Cambridge Savings Bank Capstone Digital Channel Strategy

Brenda Tam, Kevin Chaves, & Philip Mustone

December 18, 2019

TABLE OF CONTENTS EXECUTIVE SUMMARY ...... 3 INTRODUCTION & BACKGROUND ...... 6 Cambridge Savings Bank ...... 6 Current Demographic Footprint ...... 7 Deposit Growth for a Community Bank ...... 10 Change in the Banking Industry ...... 12 Expanding Our Footprint ...... 13 STRATEGY & IMPLEMENTATION ...... 15 Digital Channel ...... 15 Why does CSB want to Implement? ...... 16 Preferred Channel for Consumers ...... 20 Buy, Partner, or Build? ...... 24 Implementation Schedule ...... 25 Looking Ahead & Future Opportunities ...... 30 FINANCIAL IMPACT ...... 31 CSB’s Retail Deposits...... 31 Branch & Digital Comparisons ...... 33 Peer Group Comparisons ...... 42 NON-FINANCIAL IMPACT ...... 44 Company Management ...... 44 Employees ...... 45 Multi-Factor Authentication ...... 46 Monitoring Transactions ...... 47 Fraud Awareness ...... 48 MARKETING...... 49 Marketing Strategy...... 49 Communication Strategy ...... 50 Sub-Branding & Stand-Alone Brand Considerations ...... 50 Digital Marketing ...... 52 CONCLUSION ...... 54 BIBLIOGRAPHY ...... 55

EXECUTIVE SUMMARY

Cambridge Savings Bank was established in 1834 and is a full-service financial institution with approximately $4.1 billion in assets. There are currently 16 branches and the headquarters are in Waltham, Massachusetts. CSB is a mutual savings bank and operates for the benefit of their depositors, borrowers, and surrounding communities.

The bank currently operates in the Middlesex County and is looking to expand its footprint and increase deposit share. Middlesex County is one of fourteen counties with a median property value of $511,700 with a homeownership rate of 62.7%. The strong economic environment of the county bodes well for CSB and in determining the target market to implement a digital channel, a similar focus area may have the most potential for CBS’s future deposit growth.

Banks are currently facing serious funding challenges and have been for the past five years due to a competitive market and a shift in consumer behavior. Financial institutions are in competition against each other and are constantly offering rate promotions to attract customer deposits. Without deposits, banks have had to shift to higher rate liabilities such as FHLB advances and Brokered CDs to fund loan pipelines.

Banking consumer behavior has been shifting as technology becomes more advanced.

Statistics show a vast majority of 18-to-24-year-olds rely on their mobile phones to perform their daily tasks, as well as their banking. As reinforced by many channel use studies, the penetration of mobile banking decreases as age increases. This proves that a digital channel is crucial to prepare CSB for the future.

A digital channel comes with rewards as well as risks. Some of the rewards of a digital channel are:

 Savings Products with Attractive Rates

 Lower Fees

 Online Experience

 Overhead

 Convenience

 Peace of Mind

Some risks include but are not limited to the following:

 Online Branding

 Cannibalization of deposits

 No personal relationships

 Longer hours for Customer Contact Center

Weighing the risks and rewards will be an immense part of the process to consider whether a digital channel is the right path for CSB.

The most recent physical branch location of Cambridge Savings Bank was opened in

February 2018. Through November 2019, this branch has been able to generate roughly $20 million in deposits. Even with this deposit growth, current projections show the branch will become profitable in the year 2022; five years after opening. This is due to the high initial

4 investment of $1,400,000 that was related to the construction of the building. With a digital channel, this cost can be omitted since there will be no physical building needed. Also, according to the most-likely income and expense projections for the digital channel, it can become profitable after year three; two years earlier than a physical retail branch location.

Based on the competitive landscape of where CSB operates, it must implement a digital channel to grow deposits, fund the lending pipeline, and expand its footprint. Customers prefer to open accounts online and look for prominent digital platforms. To remain competitive, CSB must establish this digital channel.

Building the channel with CSB internal resources will enable full management control of the development process, provide the current staff to develop additional talent and skills, and

CSB will own the entire platform. CSB will create a team from various departments to collaborate ideas, piece together components, and review all risks involved. The initial product offerings will be Savings and CDs.

CSB’s strategic goal is to attain new deposits. In order to ensure the online channel is successful, the digital implementation plan must include a breakdown of a marketing and communication strategy, branding, and digital marketing. The marketing strategic focus will be determined based on consumer interests, behaviors, and motivators. The communication full- press strategy will include news announcements, promotions, and a media campaign aimed at the selected targeted area. Creating a stand-alone brand best fits into CSB’s marketing strategy for the digital channel. A Stand-Alone Brand affords the ability to experiment without directly impacting the CSB brand. Finally, CSB will create various Key Performance Indicators (KPIs) in order to measure and track how successful the digital marketing is through the customers’ journey.

As CSB continues to move forward in the digital world and build a digital presence, the bank needs to create a solution that meets the customer’s needs and expectations. The implementation of a digital channel at CSB is crucial for the bank to expand the footprint, grow and attain deposits, and become digitally focused.

INTRODUCTION & BACKGROUND

Cambridge Savings Bank

Cambridge Savings Bank was established in 1834 and is a state-chartered, mutual savings bank headquartered in Waltham, Massachusetts. It is a full-service financial institution with approximately $4.1 billion in assets that is committed to improving the quality of life in the communities it serves. One of the oldest and largest community banks in Massachusetts,

Cambridge Savings Bank offers a full line of individual and business banking services and has branches located in Arlington, Bedford, Belmont, Burlington, Cambridge, Charlestown,

Concord, Lexington, Newton, and Watertown.

Originally, mutual savings banks were organized to help the working classes because most commercial bankers at the time primarily served retail and commercial business. Mutual saving banks provided a safe place where the small saver could deposit money and earn interest.1

Today, Cambridge Savings Bank continues the tradition of operating for the benefit of their depositors, borrowers, and surrounding communities. To learn more about Cambridge Savings

Bank’s culture and further details about the Bank, please watch the Brand Essence video at https://youtu.be/PScWDOx05yct or visit the Bank’s website at www.cambridgesavings.com.

Current Demographic Footprint

Cambridge Savings Bank, CSB, primarily operates in Middlesex County which is one of fourteen counties in the State of Massachusetts. The 2016 American Community Survey

1 FDIC, https://www.fdic.gov/regulations/resources/mutual/

7 prepared by the US Census Bureau, states Middlesex County is the twenty-fifth highest-income county in the United States by median household income.2 The median household income in

Middlesex County is $98,555 which grew 3.47% over the last year. The median age in

Middlesex County is 38.4 years. As of August 2019, CSB’s income demographic breakdown is illustrated in the table below:

Income # of Individuals % < $20,000 2,693 4.65 $20,000 - $29,999 1,654 2.85 $30,000 - $39,999 2,836 4.89 $40,000 - $49,999 2,579 4.45 $50,000 - $74,999 9,860 17.02 $75,000 - $99,999 10,145 17.51 $100,000 - $149,999 12,251 21.14 $150,000 - $174,999 7,074 12.21 $175,000 - $199,999 1,208 2.08 $200,000 - $249,999 1,795 3.1 $250,000+ 2,981 5.14

Age # of Individuals % 18-25 3,626 6.26 26-35 7,396 12.76 36-45 7,968 13.75 46-55 8,895 15.35 56-65 9,243 15.95 66+ 13,289 22.93

Currently, CSB has a total of 39,533 households which represents 6.7% of Middlesex

County. As of 2018, the estimated population was 1,614,714 making it the twenty-second most

2 Wikipedia, https://en.wikipedia.org/wiki/List_of_highest-income_counties_in_the_United_States

8 populous county in the United States and the most populous county in both Massachusetts and

New England.

