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Retail Transition: Are You Prepared?
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February 2014
Retail Transition-How Much, How Soon, 
How Prepared Are You?
Robert GrasingPresident
 

  

Retail counter traffic in banks is already in steep decline. Changing customer behaviors, including the increasing use of mobile banking, electronic payments, direct deposit and ATMs are altering the way banking is done in the today's world. According to a recent article in the Wall Street Journal, the migration to online services has resulted in record branch closures. Soon, the discussion will shift to how prepared banks are for the inevitable end of checking in North America.

 

The top ten banks in the United States are already preparing for future changes in the industry. Last year we saw Bank of America shed more than 120 branches in an effort to reduce costs and position itself for the next wave. When one of the top ten banks decides to stop offering checking, how long will it take for other banks to react and how will they respond? Some will follow quickly in an effort to evolve the retail sales and service platform and, with it, lower cost of delivery. Others may opt to continue to offer checking - at least in the short term - and pick up the

converting bank's customers who still prefer a checking account. Others may grandfather accounts and run a two-tiered retail bank system.

 

Let's look at the numbers as they relate to community banks and see what is at stake. On average, over 80 percent of a bank's branch counter activity is check-based: deposits, cashed checks, split deposit and bill payment. Also, the teller position represents between 20 and 24 percent of the bank's staff and between 9 and 13 percent of the personnel cost. Add to that a high turnover rate and the costs for training and this creates an even greater opportunity to increase savings by reducing the number of tellers. Another factor is that branch facilities currently represent on average between 9 and 16 percent of community banks' other operating expenses. We could expect that, in the new projected environment, offices will be configured with less staff and a smaller branch footprint using desks and cash recyclers rather than teller lines. When you look at platform, tellers and branch management, this will reduce the staff of the average branch by nearly 50 percent. We project that a bank that has planned for the change will likely reclaim 11 percent of their personnel expense with the possibility of recouping an additional 11 percent of other operating expense. This must be offset by the projected possibility of lost deposits, fee income and referral opportunities for new business. The projected improvements in cost, however, prove to be so significant that it will be hard to justify the short-term strategy of "continuing to offer checking" while competitors improve their bottom line considerably.

 

How does a bank prepare for this transition?  The teller position is a high-turnover job in most banks so transition can be handled using attrition, retraining and transfer. A key issue will be to envision how the bank will serve the retail customer in a no-check environment. One step many banks have recently embraced is the concept of a "universal teller," who performs both teller and platform activities.

The more universal tellers a bank has, the greater the opportunity to shift seamlessly to the new model. One additional element to model is the number of branches, their locations and which locations will be needed in the new environment. Some branches serve simply as check-cashing locations with little new retail business opportunities. Each bank will plan their current and future clients' needs by location and the change in profitability when the shift takes place. People, process, technology, sociographics and new business analytics will determine how each bank plans for and executes this next major shift in retail delivery.

 

This is a time of uncertainty and change in the banking industry, and it's coming when bank profit margins are historically thin. The banks that will survive and thrive in the future are the ones that anticipate and prepare for the shifting market. 
 
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In today's competitive environment, obtaining the right information about your organization and how it compares with its peers is an opportunity to increase profitability.

 

Each year The Nolan Company conducts the only comprehensive, quantitative bank performance study of it kind for banks, credit unions and other financial institutions with over $900 million in assets. The results provide comparative line-of-business measures that help participating organizations identify gaps in income, expenses, staffing, and productivity.

 

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If you are interested in participating (at no charge) in our 2014 Bank Performance Study, feel free to contact Mike Meyer at [email protected]

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