim Bruene is Founder & Senior Advisor to Finovate as well as
Principal of BUX Advisors, a financial services UX consultancy. 


  1. It was that report that prompted Elon Musk to call me out of the blue one day and ask that I help him with his banking startup, X.com, which eventually morphed into PayPal. Although, stupidly I didn’t pursue the job opportunity, I did consult for him during X.com’s first year when they were still trying to buy or build a commercial bank (against all my advice).
  2. The report was updated in late 2000.

Mobile Paths

mobile banking clipMobile has been an important part of banking for six or seven years, but have you recently thought through the longer-term strategic implications?

For younger customers, the relationship with their bank, like with most large tech companies, is through their phone. Young customers don’t even think about the people behind the service. As long as it’s working.

Given this reality you have two choices.

  1. Embrace the anonymous service provider model of Google, Microsoft, Facebook and most big tech companies. Go for scale, low costs, and state-of-the-art digital services. Offer robo-savings, automated chat bots, and self-service. Hire great programmers.
  2. Go in the other direction. Humanize your service by inviting customers to connect with people at your financial institution, either in person (traditional banking model, also used by Apple with its hardware) or through chat services (Amazon). Optimize around people and connections with the customer. Have new customers in for a chat, invest in social networking and custom interfaces. Hire great account reps.

It’s easier to stay anonymous. You avoid all those messy interactions with customers. But it may be harder to gain loyalty, cross sales and referrals as a no-name service provider. Another concern on the credit side, is whether that anonymity comes at a price in terms of higher loan defaults?

Building a human connection can cement customers possibly for generations, but has higher costs in terms of staffing, customer service, and brick and mortar investment.

Either way is a legitimate strategy. But you need to choose.

Author: Jim Bruene is Founder & Senior Advisor to Finovate as well as
Principal of BUX Advisors, a financial services UX consultancy. 


1. Picture by 123rf.com (licensed)
2. Inspiration by Seth Godin

Alt-Branch Banking: Be the Home for the Homeowner (or Renter)

the_wallThe writing is on the wall. The bank branch wall that is. In a world of ubiquitous smartphones, bank branch ROI continues to plummet. That leaves many financial institutions wondering how to replace the branch’s historic role as the center of customer acquisition.

There are many strategies:

  • Substantial digital marketing and sales efforts
  • Relationships with major local employers
  • Lending, and banking, small businesses
  • Leadership in K-12 financial education
  • Affinity programs with local retailers
  • Social media and PR champion

None of those are particularly novel. But one you may not have tried recently is becoming the go-to financial institution in your area for homeowners and apartment renters. Being the local bank that helps people meet one of their top priorities in life, having a roof over their head, puts you in an enviable position.

Again, this is a strategy that goes back decades (e.g., Savings & Loans in the United States, Building Societies in the United Kingdom), but digital technologies open up new avenues of integrating partner services into a cohesive “Home for Homes” strategy:

  • Finding a home/apartment: Integrations with Zillow, Redfin, newcomer Faira (which “wrapped” the Seattle Time Sunday paper this past weekend in 3-full-pages ad)
  • Traditional home financing: Standard and jumbo mortgages, purchase and refi
  • Alt-financing home/apartment (note 1): Rehab loans, crowdfunding integrations, rental-deposit loans, and so on
  • Home/apartment repair loans: Smaller loans, potentially more of “emergency” type
  • Traditional home equity lending: Installment loans, lines of credit, and so on
  • Realtor support: While there is no shortage of independent mortgage brokers working with real estate agents, many (most?) can’t provide a flow of inbound leads to the agents; this is where established FI brands can leverage their standing in the community (within RESPA guidelines, naturally)

After you find a new home buyer/renter/refinancer, the hard part begins. How to convince them you are the long-term home for their home? A novel approach, but one fraught with regulatory/risk/ROI concerns, is the lifetime mortgage, e.g., a mortgage preapproval that moves with you from home to home provided you continue to meet down payment and income requirements (NOT the UK meaning, a reverse mortgage).

While reprising the Third Federal Mortgage Passport might not be possible in the current regulatory environment, there are ways to incent customers to move their other bank accounts (though, thanks to Wells Fargo, you better be super careful with sales incentives).

CFCU Community Credit Union's "First Home Club"
CFCU Community Credit Union’s First Home Club, a down-payment assistance program from the Federal Home Loan Bank of New York.