The median property value in Middlesex County is $511,700 and the homeownership rate is 62.7%.3 The median price of homes currently listed in Middlesex County is $599,000 while the median price of homes that sold is $515,000.4 As of August 2019, CBS’s home value profile is illustrated in the table below:

HOME VALUE # of Individuals % < $150,000 2,099 3.62 $150,000 - $299,999 7,670 13.24 $300,000 - $449,999 8,158 14.08 $450,000 - $774,999 19,706 34.01 $775,000 - $999,999 8,751 15.1 $1,000,000+ 7,525 12.99

The economy of Middlesex County employs 884,000 people and is specialized in

Professional/Scientific/Tech Services, Educational Services, and Information, which employ respectively 1.92, 1.5, and 1.35 times more people than what would be expected in a location of this size. The largest industries in Middlesex County are Healthcare & Social Assistance

(131,091), Professional/Scientific/Tech Services (130,089) and Educational Services (120,457), and the highest paying industries are Finance & Insurance ($90,261), Management of Companies

& Enterprises ($102,611), and Professional/Scientific/Tech Services ($91,403).5

3 DataUSA, https://datausa.io/profile/geo/middlesex-county-ma#housing

4 Zillow, https://www.zillow.com/middlesex-county-ma/home-values/ 5 DataUSA. https://datausa.io/profile/geo/middlesex-county-ma#economy

In markets across the U.S., there is a direct correlation between employment levels and deposit growth rates. On average, for every percentage point decline in the unemployment rate, the rate of deposit growth increases by seven-tenths of one percentage point.

The strong economic environment throughout the county bodes well for CSB. In determining which target market for CSB to implement a digital channel, a similar area may have the most potential for CBS’s future deposit growth.

Deposit Growth for a Community Bank

The banking industry, especially community banks, are facing a serious funding challenge. Through September 2019, CSB’s total deposits are behind budget by $20 million.

Even with implementing basic strategies, such as, offering attractive deposit specials and targeted market promotions, the bank is still unable to meet the deposit expectation. To fund the growing lending pipeline, CSB has had to utilize more expensive sources such as brokered CDs and FHLB advances.

For both community banks and non-community banks, deposit growth has seen a rapid decline over the past five years. According to the ABA Banking Journal dated December 2018, year-over-year deposit growth at community banks was at 4.9 percent, trailing the five-year annual rate of 5.1 percent. Non-community banks, meanwhile, saw deposit growth of 3.6 percent, well below their five-year average of 5.5 percent. Over the past five years, however, deposit growth at non-community banks has outpaced that at community banks.

Deposit market share is a way of measuring the size and performance of a bank. It is the amount on deposit at a bank divided by the total amount on deposit at all banks.6 The competitive landscape in Middlesex County is comprised of 53 institutions, with 503 offices, and over $65.3 billion in deposits.7 The pie chart below highlights the top 10 institutions in

Middlesex County which represent 294 offices (58.5%) and $45.5 billion in deposits (70%). As of June 2019, CSB is sixth on the list with 4.64% in market share.

Market Share as of June 2019

2.80% 2.71% 4.50% 3.49% 23.22% 4.64% 4.92% 5.00% 5.88% 12.55%

Bank of America, National Association Citizens Bank, National Association TD Bank, National Association Middlesex Savings Bank Century Bank and Trust Company Cambridge Savings Bank Santander Bank, N.A. People's United Bank, National Association Northern Bank & Trust Company Cambridge Trust Company

In Middlesex County, the commercial banks of Bank of America, Citizens Bank, and TD

Bank represent 162 offices (55%) and over $27 million in deposits (60%). Middlesex Savings, a mutually owned savings bank within CSB’s peer group, is ranked 4th in deposit share with $3.2 billion in deposits (5.00%). CSB has 16 offices compared to Middlesex Savings’ 32 offices.

6 Wikipedia, https://en.wikipedia.org/wiki/Deposit_market_share

7 FDIC, https://www5.fdic.gov/sod/sodMarketRpt.asp?barItem=2

With half the amount of offices than Middlesex Savings, CSB impressively holds over $3 billion

in deposits (4.64%), which is just 0.36% less market share.

Massachusetts Outside of Inside of

Middlesex County Market Market

No. of Deposits No. of Deposits Market

Institution Name Offices $000 Offices $000 Share

Bank of America, National Association 4,278 1,338,515,629 57 15,171,176 23.22%

Citizens Bank, National Association 1033 117,048,053 72 8,198,258 12.55%

TD Bank, National Association 1,211 254,731,471 33 3,841,615 5.88%

Middlesex Savings Bank 10 933,883 22 3,264,661 5.00%

Century Bank and Trust Company 15 883,119 12 3,214,750 4.92%

Cambridge Savings Bank 1 16,014 16 3,030,536 4.64%

Santander Bank, N.A. 569 55,201,945 44 2,937,131 4.50% People's United Bank, National 398 37,555,080 16 2,277,802 3.49% Association

Northern Bank & Trust Company 0 0 14 1,828,247 2.80%

Cambridge Trust Company 9 561,385 8 1,772,419 2.71%

Change in the Banking Industry

Over the past several years, consumer banking behavior has changed where a digital

presence is crucial to a bank’s overall success. Consumers in the 18 to 24-year-old bracket rely

heavily on their mobile phones to perform their banking. Of this demographic, 82% of these

12 utilize mobile banking. As reinforced by many channel use studies, the penetration of mobile banking decreases as age increases. Only 29% of Baby Boomers reported using mobile banking.

Therefore, in order to prepare the banking industry for the next generation, digital channels are vital. While income level is positively correlated to digital banking use, affluence doesn’t have as much of an impact on the behavior of the youngest and oldest consumers. What this means is that determining channel preference goes beyond simple demographics (age and income), requiring deeper analysis of consumer behavior, product use and life stage. For many consumers, the use of channels is even based on the type of transaction and geographic location. According to the research report, “For a bank to deliver against its customers’ needs, it now needs very sophisticated analytics and personalization capabilities.”8

Expanding Our Footprint

The development of a digital channel is a major opportunity, as evidenced by recent trend analysis, and would allow Cambridge Savings Bank to expand geographically and reach new audiences, broadening its ability to enhance our deposit acquisition strategies. Launching a digital only channel with unique branding and offerings for targeted markets outside of CSB’s footprint will allow the bank to generate deposits from different market shares.

In determining where our expansion should take place, some out-of-footprint factors to be considered are:

 Location Demographics

8 The Financial Brand, https://thefinancialbrand.com/65628/digital-banking-consumer-trends/

o Income

o Employment level

o Age

 Banking Landscape

o Competitors

o Interest rate environment

 Consumer Digital Behavior

o Preferred banking methods

o Product use

In summary, due to the changing banking industry parlayed with an ongoing deposit need, a digital channel will allow CSB to fund an ever-growing lending pipeline and attract/retain new relationships. The earnings from the digital channel will enable CSB to offer the products and services required to address our customers’ ever-changing needs and desires, to continue to serve as a strong community partner, to provide enhanced career opportunities, and an improved standard of living for our employees.

STRATEGY & IMPLEMENTATION

Digital Channel

With the Banking industry evolving, many traditional banks are pursuing a digital channel. According to recent research, digital deposit growth continues to excel in the United

States. Digital deposits grew by 18.8% in 2018 compared to branch deposit growth of 3.6%, and total deposits of 3.9%. 9

It is also shown that customers prefer to open accounts through a digital channel instead of stepping into a brick and mortar. This could be due to the ability to open an account during off hours and at the convenience of the customer. Internal data at CSB shows that our current account openings through CSB’s website generated more new consumer account openings than any of its physical branch locations.

