Smarter Banking after the “reset”

Presented by

Presented to

BRANCHING AND DELIVERY AFTER THE “RESET”December 2, 2020

Steve WilliamsPresident and Partner

[email protected]

mailto:[email protected]

© 2020 Cornerstone Advisors Inc 2

BEFORE WE BEGIN…LET’S CONNECT!

1. Grab your cell phone2. Open your camera app3. Point the camera at the QR code – no need to take a picture4. A LinkedIn QR Code message box appears5. Tap the box6. Connect with me on LinkedIn!7. I will make sure to get you important Cornerstone research!

THERE HAS NEVER BEENA MORE IMPORTANT TIME…

FOR BANK EXECUTIVESTO THINK STRATEGICALLY


THE GREAT DIGITAL ACCELERATION


THE NEXT DECADE OF BANKINGDisruptions in other industries like travel (Expedia) and retail (Amazon) have trained consumers to expect faster, side by side comparisons, to help them save money.

This creates a huge opportunity for tech companies to reimagine financial services by leveraging data and lower-cost digital solutions to offer more personalization.

Jonathan Metrick, Chief Growth Officer for Portage VenturesForbes 9/20


BANK STOCKS HAVE BEEN HARD HIT

S&P 500KBW Regional Bank Index

THE DIGITAL SHIFT IS BECOMING A SHAREHOLDER VALUE PRIORITY IN BANKING


80%

70%

60%

50%

40%

30%

20%

10%

0%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2010 – 2020 WAS THE MOBILE FIRST DECADENow digital will begin to significantly disrupt shareholder value creation

Note: Online banking refers to access traditionally by a website on a computer while mobile banking is via an application on a phone or tablet.Source: Cornerstone Advisors, Javelin Strategy & Research

Online banking

ATMMobile bankingBranch

IVR

Perc

enta

ge o

f US

Bank

ed A

dults

Forecast

Channel Adoption at Primary FI • Financial institutions need to shift focus from basic adoption to deeper engagement.

• Success will be measured by an institution’s ability to offer the right experiences and feature set to build relationships and trust.


MOBILE IS DRIVING SATISFACTIONRedefining “Service”

Source: Cornerstone Advisors, ACSI

75

80

85

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Bank and Credit Unions12-Year ACSI Trends

Banks Credit Unions

1.30%

-1.30% -1.20%

-2.50%

National Banks Super Regional Banks Regional and CommunityBanks

Credit Unions

YoY Satisfaction Trends

For the first time in the history of ACSI measurement, banks overall show a higher level of customer satisfaction than credit unions.

For many consumers, everyday banking has gone mobile, and big banks have the resources to keep their digital platforms and apps up to date. And as technology improves, so too does customer satisfaction.


WHAT ARE WE SEEING? • Americans prefer using mobile apps

for managing their bank accounts

• More than half of Gen Z and millennials use mobile apps most often

• Consumer preference for mobile validates the importance of developing and implementing a robust digital banking strategy

• Commercial businesses are ready for a more robust digital experience and the next generation of leadership is demanding it.

Source: Morning Consult Survey: Bank Customers Use Mobile Most to Manage Accounts; ABA; November 12, 2020

36%

29%

17%

8%5%

2%

39%

32%

10%7% 6%

3%

Mobile App Online Bank Branches ATM Telephone Mail

How Americans Bank: Before and During Covid-19

Before Pandemic Since Pandemic

Presenter

Presentation Notes

Kim


BRANCH CLOSINGS WILL ACCELERATE POST-COVID

96,237

81,613

70000

75000

80000

85000

90000

95000

100000

Total Branches

Total Branches In U.S.

2010 2020$96.40

$190.10

0

50

100

150

200

Total Branches

Deposits Per Branch ($Millions)

2010 2020

POLLING QUESTION

How many branches in 2030?

80,000 #

FINTECH IS CAPITAL-RICH AND CHANGING CUSTOMER EXPECTATIONS


FINTECH HAS HEIGHTED CONSUMER EXPECTATIONS


IT’S NOT JUST TECH - FINTECH'S ARE BRANDING BETTER


DIGITAL BANKS

Now a top 10 bank?

And doesn’t include…

Source: Cornerstone Advisors

Success of Easy Account Opening

$14.5 billion recent valuation of Chime


IMPACTS OF COVID-19

Source: Cornerstone Advisors

(as of July ‘20)

“While the digital banks made huge gains in primary bank status during the first half of 2020, they’ve done so predominantly at the expense of community banks and credit unions.”