Here’s a list of perks to offer new homebuyers/renters:

  • Homeowners club with content, discounts and offers
  • Systematic savings program to save for down payment or rental deposits
  • Card rewards geared towards home expenditures
  • Significant interest-rate kicker and/or bonuses on the first few thousand in savings (see CFCU Community Credit Union at right)
  • Simple refi process (see PenFed’s program powered by Mortgage Harmony for example)
  • Reward-point bonuses for home-related purchases on your credit/debit card
  • Homeowner/rental insurance
  • Homeowner repair services with financing discounts (integrate with Thumbtack, Angie’s List, etc.)
  • Energy-conservation services with financing discounts
  • AirBnB integration for renting out home/apartment

Bottom line: No matter how well your branches are doing today, most financial institutions need to pursue viable new-account generation alternatives to make up for falling branch traffic.



  1. findevr-sv16Apartment financing is a relatively new need (see previous post). And the magnitude of it might surprise anyone who hasn’t checked out the urban rental market in recent years.
  2. Looking for more inspiration for your technology stack? Don’t miss our third annual FinDEVr Silicon Valley next week (18/19 Oct).

Chatbot Banking

2 5 billion peopleTry wrapping your brain around this little nugget. There are now 2.5 billion unique users of messaging apps worldwide. And they are fast becoming news, search and ecommerce platforms on their own.

How does chat morph into ecommerce, let alone banking? In China and other Asian countries, embedded chatbots are all the rage on messaging platforms such as Wechat, WhatsApp, Kik, Telegram and Slack.

Telegram is the only messaging platform to open up its chat API, such that there are now 120,000 bots serving its 5 million users (for example, see @gif and @vid at work here).

Tencent’s WeChat, the most popular messaging app in China … lets users shop, pay bills and book appointments.
Wall Street Journal, 22 Dec 2015 

chatbank_mockupJust yesterday, YC-incubated Chatfuel demoed its platform at W16 Demo Day. And it’s coming soon to Facebook’s Messenger (of course).

Chatbot is hard to define. Google tells us:

chat·bot /ˈCHatbät/
a computer program designed to simulate conversation with human users, especially over the Internet.
“Chatbots often treat conversations like they’re a game of tennis: talk, reply, talk, reply.”

Unlike sales/service “live chat” that’s become commonplace within online banking, chatbot banking is 100% automated and includes a back and forth “chat” designed to hone in on the precise question or request. They are a boon to mobile self-service, where the limitations of screen size make traditional searching less user-friendly.

But chatbots can also handle transactions, especially the repetitive routine ones typical of online/mobile banking sessions. See the inset for how I imagine text banking might work for one of the most common tasks: balance inquiry with a subsequent funds-transfer.

Looking ahead
If you think of online banking via a PC as digital banking 1.0, and mobile as digital banking 2.0, then the upcoming invisible UI (or the “no UI, UI” coined by USAA’s Neff Hudson) using chatbots, AI and machine learning could very well be version 3.0. At least, that’s my hope. It reminds me of my all-time favorite quote about banking (circa late 1990’s), from noted technologist Esther Dyson:

Banking is like vacuuming; it’s vital, but everybody tries to reduce their vacuuming time.

Embrace the vacuum. People pay good money for them (no relation to Esther, I think).

Future Friday: Downsizing the Bank Branch While Engaging with More Customers

bank popup

The number of traditional bank branches (1000+ square feet, fully staffed) are on the decline. In some European countries, more than half have already disappeared. In the U.S. (as of YE 2014), we are only down 5% from the peak (see inset below, note 1), but the trend will gain momentum as leases expire and revenues are squeezed by politicians (thank-you election year) “protecting” consumers and competition from non-banks (probably in that order).

number of bank branches dbrWhile I appreciate the helpful people and wide-open space, most (note 2) bank branches are just too costly to support the declining “non-digital” customer base. That has led to eerily empty branches (not exactly a great branding statement) which no longer generate enough new business to pay their way (though they may support legacy deposit bases making them seem profitable).

Consider the four cornerstones of branch value:

  1. Opening accounts, especially for someone new to the bank
  2. Servicing accounts, especially when there is a problem
  3. Providing advice, especially for loans and business services
  4. Visible reinforcement of the brand (i.e., very expensive billboards)

Numbers 1, 2 & 3 can be more efficiently handled online, over the phone, or at the customer’s location. But what about #4, the branding value?

Banks don’t want to lose that, nor should they. But it’s time to find more cost-effective approaches. One answer: Locate micro-branches within established retailers or in other shared spaces. You keep your brand in front of the community, drive traffic for retail partners, and provide assistance for customers who absolutely need to see a smiling face in the real world.

What I mean by micro-branch isn’t really a branch at all, it’s more of a deposit-taking ATM/kiosk (or two) staffed by a single banker. Think airport check-in with roving staff helping at kiosks. And micro-branch/kiosks could be staffed only during peak-traffic times. For a good ROI, the banker must be able to close (or seamlessly refer to others) higher-value products such as loans (including purchase financing), credit cards, business services and insurance.