9 S&P Global Financial Intelligence, https://www.spglobal.com/marketintelligence/en/campaigns/snl-financial

Currently, CSB’s deposit offerings are only available to those that reside or work in New

England. The implementation of the digital channel will allow CSB to generate new deposits from markets outside of New England and expand our customer base. These newly acquired deposits come at a higher cost, but the offset is minimal overhead expenses; such as rent, utilities, etc. for a branch location. Due to lower overhead costs, the proposed online platform can offer higher competitive rates than traditional banks.

Why does CSB want to Implement?

The competition for deposits is heating up. Attaining new deposits to fund the lending pipeline has become increasingly difficult. Organic growth is vital to CSB’s strategic plan, but it is not enough. To grow the balance sheet, CSB needs to implement an alternate channel to generate more deposits. Some of our competitors have already established a digital channel and

16 have become more digitally focused. Now is the time for CSB to progress from being digitally active to digitally focused.

As it is in any decision-making situation, there are rewards and risks to evaluate. Some rewards of implementing a digital channel are:

 Savings Products with Attractive Rates

o The initial products offered through the digital channel will be Savings

accounts and CDs. With the elimination of overhead costs that are associated

with physical branches, digital channels can offer higher yields on these

products than the traditional bank.

 Lower Fees

o On average, brick-and-mortar branches have higher transaction costs

compared to online transactions. The savings can be passed along to the

customer by reducing account fees; such as, overdrafts, returned deposited

items, regulation D violations, early termination fees, etc.

 Online Experience

o As we strive to deliver outstanding customer experiences in the physical

branches, implementing a best-in-class online experience is a top priority for

the digital channel.

o Account openings online can also be quicker and easier for the customer.

Instead of meeting a person face to face, they have an option to do it

themselves; therefore, eliminating both travel and wait time.

 Overhead

o A digital channel offers significant cost-savings on CSB’s expenses.

Expenses such as; lease/rent, utilities, equipment, courier services, etc. are all

drastically reduced or eliminated.

 Convenience

o With a digital channel, banking is done on the customers own-time. There is

no need to wait for the branch to open the doors and the customer can transact

at any given time.

 Peace of Mind

o Incorporating state of the art security measures; such as, encryption and fraud

monitoring, can give customers peace of mind when it comes to keeping their

money and personal information safe. In addition, consumers are always

looking for their deposits to be protected. The monies acquired through the

digital channel will be insured by the FDIC’s current limit.

Even though the list of rewards are so appealing, there are some risks for CSB to consider; such as:

 Online Branding

o CSB has had their presence in the community for over 185 years and has

established long and loyal relationships. Using our existing name and logo on

a new digital venture is a risk to our brand as we experiment with this channel.

Any negativity from the early start of the digital channel can impact CSB’s

brand.

 Cannibalization of deposits

o While the digital offer is marketed to acquire new relationships, there may be

instances where an existing CSB customer wants to take advantage of the

attractive online rates. Transferring deposited funds from CSB’s current

accounts to the digital channel cannibalizes current deposits.

 No personal relationships

o Part of CBS’s essence is creating relationships beyond transactional banking.

Every customer is treated like they are the only customer. A digital

relationship diminishes the values CSB so strongly focuses on; getting to

know the customers and having the privilege to give back to the communities.

 Longer hours for Customer Contact Center

o With a digital channel, there will be a staffing need to have a CSB

representative available for customer/prospect calls, which will increase the

bank’s salaries expense. Increasing the hours of the contact center will allow

CSB to assist customers from across the United States.

In CSB’s three-year strategic plan, retail banking is tasked to grow deposits by $600 million or roughly 9%. Based on internal analytics, there is an opportunity for CSB to attain over $400 million in deposits in the cities and towns where the bank has a presence. Based on the competitive landscape of CSB’s footprint, it is not realistic for the bank to monopolize and

19 attain all available deposits. Additionally, customers could use these deposits for large purchases, emergencies, investment opportunities, and more. The digital channel is the only avenue that would make it possible for CSB to grow deposits organically and generate $600 million to hit the target of the three-year strategic plan.

Preferred Channel for Consumers

Banks have historically expanded branch networks to drive market exposure, increase customer acquisition and support deposit growth.10 Consumers have usually defined banking convenience as how close a branch was to their home or work. With the growth in digital technology and the increased acceptance of online and mobile banking, access to banking products and transactions is no longer tethered to a physical location, resulting in a redefinition of convenience.11 Currently, the preferred channel for consumers in defining convenience is having a prominent digital platform.

10 Financial Brand, https://thefinancialbrand.com/66357/digital-banking-branch-preference-trends/

11 Financial Brand, https://thefinancialbrand.com/66357/digital-banking-branch-preference-trends/

The Novantas survey found that 79% of consumers are doing at least some of their shopping for new accounts digitally, with 54% using only digital channels. These digital-only shoppers are both older and wealthier, with the size of the digital-only shopper category increasing in size.12

12 Financial Brand, https://thefinancialbrand.com/66357/digital-banking-branch-preference-trends/

The importance of investing in digital capabilities has never been greater.13 With consumers only considering two banking organizations in their shopping process, and doing their shopping on digital channels, coming in third is not a viable long-term strategy.14 In order for

CSB to compete in this digital avenue, it must not only have a strong digital banking offering, but also promote the digital channel.

According to the American Bankers Association, online & mobile are most used by

Americans.15 The most utilized banking methods broken down by age further emphasizes the preferred method for consumers.

13 Financial Brand, https://thefinancialbrand.com/66357/digital-banking-branch-preference-trends/

14 Financial Brand, https://thefinancialbrand.com/66357/digital-banking-branch-preference-trends/

15 ABA, https://www.aba.com/news-research/research-analysis/preferred-banking-methods

As the statistics indicate, regardless of your age demographic, internet and mobile banking continues to be the emerging preferred method of banking. As these preferences continue to grow, CSB’s resources must be dedicated towards the establishment of the digital platform to build on consumer demand and to avoid the risk of losing deposits, market share, etc.

Buy, Partner, or Build?

There are three tactics to achieve any growth strategy: Buy, Partner, or Build. To implement a digital channel, each approach should be evaluated to determine the best optimal growth strategy and best fit for CSB.

Buying another bank or fintech company that currently has an established digital channel is the fastest way to enter new markets and attract new customers, attain new deposits to increase the balance sheet, and acquire new expertise from experienced individuals. But there is also potential downside, especially if the target organization doesn’t fit well with CSB. Many acquisitions fail to live up to their expectations because the acquiring company hasn't done their due diligence; such as different cultures and the wrong mix of talent. Acquiring another organization is not an implementation strategy, but rather a tactic to achieve deposit growth.

Although this option may be the best approach for other situations, buying an institution with a digital channel already in place does not fit CSB’s strategic plan.

Partnering with another bank or fintech company is another way that can allow CSB to implement a digital channel. Great partnerships bring out each other’s strengths. Each partner has its own set of resources, employee talent, and access to different markets. One downside of partnering, however, is splitting everything down the middle. All the additional income, new customer base, and newly attained deposits will need to be split equally. All the decision making, expenses incurred, and other potential risks also need to be split among the two partners.

Partnering has its advantages and disadvantages, but to implement a digital channel, the contractual complexities of a partnership also does not fit CSB’s strategic plan.

Building the digital channel by utilizing CSB’s internal resources will enable full management control of the development process, provide the current staff to develop additional

24 talent & skills, and in the end, CSB will own the entire platform of a digital channel. This internal innovation is the most suitable strategy for CSB to implement a digital channel.

