WINTER 2020 THE SEARCH for the BEST CUSTOMERS Get On Board with Onboarding Commercial Primacy Banks Respond to Pandemic Cover Story 4 RACE TO QUALITY: RETHINKING DIGITAL ONBOARDING 8 | SITTING DOWN WITH KEN LAROE 12 | THE ART OF SAYING "NO" IN RETAIL DEPOSIT NEGOTIATIONS 16 | A NEW FOCUS ON PRIMACY IN COMMERCIAL BANKING 20 | OLDER AMERICANS WARM UP TO BRANCHLESS BANKING 22 | THE NEW MATH OF DISTRIBUTION PLANNING 26 | PANDEMIC PUSHES BANKS TO IMPROVE OPERATIONS 28 | TAKING TIME TO FOCUS ON THE RELATIONSHIPS YOU CARE ABOUT 32 | NEWS YOU MAY HAVE MISSED 33 | AT THE PODIUM WITH NOVANTAS 2 | A Note from the EDITORIAL CEOs Director, Novantas Center for the Future of Banking Robin Sidel +1 212.901.2742 [email protected] elcome to the Winter 2020 issue of the Novantas Review. CONTRIBUTORS There are good reasons why this edition focuses on how banks can target, acquire Andrew Hovet and retain the best customers. With interest rates staying low for the foreseeable Hank Israel future and banks wrestling with the impact of COVID-19, these customers are more Brandon Larson important than ever. Mike Rice Peter Serene Luckily, technology can help in more ways than ever before. But these tools aren’t Robin Sidel valuable unless banks put the right programs and processes in place. That is a tall Adam Stockton order for many banks. For example, a growing number of retail customers want and Ethan Teas need to open accounts online, but the process is often still cumbersome and ineffi- Sarah Welch cient. Even when customers succeed in opening the account online, too many banks DESIGN don’t engage with them or take advantage of cross-sell opportunities. Art Direction and Production Adrienne R. Cohen This issue of the Novantas Review explores ways that banks can use primacy, person- alization and scoring to deepen existing customer relationships and form new ones. NOVANTAS, INC. The issue also tackles how banks can build awareness and visibility even as they Novantas is a leading provider of shutter branches. We also provide proprietary research that reveals how banks are data, technology and advice to trying to improve their interactions with customers during the pandemic. financial institutions globally. We wish you good health and a safe holiday season. Co-CEOs and Managing Directors Dave Kaytes Sincerely, Rick Spitler Corporate Headquarters 485 Lexington Avenue New York, NY 10017 Phone: +1 212.953.4444 Dave Kaytes Rick Spitler [email protected] Co-CEO Co-CEO www.novantas.com Address changes and content questions can be directed to the contact information above. To download and share content from the Novantas Review, visit www.novantas.com or follow us on LinkedIn and Twitter. Offices Chicago New York San Francisco Sydney Toronto 3 | WINTER 2020 RACE TO QUALITY:RETHINKING DIGITAL ONBOARDING BY ETHAN TEAS, SARAH WELCH AND BRANDON LARSON he quality of customers originated through digital channels is of growing concern to traditional banks, par- ticularly as the COVID-19 pandemic has accelerated the shift to digital by three to five years in just a few months. Although many banks have found success driving more customerT acquisition to digital channels, the quality of these new customers is typically poor — from the time of funding through to retention. New Novantas research shows that these problems may be even worse than believed, especially when it comes to balance size and retention. To meet these challenges, Novantas believes banks must take a programmatic approach to improving onboarding: identi- fy focus areas and set target performance for each, prioritize and triage opportunities for rapid execution and measure progress relative to peers. RACE TO QUALITY: RETHINKING DIGITAL ONBOARDING FROM BAD TO WORSE FIGURE 1: INCREASE IN DIGITAL SALES DURING THE PANDEMIC While some bankers have seen digital account opening growth help offset lost 40 new-to-bank origination from closed 37% branches, results from Novantas’ Orig- ination Quality Benchmarking have 35 found there are common failures among banks and large gaps in balance size and quality. (See Figure 1.) 30 The most alarming revelation: 26% after four months, new-to-bank balances originated in branches can be more than 25 10 times higher than those originated in digital channels. (See Figure 2.) Although some banks in the research showed far 20 19% larger gaps, none exhibited branch orig- inations that were less than two times % of Responses 15 higher than those of digital. This isn’t simply a theoretical mea- 11% surement or an apples-to-oranges prob- 10 lem. One big issue is that these new dig- 7% ital accounts just never really get going. Digitally-originated relationships are less 5 than half as likely as branch originations to achieve “base quality” by reaching $100 0% or more in balances at the end of month 0 one, according to the Novantas research. 