Most in-store bank branches are currently in grocery stores or Wal-Mart. But there are other retail locations that could benefit from micro-banking centers to draw traffic, provide services, share in the rent, and in some cases, assist with purchase financing:

  • Office supply/shipping stores: One of the last places in the real world still frequented by businesses (and consumers) that need supplies to do their jobs and don’t have time to wait for Amazon delivery. Team with Office Depot/Staples or shipping locations to place micro-branches within their stores.
  • Home improvement stores: Here’s another physical retailer likely to remain viable for a long time. Home project supplies are often not conducive to shipping, and many shoppers still need assistance figuring out what they need. There are good synergies for a micro-branch dispensing home improvement financing, along with other typical branch services.
  • Other high-value retailers: If banks can get in-store staffing down to 1 FTE or less and fund consumer purchases in-store, it would be possible to expand into lower-volume locations such as electronic stores, department stores, popular furniture stores, outdoor equipment retailers, and others. Although ultimately, this opportunity is likely to be more efficiently handled through technology integrations with the retailer.


On the other hand, banks could reverse the in-store model by hosting other service providers within existing branches to share costs and generate activity:

  • Ecommerce kiosks: The last mile of ecommerce, actually getting products delivered to the end user, is still expensive and problematic. Team with Amazon, eBay, et al to add kiosks, lockers, etc. installed within the bank branch. A branch with a RedBox, BestBuy vending machine, Amazon lockers, FedEx drop-box, maybe some coffee for us caffeine addicts, would be a much more vibrant space.
  • Other professional services: Team with non-competing service providers such as Realtors, CPAs, tax prep services, law firms, tutors, insurance providers, investment advisors, to create a one-stop shop for a variety of needs.

It’s an exciting time to be involved in banking alt-delivery. Simultaneously maintaining a bank’s local presence, while dramatically decreasing long-term costs, is the kind of tricky business problem that will create new winners and propel the careers of those making the right bets.


1. Source: From the latest Digital Banking Report (formerly Online Banking Report), Bricks + Clicks: Building the Digital Branch, March 2015 (a great read and well-worth the price)
2. I am saying “most” traditional (i.e., large) branches are not viable in the long term, unless their business model or cost structures are dramatically changed. But that doesn’t mean there still won’t be thousands (maybe even tens of thousands) of profitable brick-and-mortar locations for the foreseeablfinovateEurope_bannere future. There just won’t be 100,000+

Picture credit: Retail Week

PS. Don’t miss 
FinovateEurope next month. 

Small-business Banking Strategies: Providing Peace of Mind (for a Fee)


Business owners are optimists. It’s a job requirement. So whether or not a small business is currently seeking capital, most hope to grow down the road, so the POTENTIAL to tap more funding is a huge factor when selecting a bank. It’s why small businesses have long sought to establish quality relationships with community banks or larger FIs.

But in the aftermath of the 2008-to-2012 downturn and all the negative press about the “credit crunch” (both real and imagined), business owners are less confident that their bank will come through for them when they need it. That’s why banks should offer credit to ALL small- and micro-business customers. It doesn’t have to be a large amount, or free of fees, or at an APR that would make the CFPB happy (it’s commercial credit we are talking about). FIs just need to demonstrate they have their client’s back.

small_bus_bank_iconAlong the same lines, most banks could do better providing peace of mind. The most important factors are transaction/payment reliability, service quality and, probably most important these days, security. Again, it’s about the peace of mind knowing that your bank will run your account flawlessly while keeping thieves at bay. And failing that, reimburse the losses without a business disruption.

These things cost money. But the good news is that businesses understand that and will pay for it. Most growing businesses are price-insensitive when it comes to their transactional bank account. It’s just not a material expense, especially if you factor switching costs. In fact, I have long stated that I’d be happy to pay $500/mo for a business banking account with my ideal mix of banking, security and accounting services.

That said, it won’t be easy to get to three-figure monthly fees for SMB banking. Here’s a more normal example, a fictional starter business bank account priced at $50 to $60/month ($10/mo less if paperless):

  • Checking account/debit card
  • Small-biz-branded mobile-banking app
  • Security and transaction alerts
  • Outbound payments (billpay, P2P, mPay, ACH)
  • Inbound payments (ACH, P2P, cards, mPOS)
  • Bundled credit facility (line of credit and/or credit card) with overdraft protection
  • $10/mo discount to go paperless (no paper checks, no paper statements, no in-branch deposits)
  • Credit score with alerts (sourced through Credit Karma)
  • Account scanning for fraud and questionable charges (sourced through BillGuard)
  • Loan concierge to help the business find funding (via alt-lenders if needed)
  • Basic accounting/money-management tools (outsourced to Mint, FreshBooks, Expensify, etc.)
  • Commercial eBanker (email night and day with same person if possible)
  • Fraud-loss guarantee for first $5,000, then $x/mo per $10,000
  • Multifactor security using mobile phone/GPS
  • Basic business property insurance for first $5,000, then $y/mo per $10,000
Graphic from alt-lender Kabbage


Six Digital Myths Hampering Banks’ 2015 Strategic Planning

wrong turn signs.JPG
In late summer, I published a two-part post detailing the most important retail banking projects for next year (here and here). I’ve got another installment or two in the pipeline, but since it’s already starting to feel like we are making our final descent into 2015, I wanted to take a step back and explain WHY those projects rose to the top. 