Allowing management to have full control of the digital platform from end to end will be beneficial to maximizing the digital channel to its fullest potential. Between the bank’s project management team and online banking department, the digital channel can be developed in-house by knowledgeable CSB employees. They can tap into all the other areas of the bank; such as

Retail, Marketing, Finance, Compliance, Operations, etc. to create a committee for their expertise. Creating an internal team also allows CSB employees to further develop their skills and talent.

Building a digital channel from the beginning comes with some risks as well. It generally takes more time than buying or partnering and it is possible to suffer the consequences of big mistakes; such as, loss of capital investment, lack of knowledge, and unwise decisions.

Implementation Schedule

The chart below identifies all the tasks necessary to complete the implementation of the digital channel. The schedule is an important part of planning because it will become the tool to use for monitoring and evaluating the phases of this strategy. CSB will create a team of individuals from various departments of the bank to collaborate ideas, piece together components, and review all risks involved based on the scope of the project. The department representatives involved in this project will be:

 Online Banking & Product Manager

o Currently, the Online Banking & Product Manager oversees all aspects of

online and mobile banking, therefore, this individual should lead the

development of the digital channel.

 Senior Project Manager

o This individual will track the progress of the overall project including the

organization and planning of meetings, achieving milestones, and

maintaining a risk register.

 Senior Marketing Manager

o This individual will handle vendor proposals, advertisements, and

branding.

 Retail Management

o Kevin and Phil can provide an overview of the competitive landscape, a

good understanding of what customers want and are looking for and are

well-informed about the current financial management tools that

customers want and need to control their finances.

 Head of Compliance

o This individual will support the project by understanding the various

regulatory requirements and enforce policies.

 Chief Risk Officer

o The individual will review and monitor risk metrics related to legal,

finance, reputation, and operations.

 Treasury Manager

o Brenda can analyze profitability on product offerings and calculate the

income and expenses associated with loans and deposits.

 Chief Operations & Information Technology Officer

o This individual will ensure all tools integrate and are compatible with our

core operating platform.

 Chief Operating Officer

o This individual will serve as the executive project sponsor and approve all

milestones achieved.

Brenda, Kevin, and Phil will be involved throughout all scopes of the project. Their respective areas of expertise will provide informative insight and contribute different perspectives. This project affords Brenda, Kevin, and Phil the opportunity to strengthen their skill-set, expand their knowledge of banking, and grow professionally.

Over the course of six consecutive quarters, CSB will research, design, market, communicate, and launch the digital channel.

2020 2021 2022 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Research Market & Demographics

Research Brand/Sub-Brand

Systems Research

Design Digital Channel Products

Design Digital Channel Site

Systems Implementation

Consumer Online Account Opening

Marketing Plan

Communications Plan

Launch

 Research Market & Demographics, led by Retail, Marketing, & Finance

o Analyze data to determine the best target audience

o Conduct product analysis including geographical data, demographics, interest

rates, & loan-to-deposit ratio

 Research Brand / Sub-Brand, led by Marketing, Compliance, & Retail

o Determine name and branding guidelines

 Systems Research, led by Operations, Information Technology, Compliance, & Risk

o Evaluate all current vendors’ ability to meet the needs of the digital strategy and

integrate with each other

o Create gap analysis (what we want vs. vendor capabilities)

 Design Digital Channel Products, led by Marketing, Retail, Finance, Online Banking

o Determine the features & functions of all product offerings for implementation

and a draft of future product roadmap

 Design Digital Channel Site, led by Marketing, Operations, Online Banking, Compliance

& Information Technology

o Determine website for best user experience

 Systems Implementation, led by Operations, Information Technology, Compliance, &

Online Banking

o Create infrastructure with current vendors

 Consumer Online Account Opening, led by Retail, Online Banking, Operations,

Information Technology, & Marketing

o Understand interaction of core platform

o Create an online account opening experience map

o Determine integration with mobile application

o Create integration between Retail and Lending platforms to enable cross-sell of

products

 Marketing Plan, led by Marketing, Retail, Compliance, & Finance

o Draft marketing plan and budget (goals, websites, social media, etc.)

 Communications Plan, led by Marketing, Online Banking, Risk, Retail, & Compliance

o Create employee announcement and soft launch

Looking Ahead & Future Opportunities

Once the digital platform has been built and established, CSB can begin offering attractive products to the target market(s) to gain deposits. Initially, the online platform should be focused on two product offerings; Savings accounts and Certificate of Deposits. These two vehicles offer the highest rate of return for consumers and could generate a big portion of CSB’s deposit target of $600 million over the next three years. These two products generally have less transaction volume, therefore requiring less attention, maintenance, and cost.

After a successful launch of the initial proposed products, the digital channel can be expanded to offer other CSB products. Consumers are always looking for additional ways to build wealth. CSB currently offers a robo-advisor, Connect Invest, to help individuals invest in non-traditional bank products. CSB could provide a checking account where the debit card transactions are rounded up to the next dollar and then those funds can be automatically transferred into Connect Invest. This will provide consumers with a checking account for their everyday lifestyle and at the same time provide a solution to their investment needs.

The digital channel can also expand into consumer lending. Existing customers of the digital channel can be presented with an exclusive discount on a consumer loan based on their deposit balances. If a customer has a balance greater than $25,000, CSB can offer a lending discount off the current market consumer loan rate. Developing a lending incentive can trigger the start of a relationship with the customer where they can lean on CSB for all their banking and lending needs.

CSB can create a budgeting tool to assist consumers in managing their finances. All transaction activity can be automatically categorized and CSB can provide tips and solutions to reduce spending and increase savings. By integrating a budgeting tool within the digital channel,

30 consumers can now manage their finances with CSB and not need to rely on a third-party resource. This competitive advantage will allow consumers to utilize additional CSB resources and make tracking their income and expenses less burdensome.

Lastly, CSB can collaborate with merchants to offer special discounts to consumers.

These targeted offers can generate additional marketing revenue for CSB, increase deposits by requiring the customer to redeem the discount through the digital platform, and essentially retain the customer.

The CSB digital channel can evolve from transactional focused to a relationship centric brand. By offering deposit accounts, lending products, a wealth building solution, a financial instrument, and exclusive discounts, CSB can deepen the relationship with the digital channel customer and potentially become their primary bank.

FINANCIAL IMPACT

CSB’s Retail Deposits

As of September 2019, CSB’s total deposits in Retail have grown to $1.9 million and are well balanced among checking, savings, money market, and CDs. The year-to-date growth of

$65 million (3.49%) can be attributed to the bank’s aggressive deposit rate promotions on money market and certificate of deposits.

Consumer YTD Growth $$ % Growth YTD Deposits $1,928,412 $65,001 3.49% Consumer Deposits by Type YOY Trend Checking $447,431  Savings $311,830  Money Market $595,710  CDs $573,441  Total Deposits $1,928,412 

Consumer Deposit Mix

30% 23%

31% 16%

Checking Savings Money Market CDs

Retail’s primary goal for 2019 is to grow core deposits; however, it continues to be a challenging deposit-gathering market. Competitive pressures from those already in the markets and new entrants into our markets have impacted the bank’s ability to do so. Interest rate pressure has lessened, allowing the bank to react and lower some deposit rates, reducing the cost of funds.

The great news is that Retail deposits are growing, up almost $123 million (5.77%) year- to-date. Savings balances are down about $50 million year-to-date, primarily due to balances shifting to higher cost money markets and time deposits, which are up $27 million and $84 million respectively. It appears many customers moved money from liquid money market account to fixed rate CDs to lock in returns as rates started declining. CSB has been successful in attracting money market and time deposit balances through marketing efforts and by maintaining competitive rates. CSB also introduced a CD laddering strategy in September 2019, with enhanced rates over standard CDs.