Ron Shevlin, Director of ResearchCornerstone Advisors

2020 Survey of US ConsumersNumber of adults who consider a digital bank to be their primary bank

Jan 2020 July 2020

14.2 million

8.5 million

An Accelerated Trend


Student Loan Financing

Checking / Savings Trust Accounts Credit Cards Student

Lending

Mortgage Lending

Small Business Lending

Commercial Deposits and

Lending

Cash Management

Credit Card Debit CardConsumer

Line of Credit

Prepaid Cards

P2P Payments

Business Payments

Business Lending

Merchant Financing

Personal Lending

Mortgage Lending Home Equity Investment

Accounts

Retirement Accounts

Personal Cash Management Debit Card Insurance

Accounts

FINTECHScaling By Entering New Verticals

Online Payments Peer-to-Peer Lending

Initial Focus Initial Focus Initial Focus

Founded: 2011Revenue: $550 million

Founded: 2002Revenue: $17.8 billion

Founded: 2006Revenue: $550 million

Current Offering Current Offering Current Offering

STOP THINKING ABOUT TRANSACTIONS…WE HAVE ENTERED A NEW ERA IN SELLING

AND ENGAGING CUSTOMERS


BIG BANKSOwn Retail Banking

Note: ‘Big Banks’ include Chase, Bank of America, Wells Fargo and Citibank

• Targeting large, fast-growing expansion markets

• Chase has reported that 2/3 of the accounts in the new markets have been through digital channels

• Ability to invest across all business lines

• Invest in new tech and existing tech

• 100 million estimated active mobile banking users

• Bank of America reports roughly 30% of total sales are through digital channels

• Hold over 40% of all deposits• Preferred institutions by 44% of

Millennials

Billion Dollar Tech Budgets

Shifting Customers To Digital

Targeted Expansion While Reducing Existing Network

Growing Deposits at a Faster Rate


S e r v i c i n gF i n a n c i a l

M a n a g e m e n tM a r k e t i n g

O r i g i n a t i o nA n c i l l a r i e sM o n e y

M o v e m e n t

DIGITAL & PAYMENT TRANSFORMATIONWhat your customer expects to find in their digital & payment offering


PERSONALIZATIONA Differentiator For Financial Institutions

Source: Cornerstone Advisors, Total Expert, Digital Banking Report

Of those that do use some level of personalization in marketing campaigns, the highest number indicated that first-name personalization was as far as they go.

65% 27% 19%of institutions say they do not use data as often as

they should to educate and cross-sell customers.

say they do minimal or no personalization in their

marketing.

say they don’t use data-driven insights at all.

• Consumers are beginning to expect that their financial institution to understand their needs and deliver personalized solutions.

• Financial institutions can take what they already “know” indirectly about an individual (from transaction data and other sources) and transform this data into insights that are predictive, personally relevant and useful.

IT’S TIME FOR TRADITIONAL BANKS TO TRANSFORM INTO SMARTER BANKS


STRATEGYDATA

TALENT

VENDORS

TECHNOLOGY

EXPERIENCE

BUILDING THE SMARTER BANK

Focus Your STRATEGY on Crucial Bets

Actively Manage a Vendor and Partner Ecosystem

Make TECH a Top-Down Discipline

Engineer EXPERIENCE to Drive Revenue

Leverage DATA for Breakthrough Performance

Create a Network of Connected TALENT


The Smarter Bank Will Transform Its Financial Model

• Smarter Bank Executives will free up 50 – 75 bp from their current legacy expenses and reallocate to technology, digital, data, marketing and talent development over the next decade.

• A Smarter Bank will be stronger growth, lower-margin, higher efficiency with intelligently managed risk.

• Smarter Banks are likely trade at a 50% plus multiple premium to legacy banks.

THE NEXT GEN BANKING ECONOMIC MODEL


NEW ANALYTICS ARE NEEDED TO DRIVE “RETURN ON CHANNEL”

Revenue ValueCurrent year revenue from channel

volumes (Consumer Loans, New Deposit Accounts, etc.)

Direct ExpensesAnnual direct channel expenses

(Facilities, Technology, Staff)

How much revenue are we generating in channels from annual production?

How much are we spending on channels to generate new volumes and retain?

Servicing Value Income from existing deposits

Total ROCReturn on Channel

How much income are we generating in each channel? Are we getting positive returns on the $ we are spending?

How much value do we allocate based on usage?


ARE YOU DELIVERING THE BRANCH OF THE FUTURE?

Visibility in market is a critical strategic role

Facility and staffing costs greatly reduced with “universal” skills

Paperless and digital enabled

“Anywhere Bankers” digitally and socially active drive sales

Enterprise lead and service event pipeline drives the organization.

Picture courtesy of Bank of Australia


BUILDING A METRIC-BASED DISCIPLINE AROUND DIGITAL

POLLING QUESTIONA. Reacting and ScurryingB. Finishing First StageC. Maturing in Later StagesD. Arrived and Innovating

A. B. C. D.


DISCIPLINE IS HARD WHEN DISRUPTION AND TECH IS EXCITING


YOUR JOURNEY TO SMARTER BANKING Acquire transformational talent and move faster on digital, marketing, analytics and

customer experience. Link the details of execution road maps with the strategy – “god is in the details” Quantify the costs and risks of the digital shift across the entire delivery system –

this is a shareholder value issue!Modernize commercial banking at the same pace as retail banking – this can’t wait! Build enterprise dashboards and benchmarks to provide visibility and accountability

for the next wave of efficiency Drive impact with vendors and partners – this takes 200% more time and requires

expertise


IN CASE YOU MISSED THE OPPORTUNITY TO CONNECT…

1. Grab your cell phone2. Open your camera app3. Point the camera at the QR code – no need to take a picture4. A LinkedIn QR Code message box appears5. Tap the box6. Connect with me on LinkedIn!

THANK YOUSteve WilliamsPresident and Partner Cornerstone [email protected]

Check out our blog:gonzobanker.com

http://www.crnrstone.com/

mailto:[email protected]

Smarter Banking after the “reset”

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