So here, in semi-prioritized order, are six myths that continue to hamper the strategic planning of retail banks (at least in the United States). 
Myth 1 >> Bank branches are needed for “complex” financial matters

: Branch banking is on the way out.
Prediction: The U.S. brick-and-mortar footprint will fall 30% to 40% by 2020.
  • I get that people like the local branch. My wife loved Blockbuster. My grandparents operated a much-loved corner grocery. But neither survived when the economics turned against them. Bank branches will survive in my lifetime, but their footprint (square feet & staffing) will decline 5% to 10% per year for the foreseeable future. 

  • Name one thing done in a branch that can’t be done more efficiently and/or more effectively through digital means or an ATM (let’s assume that the customer believes resolution can be obtained from either method). Sure, people still go to the branch for advice and problem solving since that’s a long-standing tradition and it’s comforting to talk to a nice person in a pressed blue shirt. But it’s also an inefficient way to get things done, for both the bank and the customer. My last trip to the branch was to open a college checking account at the bank we’ve held accounts for seven years (and whose associates know us by sight). It took an hour! And that doesn’t include the travel time for two trips to the branch (we forgot to bring a SECOND picture ID). It all could have been done in a few minutes online or via mobile had that option been available. 

Myth 2 >> Desktop online banking is still needed for “serious” work
TruthBanking by the desktop has peaked, too. 

Prediction: The amount of time spent banking online via desktop will fall 20% to 30% by 2020.
  • Many people still think that “important work” requires a browser and the real estate of a 13-inch screen. I agree for writing or design tasks, that’s true. But the average banking interaction amounts to looking at a few two- and three-digit numbers and typing a search term every now and then. Those things can be easily done on mobile. 

  • In fact, by building the UI mobile first, designers are forced to focus on the most important data elements, creating a better experience. 


Myth 3 >> Marketplace (P2P) lending won’t be used by “our” customers

Truth: Consumer and SMB lending could be disrupted by new players (but that’s far from a given). 

Prediction: Marketplaces take 5% to 10% share by 2020

  • I’m not one to throw “disruption” around lightly. In fact, it has never appeared in a title in my 10 years of blogging. Why not? Because I’ve been working in the online banking industry for 22 years and have seen nearly ZERO market share shift in the U.S. banking system over that time. The only major U.S. Internet-only success was ING Direct (now Capital One). And they don’t count because it was a division of a huge legacy player expanding their geographic reach. (Note: There has been market share shifts in the acquiring side due to PayPal, Square and others, but that was mostly wrested away from non-banks.)
  • But marketplace lending (aka P2P) is the first thing I’ve seen that actually is taking share away from legacy players. Lending Club is over $2 billion; Prosper and Zoka are over $1 billion; and SOFI is probably there as well. And there are more than 100 equity and debt crowdfunding companies funding small and medium businesses. While this is still small change in the multi-trillion consumer and SMB lending market, there are signs that these companies are posed to grab meaningful share. 
  • What makes the lending marketplace model potentially disruptive is that they can bring together large pools of capital with very different risk tolerances and price the loans dynamically, which is much harder for traditional players to do (though regulation is a wildcard here as marketplaces could end up with draconian “safeguards” that would render their risk-based pricing advantage moot)
  • But I don’t count out the big players yet. While it’s not easy, they can and probably will, copy the marketplace lending model, and perhaps continue their role as primary credit providers. However, having been a lending-product manager at a major bank, I can attest that it is extremely difficult to change historic patterns in loan underwriting. 
Myth 4 >> Consumers gravitate to best-of-breed providers for every financial need
Truth: Consumers HATE to proactively work on their finances and will often settle for what’s most convenient. 
Prediction: The primary “financial institution” (which can mean many things) will gain share of wallet going forward IF they integrate other services into online/mobile banking.