All figures represented in Millions.

$74 $63 $53 $42 $32 $21 $11 $0 ($11) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ($21) ($32) ($42) ($53)

2019 2018 2017

The deposits acquired through the digital channel will be integrated into CSB’s Retail deposits. With more aggressive deposit rate promotions, the digital channel can significantly boost deposits for the bank. CSB can continue its traditional brick-and-mortar deposit promotions in tandem with the digital channel. Both avenues will create a substantial increase in deposits and allow CSB to fund lending requests and reduce FHLB borrowings.

Branch & Digital Comparisons

When comparing the costs associated with opening a new brick and mortar branch versus a digital online channel, there are many considerations to be evaluated. In February 2018, CSB recently opened a de novo branch in Charlestown, MA. In the scenario below, the initial expenses associated with the buildout and start-up costs of the branch will be compared to the projected costs of a digital online channel.

Total non-interest expense is an operating expense that is classified separately from interest expense and provision for credit losses.16 Examples of non-interest expenses are employee salaries, bonuses, and benefits; equipment rental or leasing; information technology costs; rent, telecommunication services, taxes, professional services, marketing; and the amortization of intangibles.17

In 2017, the initial investment to open the Charlestown branch was $1,400,000. The most significant part of the initial investment was the one-time cost of construction of the branch at $815,000 (58%). The furniture and equipment expense was $150,000 (11%). The space became available to CSB in June, which resulted in $73,000 (5%) in leasing payments for the year. Furthermore, CSB looks to create a universal and open model concept at each branch which involves purchasing a currency recycler, $43,000 (3%) and a new Interactive Teller

Machine, $75,000 (5%). The salaries and benefits expense to onboard, train, and prepare a new crew was also significant at $105,000 (8%). The rest of the miscellaneous expenses, $139,000

(10%), were a combination of software, supplies, and maintenance.

The total non-interest expenses for 2018 was $687,000. It’s important for the bank to invest in their employees and create a team that will strive to make the bank a staple in the community so therefore the biggest expense were salaries and benefits of $314,000 (46%). The costs of supplies, routine maintenance, additional furniture, security, and software upgrades totaled $304,000 (44%). The remaining 10% was $69,000 for rent.

16 Investopedia, https://www.investopedia.com/terms/n/noninterest-expense.asp

17 Investopedia, https://www.investopedia.com/terms/n/noninterest-expense.asp

For 2019, the total non-interest expense for the year is expected to be at $722,000. This is based on nine months of actuals and 3 months of projections. Salaries and benefits are expected to be a total of $295,000 (40%). Utilities, maintenance, security, and software maintenance is expected to be a total of $374,500 (52%), and $52,500 (8%) for rent.

For the next three years, projections are shown for total non-interest expense. It is assumed that if all factors remain flat, except for salaries and benefits increasing by 5% each year, then total non-interest expense for 2020, 2021, and 2022 would be $737,000, $752,000, and

$768,000, respectively.

Total Non-Interest Expense for Charlestown 900 752 768 800 722 737 687 700 600 500 400

000's 000's thousandsin 300 174 200 100 0 2017 2018 2019 2020 2021 2022

Net interest income is a basic measure of earnings among financial companies, especially banks.18 Net interest income is the difference between the revenue generated by assets — loans, mortgages, and securities — and the interest costs on liabilities, such deposits in checking and savings accounts, and CDs.19

18 Bankrate, https://www.bankrate.com/glossary/i/interest-income/

19 Bankrate, https://www.bankrate.com/glossary/i/interest-income/

The total net interest income for the Charlestown branch for 2017, 2018, and projected

year-end 2019 are $0, $50,000, and $129,000. In 2017, there were no deposits at the branch but

in 2018, the year-end in deposit balances for Charlestown was at a total of $12.7 million. Based

on 10 months of data and 2 months of projections, the year-end deposit total for 2019 is expected

to be around $20 million. The three-year strategic plan has deposits for the Charlestown branch

growing at $30 million in 2020, $36 million in 2021, and $43 million in 2022. The below chart

also shows the breakout by type of deposit.

Charlestown Branch (in 000's) 2018 2019 2020 2021 2022 DDA 1,653 2,779 4,500 5,400 6,480 Interest Checking 584 752 4,500 5,400 6,480 Savings/MMDA 6,836 10,513 12,000 14,400 17,280 Time Deposit 3,673 6,750 9,000 10,800 12,960 Total Deposit Growth 12,746 20,795 30,000 36,000 43,200

In today’s current rate environment, it is hard to project an increase in deposit rates for

the next couple of years. If rates were to stay the same at the year-end 2019 level, the projection

for interest expense for 2020 is $346,000, for 2021, $415,000, and for 2022, $499,000. The

below chart illustrates the weighted average rate on all deposits and the interest expense that is

projected for the next three years.

Charlestown Branch (in 000's) 2018 2019 2020 2021 2022 Weighted Rate on all deposits 0.76% 1.15% 1.15% 1.15% 1.15% Interest Expense 97 240 346 415 499

Charlestown Branch (000's in thousands) 2017 2018 2019 2020 2021 2022

Total Interest Income 0 147 365 548 822 1,233

Total Interest Expense 0 97 236 346 415 499

Net Interest Income 0 50 129 202 407 734

Total Non-Interest Income 0 3 12 21 37 64

Total Non-Interest Expense 174 687 722 737 752 768

Net Income (174) (634) (581) (514) (309) 31

Based on actuals for 2017 and 2018 along with actuals and projections for 2019 for the

Charlestown branch, it is projected that net income will be positive in year 2022. This means that it will take the branch a total of 6 years to become profitable.

For the digital channel, the five-year total non-interest expense is projected to remain consistent at $922,000. The salaries and benefits expense increases year-over-year by 20%.

Marketing expenses will be quite higher than a brick and mortar because a completely new strategy will need to be created. After doing some research online and gathering internal data on past vendor relationships, the initial cost to find a vendor to implement the channel will be around $100,000 (11%). This should include advertisement of the new platform, branding and creating a logo, designing and development of the platform, and possible strategies to help get the platform noticed and up and running. The yearly cost for marketing would be around

$200,000 (22%) per year to maintain the digital channel. Occupancy and equipment for a digital

channel decreases year-over-year and then is forecasted to remain flat. All other expenses are

grouped to include data processing, travel, phone, office supplies, and FDIC premiums. With all

the above assumed factors, see below for the most-likely projected net income. This illustrates

that there is a possibility for the digital channel to become profitable in year four compared to

year six with branch expansion.

Digital Channel (000's in thousands) Year 1 Year 2 Year 3 Year 4 Year 5

Total Interest Income 1,185 2,358 2,486 2,548 2,687 Total Interest Expense 990 1,830 1,645 1,510 1,375 Net Interest Income 195 528 841 1,038 1,312

Total Non-Interest Income 0 0 0 0 0

Salaries & Benefits 272 326 392 470 564

Equipment 200 150 100 100 100

Marketing 200 200 200 200 200

All Other expenses 250 246 230 152 58

Total Non-Interest Expense 922 922 922 922 922

Net Income (727) (394) (81) 116 390

Developing an in-person relationship, higher cross-sell opportunities, and more visibility

in the community are some benefits of having a physical branch location. Having a storefront

allows for higher foot traffic into the branch from not only consumers, but also small businesses

38 and commercial clients. The increased face-to-face interactions also provides a higher probability to deepen customer relationships and recommend additional financial solutions including lending needs.

