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 2 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. 3 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. 5 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. 6 Originally, mutual savings banks were organized to help the working classes because most commercial bankers at the time primarily served retail and commercial