However, my personal perspective is that physical branches are no longer thought of as a must for most consumers in the 18 – 60 year age bracket. A 2008 Deloitte study found that ~75% customers visit a bank branch less often than once per month and 20% less often than once per year. This together with the 80/20 rule (20% customers generate 80% of profits) and the assertion that the profitable 20% is much more likely to be in the group that visits a branch less often than once per month indicates that branches are no longer the “glue” that binds customers to banks.

From most customers’ perspectives, visiting bank branches is not a joyous event (contrary to the belief of most bankers) and most consumers’ goal is to get in and out as fast as possible. If you haven’t already done this, I strongly recommend that everyone sits in the front lobby of any bank for 30min to observe the traffic flow and interaction levels — my findings are that most branches have a) little traffic flow with bank staff substantially outnumbering customers, and b) 95%+ of all interactions are transactional in nature rather than advisory / value added communications which all banks so desire.

Given this, it is difficult to understand why banks continue to invest in branches and what Bankers believe will change (either in customer behavior or their own approach) to turn branches from extremely negative ROI assets into a value added asset.

Mega-banks’ approach of building branches makes sense due in part to their strategy of being all-present – being on every block in every community. However, for most other banks, this approach is neither rational nor economically feasible. Community Banks & Credit Unions must develop their own strategy (including actionable activities that support said strategy) to drive growth through differentiation (this is unlikely to include convenience which requires many branches).

Technology has evolved and continues to evolve so as to break the yesterday’s business models (and most banks are operating on “stale” strategies). No longer can a community bank believe that only those Financial Institutions that are present in a community are its direct competitors. Branches no longer define competitive territory for banks (and credit unions). Just look at the growth of internet only banks such as Ally, ING Direct, EverBank, Amex Bank, Discover Bank, Schwab Bank, eTrade Bank and the list goes on and on. Consider the implications of emerging / expected competitors such as PayPal Bank, Apple Bank, and Google Bank.

For community banks (and credit unions) to survive, indeed, there must be a very serious re-assessment of business strategy and assessment of go-forward approach. My view is that within the next 5 years, FDIC insured banks will decrease substantially in number, and most of the casualties will be in the community banking sector (and for most, I believe the exits will not be pleasant). Meredith Whitney, an influential banking analyst, recently estimated that banks will cut 5,000 branches in the next 18mo and as many as 10,000 branches by 2015 (this implies 500 Community Banks in the next 18mo and 1,000 Community Banks by 2015 – assuming that 50% of these cuts come from the Community Banking sector and 5 branches / bank).

However, not all is lost and there are tremendous opportunities for those who are willing to take calculated risks. Banks must re-define who they are, including rethinking their target customer, product / services mix, pricing strategy, marketing channels, customer development strategies, and much more. But what is clear is that banks must do a better job of leveraging internet and the emerging social media channels; rethink the definition of target customer base (especially those who limit their customer base to a specific geography); re-focus from transaction processing to value added services.

As a industry professional in this vital market segment, I have seen innovation after innovation around electronic delivery to reach this audience. Yet in all these innovations one thing is pain stakingly clear, that FIs are far to reliant upon eChannel Deliveries (online banking, bill pay, ATM, Mobile Banking, SMS Banking, iBanking, Social Network Banking, etc.) that we will continue to try and suck a watermelon through a straw.

It’s time to focus these channels towards bringing this audience BACK to our brick and mortar locations. Not for increased transaction volumes but for more ‘fact-time.’ Don’t fool yourself into thinking that through all of their (‘OUR’) electronic communication methods, that we loathe face-to-face contact. They (we) welcome it, on their (our) level.

Thanks for the comment. To clarify The Financial Brand’s position, there is no issue with the methodology but rather how the survey results were reported. The white paper asserts that “11% are connected,” which is simply not true. Granted, survey participants often misrepresent their actual behaviors and intentions in their responses (e.g., overstating or underestimating), which is something the white paper should have acknowledged. A more accurate way to report the results would have been “11% say they are connected” or “11% believe they have connected.” The findings presented in the white paper make it sound like the study involved hard science with concrete conclusions, when really the study involved a survey with a much, much higher margin of error.

As with any consumer survey, the results are open to individual interpretation, but the methodology of the survey itself was sound. It is certainly possible that respondents overstated their ‘connectedness”, but the fact that 11 percent of consumers perceived they had a connection with their financial institution via social media still speaks volumes. Social media is now part of the fabric of people’s daily lives, including their financial lives, and they are talking about their financial experiences and their providers on social sites every day.

Based on the survey results, we believe that it is important for financial institutions to develop a social media strategy, if they have not done so already, even if that strategy consists of simply listening to the conversation. The financial institutions that get social media right will be well positioned to better understand, communicate and serve their customers. It may take some trial and error to figure out what “right” is, but we believe social media has a role to play in the relationships between financial institutions and consumers in the days ahead.

Geoff Knapp
VP, Online Banking & Consumer Insights
Electronic Banking Services
Fiserv

FYI – Fiserv has explained to me that they defined a “connection” in the survey as “friend, fan, follower or subscriber.”

And yes, I concede that the article’s math was a little lazy/sloppy, but it doesn’t change the end result: The net “connections” retail banks and credit unions have with consumers in absolute terms does not constitute a significant number.

I think it is important to understand that “connecting with your FI” does not necessarily mean “liking” them on FB or “following” them on Twitter. This assumption appears to be central to the Editor’s rebuke of Fiserv’s study.

For example, I have several searches set up on my TweetDeck to follow specific FIs. I would consider myself “connected” to them, although I have not “liked” them on FB nor “followed” them on Twitter. This nuance may be critical in interpreting FiServ results, and more generally, assessing “connections” between consumers & businesses.

In addition, I would point out a correction to the editor’s analysis… while it is true that there are 307MM people in the US, that equates to only ~$117MM households (~25% of the population is under 18 and thus not able to have individual bank accounts; and married couples typically have joint accounts). Given the 77.3% internet penetration, the net opportunity is ~91MM households. But ~9MM of these households are unbanked, thus the true “market size” is only ~82MM households. Total social media opportunity totals 136MM adults based on 1.95 adults/household, 65% penetration for FB and 20% penetration for Twitter (based on FiServ’s study).

How many of these 136MM are using social media, in some way, to learn, communicate, discuss, share anything about their bank? Does 15MM consumers (11% of 136MM) sound high?

PS: my experience is that many smaller Banks/CUs tend to reject the value of social media outright – largely based on gut but very little information.

Also note – the question was worded as “ever visited”, so these aren’t even necessarily fans/followers, or repeat visitors (although some may be of course).

While the 11% number seemed high to me initially as well, I was completely thrown by the stat mentioned later in this post: “36% of those currently not connected are interested in doing so. Interest is highest among Gen Y consumers at 45%.”
(as mentioned in my tweet that you referenced)

I think about my Gen Y friends – 45% of them aren’t “interested” in connecting with their financial institutions. I’d be surprised if more than 1 or 2 of them were connected to their institution…and I don’t see that changing anytime soon.

Also, thanks for the feedback.

A sample of our findings may be found here: http://www.instantintell.com/NCUA_Credit_Unions_and_their_Twitter_Followers.pdf