Establishing a new physical branch is a method many banks use to increase deposit growth. These branch deposits have higher spreads, resulting in an increase in net interest income, however; the volume at which deposits are growing could potentially take longer than expected.

With the digital channel, deposits can be expected to grow at a much faster pace than at a traditional brick and mortar location. Deposits can be gathered from an expanded footprint and across the nation. Deposit projections can be more aggressive with the digital channel due to the expanded customer base and more attractive rates. With lower expenses associated with the digital channel, it is more affordable and beneficial for the bank to offer higher rates to the customers to produce a higher deposit balance. The products that the bank should initially offer are savings/money markets and CDs. Below are the most-likely, worst, and best-case projections of the first five years of deposit growth broken down by categories. Rates are also projected based on market and peer group data for digital platforms. Calculations are also given to show the total interest expense that these deposits will cost.

Most-likely scenario

Digital Channel Projection (000's in thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Savings/MMDA 22,000 39,000 36,000 33,000 30,000 Time Deposit 22,000 42,000 37,000 34,000 31,000 Total Deposit Growth 44,000 81,000 73,000 67,000 61,000

Digital Channel Projection Year 1 Year 2 Year 3 Year 4 Year 5 Savings/MMDA Interest Rate 2.00% 2.00% 2.00% 2.00% 2.00% Time Deposit Interest Rate 2.50% 2.50% 2.50% 2.50% 2.50%

Interest Expense (Savings) 440 780 720 660 600 Interest Expense (Time Deposits) 550 1,050 925 850 775 Total Interest Expense 990 1,830 1,645 1,510 1,375

Currently, CSB’s website has a platform to establish deposit accounts; such as, checking,

savings, money market, and CDs. It has generated over $10 million in deposits year to date.

This was done solely without any advertisement. Based on internal reports, the total percentage

of savings/money markets and CDs that were opened through the website totaled 87%. With a

marketing strategy in place, a digital-only platform, and an expanded customer base, the most-

likely deposit projections are very attainable for CSB.

Worst-case scenario

Digital Channel Projection (000's in thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Savings/MMDA 5,000 22,000 19,000 16,000 13,000 Time Deposit 5,000 25,000 20,000 17,000 14,000 Total Deposit Growth 10,000 47,000 39,000 33,000 27,000

Digital Channel Projection Year 1 Year 2 Year 3 Year 4 Year 5 Savings/MMDA Interest Rate 1.75% 1.75% 1.75% 1.75% 1.75% Time Deposit Interest Rate 2.00% 2.00% 2.00% 2.00% 2.00%

Interest Expense (Savings) 88 385 333 280 228 Interest Expense (Time Deposits) 100 500 400 340 280 Total Interest Expense 188 885 733 620 508

In this worst-case deposit growth scenario, a lower rate environment and slower deposit

gathering could be the cause. If this happens, it will impact net income as follows:

Digital Channel (000's in thousands) Year 1 Year 2 Year 3 Year 4 Year 5

Total Interest Income 593 1,179 1,243 1,274 1,478 Total Interest Expense 188 885 733 620 508 Net Interest Income 405 294 511 654 970

Total Non-Interest Income 0 0 0 0 0

Salaries & Benefits 272 326 392 470 564 Equipment 200 150 100 100 100 Marketing 200 200 200 200 200 All Other expenses 250 246 230 152 58 Total Non-Interest Expense 922 922 922 922 922

Net Income (517) (628) (411) (268) 48

Best-case scenario

Digital Channel Projection (000's in thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Savings/MMDA 39,000 56,000 53,000 50,000 47,000 Time Deposit 39,000 59,000 54,000 51,000 48,000 Total Deposit Growth 78,000 115,000 107,000 101,000 95,000

Digital Channel Projection Year 1 Year 2 Year 3 Year 4 Year 5 Savings/MMDA Interest Rate 2.25% 2.25% 2.25% 2.25% 2.25% Time Deposit Interest Rate 2.75% 2.75% 2.75% 2.75% 2.75%

Interest Expense (Savings) 878 1,260 1,193 1,125 1,058 Interest Expense (Time Deposits) 1,073 1,623 1,485 1,403 1,320 Total Interest Expense 1,950 2,883 2,678 2,528 2,378

In this best-case deposit growth scenario, faster deposit gathering and a higher rate

environment would affect net income as follows:

Digital Channel (000's in thousands) Year 1 Year 2 Year 3 Year 4 Year 5

Total Interest Income 2,133 4,244 4,475 4,586 4,837 Total Interest Expense 1,950 2,883 2,678 2,528 2,378 Net Interest Income 183 1,362 1,797 2,059 2,459

Total Non-Interest Income 0 0 0 0 0

Salaries & Benefits 272 326 392 470 564 Equipment 200 150 100 100 100 Marketing 200 200 200 200 200 All Other expenses 250 246 230 152 58 Total Non-Interest Expense 922 922 922 922 922

Net Income (739) 440 876 1,137 1,537

In all the scenarios, regardless of the rate environment and assuming total non-interest

expense remains consistent, the digital channel becomes profitable faster than a traditional

branch. Furthermore, it illustrates that the digital channel is a more appropriate path to take and

it aligns with CSB’s strategic growth plan.

Peer Group Comparisons

Based on collected data from SNL & FDIC, CSB has noticed some of its peers have

grown their deposits significantly. Further research indicated that these banks implemented a

digital channel.

Salem Five Bancorp is in CSB’s peer group and as of June 2019, had total assets of $5.1

billion. Their total deposits as of June were $3.8 million and their deposit growth rate was

8.48%. Total money market and savings deposits were 55.99% of their total deposits. Year over year growth from 2014 to 2018 for online deposits averaged a growth rate of 10.95%. The deposits from the online branch, which includes both the online branch and digital channel, grew at an average rate of 12.32%.

Northern Bank & Trust Company is not in CSB’s peer group but headquartered in

Woburn, Massachusetts, a town that is in CSB’s footprint. In 2019, total assets were around

$2.15 billion. Their online branch deposits from 2014 to 2018 averaged a growth rate of

25.89%. Total deposits grew from $1 million in 2014 to $1.7 million in 2018. The deposits from their online branch, which includes both the online branch and digital channel, grew at an average of 7.78%.

Total Online Deposits ($000) 2014 2015 2016 2017 2018

Salem Five Cents Savings Bank 314,530 362,844 362,984 402,495 507,234 Northern Bank & Trust Company 64,652 60,930 70,361 123,624 264,116 Cambridge Savings Bank 484 4,087 5,381 11,924 22,810

Total Deposits ($000) 2014 2015 2016 2017 2018

Salem Five Cents Savings Bank 2,693,638 2,803,495 3,088,731 3,399,061 3,787,080 Northern Bank & Trust Company 1,025,750 1,196,273 1,334,460 1,669,475 1,780,215 Cambridge Savings Bank 2,166,009 2,551,217 2,646,492 2,692,785 2,902,404

Online Deposits as a % of Total Deposits 2014 2015 2016 2017 2018

Salem Five Cents Savings Bank 11.68% 12.94% 11.75% 11.84% 13.39% Northern Bank & Trust Company 6.30% 5.09% 5.27% 7.40% 14.84% Cambridge Savings Bank 0.02% 0.16% 0.20% 0.44% 0.79%

As of year-end 2018, CSB’s website generated a total of $22.8 million in deposits. It grew by 0.79% compared to our competitors at 13.39% and 14.84%. In order for CSB to attract new deposits at a similar growth rate, a digital channel platform is imperative.

Based on the financial comparisons of a brick and mortar location and a digital platform, creating this channel is the best solution for CSB to achieve their growth projections in the three- year strategic plan.