  • Ever since I’ve been involved, it’s been debated whether banks could be “the one-stop shop” for financial services. In the pre-Internet era, it was prohibitively expensive to put world-class mortgage bankers, investment advisors, insurance experts, remittance providers, SMB services, and so forth into the branch-based delivery model. 
  • But in today’s interconnected “API” world, that is not the case. The financial provider with the most trust — or as Richard Crone says, “The company that enrolls, controls” — can deliver the best of everything related to money management, retirement planning, value investing, and risk management/insurance. Consumers actually do gravitate towards one source if they believe it’s delivering value across disparate items. Case in point: Amazon.com. (Note: I penned my favorite report of all time around that theme, Building the Amazon.com of Financial Services (original in 1998, updated in 2000.)
Myth 5: Consumers trust YOUR security (it’s the others that keep letting them down)
Truth: Your customers are VERY AFRAID you’ll cause a nightmare scenario security-wise. Why do you think people log in so many times each week? 
Prediction: You can thank Apple for making biometrics mainstream.
  • I’m not sure how banks have gotten away with such lax consumer/SMB-facing security for so long. It’s a testament to the strength of their core businesses that they can cover billions in losses every year. 
  • It’s also an unintended consequence of offering all digital banking services free of charge. Every tweak to the website and mobile app are new costs without any tangible revenue bump (see Myth 6 below). 
  • But we are finally reaching the end of the username/password era with better authentication via smartphone, far more sophisticated back-end fraud-monitoring, and seamless biometrics (aka TouchID). I, for one, will be able to sleep better, knowing our business isn’t constantly on the brink of a devastating cybertheft.


Myth 6 >> Consumers won’t pay for digital banking value-adds
Truth: A lucrative segment of the population prefers deluxe or premium versions of goods and services. 
PredictionFinancial institutions are leaving BILLIONS on the table each year due to their lack of creativity in charging for value-adds. I give up trying to predict when it will happen, but once one of the Big-4 launches Platinum Digital Banking, the entire industry will rush to copy. 

Thoughts: I’ve written about this so many times, I’ll just point you to the most recent post (here).

Since our comments are broken, hit me up on Twitter @netbanker with your thoughts. 
Picture credit: Get your six-pack of wrong turn signs on eBay

Neo-Banking is Just Getting Started


Definition: Neo-Bank
Delivering banking services without touching the funds


This morning, Celent’s Stephen Greer published a post called, The Challenges of the New Neo-Bank, wherein he states:

In recent months, the neo-bank model (e.g., Simple, Moven, GoBank) has hit a few stumbling blocks that call into question the promise of the digital-only model…

Stephen lays out four scenarios for the future of neo-banks:

1. Neo-banks are acquired and assimilated into larger financial brands

2. Larger brands start their own digital “neo-bank-like” brands

3. Neo-banking fails to become a viable business model, but nevertheless influences the industry

4. Neo-banking becomes the dominant method of accessing underlying accounts held at traditional banks

My thoughts: We already see #1 and #2 happening, so the question comes down to whether we are headed long-term towards #3 or #4. Like most analysts, I’m firmly in the “it depends” camp. But I’ll go out on a limb a bit. I believe we will see dozens, if not hundreds, of neo-banks launch in the next few years. Here’s why:

image1. Simple’s $100-million exit to BBVA
I’m not sure how much equity the founders held at the end, but it must have been a multi-million dollar payday for five-plus years of hard work. While that’s not enough to make the cover of Forbes, it’s a huge win for most entrepreneurs.

2.  Marketplace lending provides a path to profitability
The problem with the neo-bank model in an era of low deposit rates and shrinking interchange, is that those traditional income sources are not enough to pay competent developers, execs and customer service folk. With consumers loath to pay fees, most startups end up forced into the ad-supported model, which strains their credibility with customers.

But with the growing popularity, and proven profit potential, of marketplace lending (aka P2P lending), neo-banks can partner with or build their own loan platforms to profitably put those deposits to work (sounds less “neo” and more “banking” doesn’t it?). So I envision the day where neo-banks allow you to store your funds in the prepaid account for no interest, or put it to work in a lending marketplace to earn a few percentage points on the funds, with the neo-bank pocketing a bit of the spread.

3. Third-party financial watchdogs become trusted services
Another advantage of being an independent neo-bank is that it’s easier to become an unbiased watchdog over all things financial. The neo-bank can track all your accounts (Mint/Yodlee), find areas where you are overpaying or have potentially been defrauded (BillGuard), monitor your credit score (Credit Karma) and even analyze the effectiveness of your 401k (Brightscope).

Right now, it’s still almost impossible for third-party startups to get to scale because customers just don’t trust them. But that will slowly change as the newcomers gain brand recognition (for example, Intuit’s Quicken, Quickbooks, and TurboTax brands).

4. It’s much, much harder to launch a real bank
Ten years ago, we were seeing about 10 new banks launched every month. Due to all the failures brought on by the Great Recession (and I would argue, way too much deposit insurance), there has only been one new bank launched in the past three years (through end of 2013). So, if you want to get a banking business started, you have little choice but to go with a non-bank model.