1-20% 21-40% 41-60% 61-90% 91-120% +120% Even considering only the accounts that do achieve base quality, there is still Sales Increase a large gap in balances. In the first month, Source: Novantas SalesScape Comparative Analytics (June 2020) FIGURE 2: DIGITAL BENCHMARK VS BRANCH BENCHMARK % of New Accounts that Fund with >$100 at Month One Month Four Balances of Quality Funded Accounts (Segment Represents Number of Accounts in Each Balance Segment) ~2x <$100 $100-10k $10k+ ~4x 16% 16% 70% 70% 61% 61% 29% 29% 7% 7% 67% 67% 23% 23% 26% 26% Digital BenchmarkDigital BenchmarkBranch BenchmarkBranch Benchmark Digital BenchmarkDigital BenchmarkBranch BenchmarkBranch Benchmark Source: Novantas SalesScape Comparative Analytics (June 2020) 5 | WINTER 2020 COVER STORY branch-originated balances are more A key question, of course, is wheth- than four times larger than those from er these investments help create an the digital cohort. The gap also widens experience that target a more emotional by the fourth month as digital cohorts, on Too many response and boosts trust or confidence in average, underperform on retention and the relationship. The answer will depend balance growth. organizations on the bank’s starting point, objectives Novantas research shows marked are using and particulars of the customers. A par- differences in what is driving gaps allel and equally important question to between branch and digital. For some, consider is if funding is the right place to retention is the key driver. For others, one-size-fits-all focus investment or if digital engagement initial funding or balance growth are and downstream deepening will generate more important factors. approaches. a higher return. Novantas has identified customer To identify focus areas, Novantas experience as the primary driver of suggests that banks must first diagnose the difference, not demographics. One the current experience and performance. doesn’t need to look too closely to find rates and first-month balances, banks This needn’t be a protracted process that that banks don’t make it easy to form rela- could invest in a suite of functional requires detailed journey mapping and tionships online. The emotional attach- changes that might appeal to the rational deep analytics. With clear objectives, the ment and information exchange that is consumer: technology that enables and prioritization of opportunities will be eas- driven by a personal account-opening encourages more funding options, poli- ier. They can then be triaged into those experience just hasn’t been replicated in cies that permit larger initial deposits and that can be deployed immediately, those the digitally-led environment. incentives like a bonus rate tied to the that require test and learn and those that Digital experiences are typically size of a funding deposit. are unlikely to provide a sufficient return. engineered for convenience and speed and are highly standardized. This ignores the many opportunities to create FIGURE 3: QUALITY IMPROVEMENT LEVERS engagement. Among myriad issues, key areas stand out: initial funding, ability to complete the process of setting up the account, a lack of sufficient explanation about products and a lack of opportuni- ties to sign up for additional products. In contrast, the branch experience, even DIGITAL TARGETING INITIAL RELATIONSHIP if clunky, is highly effective. AND OPENING ACTIVATION DEEPENING Things don’t get any better after the point of sale. Again, there are common Shift targeting from Reconsider funding Leverage excess drivers: one-size-fits-all digital communi- “propensity to buy” to options, limits and branch capacity to cation approaches, premature handoff to “expected value” customer experience engage with digital in-life management and underleveraging new-to-bank customers of surplus branch resources. In fact, it Restructure offers to Increase “speed to may make sense to slow down and even encourage higher- access” for critical Move from one-size-fits- increase the cost of account openings by quality customers activation components all campaign commu- reaching out to the right new prospects. nications to AI-based Evolve test-and-learn Introduce opportunity digital test and learn IDENTIFYING THE PROBLEM… framework to be more to make personal Perhaps the hardest thing about working dynamic and closer to connection Build omni-channel on improving digital quality is that there value banking check-up are so many credible drivers and oppor- Use AI to improve experiences to ensure tunities to explore. (See Figure 3.) Many Enable zero-friction efficacy of outreach customers are getting bankers face an overwhelming number fulfillment at time of the most out