NON-FINANCIAL IMPACT

Company Management

Cambridge Savings Bank is committed to a strong and effective corporate governance.

Our legacy board members believe that strong principles and the highest standards of ethical conduct are critical to securing customer trust and confidence. Directors and Bank leadership at

Cambridge Savings Bank have the proven background and superior management skills to run our organizations new ideas and implement projects such as the digital channel.

The Board and Senior Management at CSB are committed to remain community based and mutual. Having visionary committed leaders who show their pledge and demonstrate the bank’s clear direction can inspire their managers to emulate them and perform at optimum levels.

They understand how the jobs of all the employees in the organization come together to reach agreed-upon goals. They recognize talent within the organization and help foster company loyalty to major projects such as the new digital channel.

Cambridge Savings Bank directors and leaders have also proven also to be strategic thinkers and have superior analytical skills which is needed in the digital channel development.

Cambridge Savings Bank was the first bank in the US to roll out a robo-advisory investment service called Connect Invest. This state-of-the-art platform offered affordable investments and financial advisors to consumers of all income demographics.

The Board and Senior Management may determine that the digital channel may not fit

CSB’s strategy and decline to move forward. If that decision is made, CSB can allocate its resources to promote its current product offerings and increase its marketing expenses to showcase CSB in its geographical area. Another potential decision may be to postpone the digital channel and push-out the launch. If that happens, CSB can look to enhance the current website and streamline the online account opening process.

Employees

Cambridge Savings Bank’s employees are the greatest asset. Without them, the Bank wouldn't be able to run their business smoothly, meet customers' needs, and ultimately run a successful digital channel platform. Good employees neither waste time nor effort. They make sure to meet deadlines without sacrificing work quality. They also develop creative solutions to mitigate risks, cut costs, and improve customer satisfaction. Motivated employees will do their best to help the grow the bank. They'll go back and forth to ensure customer satisfaction, meet deadlines, and live up to expectations.

It’s crucial to make sure that the digital channel team is satisfied and engaged in the workplace. Conducting surveys to measure the team’s satisfaction is important. Also, in-depth discussions with each employee to find out what they expect and what could be improved is

45 crucial. Finally, requesting and providing feedback, showing empathy, and rewarding your employees for their dedication raises overall moral.

The current CSB branch staff may view the digital channel as competition. Branches currently have deposit growth goals. The goals are designed to retain existing deposits and acquire new funds. If clients are moving their money to the digital channel, the branch deposits will be affected. In order to ensure the branch staff are fully engaged and support the digital channel, CSB will monitor the movement of funds and provide shadow-credit to newly attained deposits. If money is moved from CSB accounts to the digital channel, those funds will not hurt the branch deposit goal. This will help ensure the branch staff are continuing to create wonderful client experiences and provide the best solutions for the customer’s needs. Additionally, if the branch uncovers new funds and those deposits are directly deposited into the digital channel from another institution, the branch staff can utilize the current referral system to receive the shadow-credit for their branch goal. Customer satisfaction will remain high and CSB’s “Always

You” essence still proves true.

Multi-Factor Authentication

Multi-factor authentication (MFA) is an authentication method in which a computer user is granted access only after successfully presenting two or more pieces of evidence (or factors) to an authentication mechanism: knowledge (something the user and only the user knows), possession (something the user and only the user has), and inherence (something the user and only the user is).20

20 Wikipedia, https://en.wikipedia.org/wiki/Multi-factor_authentication

The digital channel can present more opportunity for hackers and thieves to obtain personal financial information. Creating an MFA for our clients can reduce the risks associated with losses by adding a call or text message that contains a verification code that will need to be entered to move forward during the log-in process. Customers of the digital channel will have the option to use the MFA during every log-in or may have their device remembered to avoid using the multi-authentication process. The implementation of an MFA can overcome any hesitation hurdles customers may have about using a digital channel.

Monitoring Transactions

Digital banking has more money laundering risk because of the opportunity for banking transactions to occur without ever having seen the person who owns or controls the account.21

Currently, CSB’s Bank Secrecy Act department monitors client transactions for suspicious activity. When banks fail to file suspicious activity reports and fail to take appropriate actions to stop money laundering, they are subject to severe prosecution and enormous fines.22 If the BSA department requires additional information on transactions, they reach out to the local branch for support in obtaining the necessary data. The digital channel may present an obstacle for the BSA department to gather information on potentially suspicious transactions. The BSA department would attempt to call or email the customers directly so they can acquire the obligatory information.

21 Tech Funnel, https://www.techfunnel.com/fintech/compliance-in-the-age-of-digital-banking-an-overview/ 22 Tech Funnel, https://www.techfunnel.com/fintech/compliance-in-the-age-of-digital-banking-an-overview/ 47

Fraud Awareness

In order to help prevent many fraud issues, CSB will incorporate an educational section on the digital channel platform. This informative portion of the digital channel website can be a resource for all that visit the web page.

Bank fraud remains a major concern for banking compliance and risk management. In the United States, bank fraud exceeds $2.2 billion per year and is increasing. The types of fraud are:

 Credit and Debit Card Fraud - Bank card fraud accounts for 53% of the total,

which is about $1.3 billion annually in America. Another $17 billion in fraud

attempts are blocked each year.

 Social Engineering Fraud - The FBI reports that business email spoofing of

American companies resulted in $12 billion in losses from 2013 to 2018, which

averages to over $2 billion per year.

 Scams - There were 152,595 scams reported by victims from July 2015 to April

2019. There are romance scams, lottery scams, tax payment scams, and “too

good to be true” financial scams. Banks are often blamed for the losses from

these scams even though the account holders are the ones usually making the

mistake of giving account information to criminals. Elderly people are targeted

frequently. Push payment scams are used to gain a customer’s trust, then access

personal information, and then take over their bank accounts.

 Cyber and Online Fraud - Identity theft continues to be a major problem with

billions of users’ account information breached by hacking attacks.23

23 Tech Funnel, https://www.techfunnel.com/fintech/compliance-in-the-age-of-digital-banking-an-overview/

CSB continues to make significant investments in its capabilities with a view to mitigating the external threats. Providing this educational section illustrates CSB’s commitment to protecting personal data, create more public awareness, and overcome any potential customer hesitations to establish the digital channel relationship.

MARKETING

Marketing Strategy

A marketing strategy is a long-term, forward-looking approach to planning with the fundamental goal of achieving a sustainable competitive advantage.24 CSB’s strategic goal is to attain new deposits. The digital channel provides the bank with a new avenue to generate growth. In order to achieve a competitive advantage, the products offered will be a high yield savings account and CDs. The audience will be determined based on interests, behaviors, and motivators. The profile of the audience should be opportunistic and digitally savvy. The audience’s needs should be that they are looking to maximize their rate of return, security, and simplicity. The behaviors should be they are seeking the best rates on web searches and are willing to separate their savings from their primary transactional accounts.

In order to ensure the online channel is successful, the digital implementation plan must include a breakdown of a communication strategy, branding, web design, and digital marketing.

24 Wikipedia, https://en.wikipedia.org/wiki/Marketing_strategy

Communication Strategy

An internal communications strategy will define CSB’s objective with the staff and will plan the activities required to achieve the goal. Ensuring employee engagement is critical to the success of building the digital bank. Involving various staff to assist in creating the communication plan, will bring in diverse perspectives and gain more buy-in to this strategy.

This team will develop the communication channel, timeline, and progress updates of the digital bank so that CSB employees feel informed and take action to support the digital bank.