Comments? Give me a shout @netbanker

Picture credit: Article from NY Times, 20 Feb 2014 (link); sign in background from Simple HQ

Sales & Marketing: Preparing for a Future without Bank Branches

It’s been almost a year since my last branch rant (here), so I feel I’m due. As I’ve said before, as founder of a business tied to the success of digital channels, I’m totally biased, so proceed with caution.


During lunch at the Bank Innovations conference here, I engaged in a spirited debate about the value of branches. And later that week, I enjoyed Optirate’s rebuttal to The Financial Brand’s defense of bank branches. It’s one of the more highly charged, and important, issues of the day.

Here’s what it boils down to:

Branches have value…

         …but not enough to pay the rent

Since customers won’t pay directly for branches (see note 1), banks must cover their costs with low deposit rates, penalty fees and other charges. That has worked for a while, but eventually leaner competitors will figure out how to cherry pick the profitable customers/services. We saw ING Direct siphon off a few billion in deposits during the high-rate years and now we are finally starting to see alt-lenders making a small dent on the loan side ($1 billion or more each being originated this year by Lending Club, Sofi, and OnDeck Capital).

The writing is on the wall. The branch, as we know it, is on the way out (note 2).

But most banks have built their franchises by opening new accounts at branches. So what are the alternatives? There is no right answer as it depends on your strategies and customers, but here are some general ideas (note 3):

  • Provide state-of-the art online/mobile applications and onboarding (note 4)
  • Go after the kids of your current customers, then take care of them through major life stages so they never leave (note 5)
  • Increase your branded-ATM presence in your geographic footprint (apartment lobbies, large employers, etc.)
  • “Power the POS” with free card processing for your cards (if merchants steer customers to your card)
  • Partner with employers to provide banking as an “employee benefit” including a schedule of bank employee “office hours” for advice, help and limited transaction support
  • Focus on small and mid-sized businesses (including startups), and take staff directly to the business location
  • Drive traffic (foot and digital) to your merchant customers with relevant offers
  • Consider roving “mobile banks” that operate like food trucks, moving about the community and parking in high-profile locations (might as well sell cheese and bacon sandwiches too)
  • Participate in crowdfunding/P2P loan platforms to gather new assets (note 6)
  • Provide in-store/dealer financing (real-world and digital)
  • Co-locate with compatible service businesses (insurance, tax prep, real estate, etc.)
  • Have a presence at local events, festivals and street markets (portable ATM, water stations, bathrooms, etc.)
  • Get very involved in local real estate

I am not saying that all branches should be closed. Schwab proved that it pays to have at least one physical location in every major city. But branch costs need to be reduced fast.

It won’t be easy. Change is hard. Layoffs are VERY hard. And unproven digital strategies supplanting longstanding branch-based sales are risky. But I’m not sure there is any realistic alternative for the majority of financial institutions.


Embedded image used with permission of Getty Images.

1. It’s true that the same could be said about online or mobile channels. But, for the most part, the digital alternatives operate at a fraction of the per-user cost of branches.  
2. It’s a 40-year process, however (see OBR 128, April 2006, subscription).
3. For 500+ ideas, see our annual planning report (Sep 2013, subscription).     
4. See: Online Account Opening, OBR 168/169 (June 2009, subscription).     
5. See: Youth Banking, OBR 194/195 (July 2011, subscription).     
6. See: Crowdfunding, OBR 216/217 (May 2013, subscription).

Op Ed: Banks, Shop So Your Profits Don’t Drop

by Michael Nuciforo

Michael Nuciforo is a Mobile Banking Consultant at Keatan. He previously worked at ANZ on a number of developments, including goMoney, and more recently managed the UK retail portfolio as Head of Mobile Banking at RBS. Follow him @TheBoldWar.


image There were 2,277 of them last year totaling $45 billion. And no, that’s not last year’s football salaries. It was the volume and value of tech startup acquisitions. Yet banks barely participated. Could acquisitions be the mechanism for banks to rapidly innovate? Is it time for banks to shop before their profits drop?

Mergers and acquisitions have been part and parcel of the technology sector for over three decades. The industry wouldn’t be what it is today without it. Google Ventures invests over $400 million annually in a wide variety of startups. Facebook has already acquired over 35 businesses, with Instagram being the most notable at nearly $800 million alone. It’s big business indeed.

Why do the biggest, most successful and talented tech businesses, feel the constant need to acquire? It feels counterintuitive, but it makes perfect sense. The industry is so competitive that one day you’re My Space and the next day…well, you’re My Space. If executed correctly, acquisitions have four core benefits:

  • New Capabilities: Acquisitions are the quickest way to shift the dial or plug gaps in your offering
  • New People: It is a great way to bring on fantastic talent
  • More Protection: By buying the competition you can protect the status quo.
  • New Revenues: Acquisitions of cash-flow-positive businesses can immediately improve the bottom line

But where are the banks? Why do they seem to ignore the opportunity to acquire or partner? Of the 2,277 acquisitions in 2012, only three were by banks. We believe banks must start protecting their position by using strategic acquisitions to implement the new products and services.

image For inspiration, banks needn’t look far. Capital One, which has the sixth-largest deposit portfolio in the US, is already taking up the fight. Off the back of Capital Labs, its own start-up investment venture, the bank has established three offices in the United States. Startups can work there, obtain support and use Capital One API programs. Oh, and of those three bank start up purchases last year, Capital One completed two of them.

image In May 2012, Capital One acquired BankOns, a small San Francisco start up that won Best of Show at FinovateSpring 2011 (demo video here). It also purchased Bundle in late December (demo video).

BankOns provides a sophisticated offers and coupons program and Bundle is a data analytics and PFM platform. Besides acquiring the technology and intellectual property, CapitalOne has also had to find room for a new corner office. BankOns founder Joshua Greenough was installed as Director of Innovation immediately after the acquisition. Finally, Capital One has already made at least one acquisition this year, picking up Verifone’s Sail mPOS unit, and renaming It Spark Pay.

image The other big banking acquisition came from Chase which spent $40 million late last year on Bloomspot, an offers and coupons platform. Bloomspot comes with a 100-strong team instantly boosting the Chase Offers service. Chase had plans to hire substantially over 2013, and through the Bloomspot acquisition, they filled that gap instantly.

While these deals represent some progress by banks, it will be interesting to see if they pay off. There are numerous risks and considerations for banks looking to play in the tech M&A game:

  • Talent retention: Banks may have challenges integrating and retaining new talent. Entrepreneurs and startup talent may not find hierarchical banks the most exciting long-term place of employment. Banks should therefore place a premium on acquiring smaller start-ups with management teams with previous banking experience. They are more likely to take the step back into the industry and stay.
  • Risk aversion: Banks typically only like to work with recognized quantities, hence the fast follower mentality. Banks may struggle to commit to deals considered high-risk. Therefore, it may be better to invest in a small portfolio of smaller businesses rather than a single large deal.
  • Proving return on investment: It’s not easy to measure the true cost and revenues from a new business endeavour, especially within a large hierarchy of overlapping services. But showing that the deal paid off is the first step towards doing a sequel.

Ultimately, it is important to ensure that the vision and aspirations of both businesses are aligned. While fintech startups may not initially aspire to be acquired by a bank, money and scale talks loudest. Many of the giant payment companies such as American Express, Visa, and MasterCard have made numerous acquisitions.

With FinovateFall just three months away (Sep. 10-11), there is still time for banks to think strategically. Don’t go to just look around and swap a few cards. Don’t just think,”Can we replicate that?” Instead, go with a different point of view and figure out what businesses you could acquire or exclusively partner with. Decide whether you are looking for a particular capability, skillset, or to simply protect your turf. Look out for your own BankOns, Bundle or Bloomspot. In the banking industry, sometimes all you need is one other bank to do it and everyone follows. Oh, that’s already happened…

In Defense of Bank Branch Doubters

image Since I became an online banking proponent twenty years ago, literally betting my family’s future on it by starting Online Banking Report, I’ve been a bit pessimistic about the future of branch banking. My personal experiences both as a consumer, and small biz owner (one of the segments that supposedly needs the branch the most) have ranged from pleasant to mind-numbingly frustrating.

Yes, consumers like having branches around. Yes, consumers still go there to open checking accounts. And yes, consumers still value branch location when deciding where to bank. 

All those things are nice. And even the biggest branch bear recognizes that those are powerful positive attributes. And for the record, I’ve can’t recall anyone saying that branches will quickly disappear or "die" (at least not in the pre-Brett King era). Most of the doubters have simply said they expect branches to become less relevant over time (note 1).

My main problem has always revolved around the branch’s cost effectiveness. Sure, you open a few accounts every week at the branch, but what would happen if you had 50% fewer branches? Would you lose 50% of your new accounts? Or would 90% of those would-be-customers just go to one of your other branches or open via online/mobile (especially if you offered state-of-the-art online account opening technology). What’s the ROI of a branch network with 50% lower costs that opens just 5% fewer checking accounts? And could those cost savings be moved into efforts that more than made up for the 5% fewer accounts? 

There isn’t a single answer to that question. Some segments need the branch more than others. As Ron Shevlin pointed out two weeks ago, it depends on your strategy and execution.

But for the mass market, especially the next generation of parents, homeowners, and car buyers, the branch’s ROI (if it’s positive at all) will lag a similar investment made in alternative channels. Can I prove it? Nope, there are too many variables. It’s an exercise that must be carried out by each and every participant based on your market and strategies.