There are two different ways CSB can create an external communications strategy. The soft launch strategy redirects website and email traffic to the new digital channel. This approach allows potential clients to focus on the reputational security of CSB and may provide peace-of- mind when determining to establish an account. The alternative full-press strategy will include news announcements, promotions, and a media campaign aimed at the targeted area. This tactic is more aligned with CSB’s current marketing model. It will boost the digital brand and provide more opportunity to be introduced to prospects.

Sub-Branding & Stand-Alone Brand Considerations

The brand identity should be modern, simple, prestigious, and reputable. Establishing a brand name that is searchable, scalable, and memorable in the digital space will be important. It must align with the profile, needs, and behaviors of the audience. And it should portray growth, prestige, and simplicity.

Sub-branding is when a main brand creates a subsidiary or secondary brand.25 A Sub-

Brand of Cambridge Savings Bank may help expose the bank’s fundamentals of loyalty and trust outside of the immediate footprint and consumers may feel more confident in selecting the bank versus the competition. However, in the event the online bank performs poorly, it could negatively impact CSB’s historical brand. Additionally, the word “Savings” has a traditional bank feel, which may not resonate in the modern digital landscape.

Sub-Branding

Competition Examples

A Stand-Alone Brand affords the ability to experiment without directly impacting the

CSB brand. It allows for a clearer distinction between CSB’s traditional channels and the digital only channel. It minimizes potential confusion amongst brands too. It’s easier communication to existing CSB customers if the CSB name isn't used and is less likely to frustrate or have a negative impact on the existing customer base because of the clear separation of brands.

25 Brogan, https://brogan.com/blog/pros-and-cons-sub-branding-and-brand-extension/

Stand-Alone Branding

Competition Examples

Creating a stand-alone brand best fits into CSB’s marketing strategy for the digital channel. The bank should be promoting a completely new brand that is not the same as it is today. This way, if there is a possibility that the digital channel does not do well, it will not be linked with the bank’s current established presence in the banking industry. The brand will be very important since this will be the voice of the digital platform. Customers will want to bank with an institution that is strong, loyal, and protective of their customers. The vendor will assist with establishing a name and there should be no confusion to another institution. The logo design will also be the first thing that a customer sees and associates with the digital platform.

This will also need to be designed well and be simple, yet solid at the same time.

Digital Marketing

It’s essential to think about what the customer journey could look like as they become exposed to the marketing of the digital bank. Additionally, CSB will consider how ideal customers will find the digital bank, learn about it, choose it, and experience it. The digital bank must rank toward the top of search engine results to increase visibility. A Text Ad is a form of marketing communication that advertisers can use to promote their product or service on the

Google Network.26 The Text Ad will promote the competitive rates of the digital bank. Clicking on the ad brings the prospects to the website and informs them more about the digital bank and the long-standing reputation of CSB. Retargeting, also known as remarketing, is a form of online advertising that can help keep the brand in front of bounced traffic after they leave the website.27 A retargeting ad pops up on other internet related applications reminding them of the promotion and products. The geographical focus on where to market and promote should be central areas where competitors are lacking.

In order to measure and track various online metrics, CSB will create various Key

Performance Indicators (KPIs) for the digital channel. An Ad Reach is an estimate of the number of people within a location target.28 The Ad Reach will track the number of people who saw the CSB ad at least once. This will determine how often the ads are being shown to the target audience. Google Trends is a website by Google that analyzes the popularity of top search queries.29 This will be used to see how many searches are performed each month for the digital bank. This data can be used as a benchmark to determine where the most loyalty lives and can be compared month-over-month to see changes. The Click-through-Rate (CTR) is the ratio of users who click on a specific link to the number of impressions.30 According to Wordstream, the average Click-thru-Rate in the financial industry is 2.91%. CSB can use this benchmark as a starting point. Furthermore, developing a contact form on the digital bank website is the easiest way to discover new opportunities for new customers. Once the form is competed, CSB can track where that lead came from. CSB can also create a chat function to immediately have an

26 Google, https://support.google.com/google-ads/answer/14093?hl=en 27 Retargeter, https://retargeter.com › what-is-retargeting-and-how-does-it-work

28 Google, https://support.google.com/google-ads/answer/1722045?hl=en 29 Wikipedia, https://en.wikipedia.org/wiki/Google_Trends 30 Wikipedia, https://en.wikipedia.org/wiki/Click-through_rate

53 interaction with the prospect. And finally, the Conversion Rate is the number of conversions divided by the total number of visitors.31 This will measure the percentage of visitors that take a specified action; such as, opening an account or filling out the contact form.

The website for the digital channel will need to deliver a top-notch user experience to the customer since they will be utilizing the website instead of walking into a brick and mortar location. The development of the site must be user friendly, provide all the necessary information regarding the products, CSB’s history, and at the same time be safe from all possible outside attacks. The customer will need to feel that their information is always protected.

Lastly, the vendor should also be able to discuss and provide CSB digital strategies to execute the digital channel seamlessly. This should include analytics on customer data, demographics, and even data on other established digital channels.

CONCLUSION

The implementation of a digital channel at CSB is crucial for the bank to expand their footprint, grow and attain deposits, and become digitally focused. Expanding out to new target markets will provide the bank with a better opportunity to begin the process of building trustworthy and loyal relationships. This channel pivots CSB towards the vital direction of the strategic plan initiative to grow the balance sheet and fund an ever-growing lending pipeline.

Finally, as technology continues to advance in the banking industry, CSB must remain digitally competitive to meet customers’ expectations.

31 Optimizely, https://www.optimizely.com/optimization-glossary/conversion-rate/ 54

BIBLIOGRAPHY

 FDIC, https://www.fdic.gov/regulations/resources/mutual/

 Wikipedia, https://en.wikipedia.org/wiki/List_of_highest-

income_counties_in_the_United_States

 DataUSA, https://datausa.io/profile/geo/middlesex-county-ma#housing

 Zillow, https://www.zillow.com/middlesex-county-ma/home-values/

 DataUSA, https://datausa.io/profile/geo/middlesex-county-ma#economy

 Wikipedia, https://en.wikipedia.org/wiki/Deposit_market_share

 FDIC, https://www5.fdic.gov/sod/sodMarketRpt.asp?barItem=2

 The Financial Brand, https://thefinancialbrand.com/65628/digital-banking-consumer-

trends/

 S&P Global Financial Intelligence,

https://www.spglobal.com/marketintelligence/en/campaigns/snl-financial

 Financial Brand, https://thefinancialbrand.com/66357/digital-banking-branch-preference-

trends/

 ABA, https://www.aba.com/news-research/research-analysis/preferred-banking-methods

 Federal Reserve. https://www.federalreserve.gov/consumerscommunities/cra_about.htm

 FDIC, https://www.fdic.gov/regulations/community/community/12c30.html

 ABA, https://www.americanbanker.com/opinion/what-branchless-banking-means-for-

the-cra

 Investopedia, https://www.investopedia.com/terms/n/noninterest-expense.asp

 Wikipedia, https://en.wikipedia.org/wiki/Multi-factor_authentication

 Tech Funnel, https://www.techfunnel.com/fintech/compliance-in-the-age-of-digital-

banking-an-overview/

 Wikipedia, https://en.wikipedia.org/wiki/Marketing_strategy

 Brogan, https://brogan.com/blog/pros-and-cons-sub-branding-and-brand-extension/

 Google, https://support.google.com/google-ads/answer/14093?hl=en

 Retargeter, https://retargeter.com › what-is-retargeting-and-how-does-it-work

 Google, https://support.google.com/google-ads/answer/1722045?hl=en

 Wikipedia, https://en.wikipedia.org/wiki/Google_Trends

 Wikipedia, https://en.wikipedia.org/wiki/Click-through_rate