Bottom line: The bank branch will still be relevant for another few decades at least. But I’m willing to bet a copy of Bank 4.0 that the number of United States bank branches will fall at least 20,000 (20%) by 2020. Although, it’s not really about the number, it’s about reducing their overall cost. So if banks dramatically downsize the footprint, such as Wells Fargo’s new 1200 sq. footer in Washington DC, the total number of branches may stay at a relatively high level. 


1. In my 2006 report, The Demise of the Branch, I called it a "40-year cycle," specifically projecting a 40% decline in number of U.S. branches by 2025, with total square feet falling by 55%.

The Bank Branch as a Retail Sales Channel

Old Bank Hotel, Oxford, England

There has been much discussion about the future of the branch. We’ve weighed in on it a few times (note 2). And of course, we are completely biased towards remote channels.

While it’s clear that branch transactions are headed downwards, many still believe the branch has a reasonable future as a center of for sales and marketing. Logically, this makes sense because most of us opened our primary accounts in a branch way back when. 

But what’s the reality going forward?

Certainly branches are a good source of new accounts. But what is the acquisition cost?  I’m not going to pretend to know the answer, but it’s interesting to look at how many new relationships a typical branch opens in a month.

Ignoring routine cross-sold savings accounts, credit lines and such (important, but usually less dependent on branch sales personnel), how many brand new primary account relationships (e.g., centered around a checking account) are sold in a typical branch each month? Would you guess 50? 100? More? 

What if I told you it was about 2 per month in the United States, if you ignore the top-20% of high-performers? Would that change your thinking about the future of branch-based account opening?

I haven’t seen any figures on this, so bear with me while I do a back-of-the-envelope calculation, which I think proves the point, even if there are a number of unsubstantiated estimates here:

  • There are about 100 million U.S. households with bank accounts
  • Annual account churn is in the 10% to 20% range. Let’s call it 20%, so that’s 20 million households in play each year 
  • There are 100,000+ bank and credit union branches

So it’s pretty simple to see that 20 million new accounts divided by 100,000 branches = 200 new accounts per year per branch, or about 4 per week.

That may sound low, but it’s overstates the value of the typical branch considerably. More refinement is needed:

  • Not every household uses a bank branch to open a new relationship. Let’s say say that online/mobile/call-center captures a 20% share, that cuts the branch number to 160/year. 
  • And of the 160 customers that chose to open a new account in the branch, a good portion would still have opened an account at the same bank even if the branch had not been there (because of the brand’s reputation, advertising, word-of-mouth, employer referrals, etc.). Let’s call that 30% of the total.

So now, we are down to 10 million “net new” accounts delivered by branches, or about 2 each week per branch.

But that’s still overestimates the impact of the “typical” branch. Using the Pareto principal (80% of new-account volume comes from 20% of the branches), then 80% of the 10 million “net new” accounts, or 8 million, were opened by 20,000 high-performing branches. The remaining 80,000 branches opened just 2 million net new accounts (note 3). 

Bottom line: If my assumptions are in the right ballpark, the lower-performing majority of branches (in the 80%) opens just 2 net new account relationships per month. That means on any given day there is only a 1 in 10 chance that a net new account relationship will be established (note 4).

So, ditch that $2 million branch remodel, re-energize your online/mobile services and start driving prospects to your remote channels (note 5).


Update (9 PM): A reader (thanks Mr. Pilcher) noted that the business market is also a big factor in branch sales activity. Agreed. Using the same logic as above, assuming 7 million U.S. businesses with employees and 20% annual churn, each of the 80,000 lower-performing branches would add 2 new business relationships per year. But given their value, that could be more important than the 2 new retail relationships added per month. 

Math: (7 mil biz x 20% churn x 80% sold in branch x 70% where branch was deciding factor x 20% going to the lower 80% of branches) divided by 80,000 branches = 2 new biz relationships each year per lower-performing branch

1. Photo of the Old Bank Hotel in Oxford (UK), which was a bank for 223 years until purchased in 1998 to be renovated into a hotel.  
2. Our one and only report on the subject was published in 2006 here (subscription). There is nothing wrong with branches. Customers like them and they are important brand ambassadors. But most locations are just not cost effective in an increasingly digital world.
3. I realize that most branches open dozens of accounts every week; but here I’m trying to focus only on “net new relationships.” In other words, new household relationships that would have gone to the competition if the physical branch hadn’t been there. It’s impossible to measure, so this is complete speculation.
4. The higher performing group does about 15x that volume, or 33 new accounts per month.
5. Our latest report published last week, 2013 Guide to Online & & Mobile Banking Products, Pricing & Strategy (subscription), sheds some light on your priorities going forward.