When you work for a community bank or a credit union, it can be hard to think of an institution with hundreds of billions in assets as “smaller.” But in the ranks of very big banks, there truly are differences between the trillion-dollar plus institutions and the rest.
So, after exploring the retail banking priorities of three of the nation’s largest banks, JPMorgan Chase, Bank of America, and Citigroup, The Financial Brand reviewed earnings calls, investor presentations and senior executive interviews, to get a sense of the strategies of U.S. Bank, PNC Financial Services Group and TD Bank. Each brings a different perspective to the challenges of the large regional.
U.S. Bank: Moving Forward with ‘Agility Studios’
If you want insights on how U.S. Bank is thinking about the future, just do the math. Andrew Cecere, Chairman, President and CEO, works the numbers this way: “Our average customer visits a branch ten times a year. The average customer uses the mobile app 300 times a year. But they visit our digital platform about 3,000 times a year. That gives us a great opportunity to interact with those customers, to provide insight, to provide value, to build close relationships, as well as to monetize them.”
“Our customers’ expectations are rising all the time,” in all channels, according to Tim Welsh, Vice-Chair, Consumer and Business Banking. “They expect more and more out of us.”
Recognizing that was part of the reason U.S. Bank completely redesigned its mobile app in early 2019. The consumer bar keeps moving higher, with not only banking competitors increasing the heat, but other, unrelated industries creating superior experiences that financial institutions must learn to emulate or even exceed. The revamped app places heavy emphasis on delivering personalized insights to users and giving them greater ability to manage their accounts.
“We have an idea of centrality,” explains Welsh. “We want to engage with the customer a lot, so we can be helpful to them.”
Another aspect of the arrival of digital engagement for U.S. Bank consumers is digital lending. Over a third of consumer loans made by the organization are done digitally.
An interesting factor in U.S. Bank’s advancement into digital has been its division of the challenge into three stages. Derek White, Chief Digital Officer, hired in early 2019 and previously global head of client solutions with BBVA in Spain, explained to investment analysts that there are three “teams” at U.S. Bank. Closest to the consumer is the Omnichannel team, which delivers products and services through the bank’s digital and physical networks. At the other end of the process is the bank’s Innovation team, which White explains decides where the company must go next. Bridging the two is the Agile team — actually a series of Agile Studios.
This effort began in 2018 in U.S. Bancorp’s Elavon payments subsidiary. The intent is to get teams together to put digital innovations in front of customers while they still represent a competitive advantage. Plans called for doubling the number of Agile Studios around the company by the end of 2020, with thousands of staffers working within the studios and collaborating with other studios to accelerate product and service development. The idea is to slash development cycles that would have taken years in the past to months, according to Cecere.
The measures that the teams work on fall into two broad categories, in U.S. Bank parlance: “Above the Glass” and “Below the Glass.” The first refers to features that business and retail banking customers can see, things that go into a superior customer experience. The second category represents the things consumers and other customers don’t see, such as core and other technology that contribute to a better experience.
One of the points of cross-studio collaboration is to produce, and utilize, what White calls “reusable tech.” He believes that developing microservices and high-speed application programming interfaces that can be repurposed for other functions in the bank can save time and money. Beyond speed, bank officials speak of this as a cost control measure.
What about the branches? U.S. Bank opened its first out-of-market branch in Charlotte, N.C., in October 2019. The bank had been under a federal order to beef up it anti-money laundering controls and could not open branches until it satisfied that order. The bar lifted in 2019. (Meanwhile, the bank plans to close 10%-15% of branches, net, by the end of the first quarter of 2021.)
Cecere told investment analysts that a decade ago tackling a new market would have taken numerous de novo branches or a significant acquisition.
“We don’t think we need 100 branches in a place like Charlotte,” Cecere said. “We believe we can be effective with a dozen branches. We are going into Charlotte with a digital-first, branch-lite strategy.”
Similar to JPMorgan Chase’s branching strategy, U.S. Bank intends to select new markets on the basis of existing users of its services that aren’t branch-dependent. The bank also intends to filter its choices based on areas that have significant numbers of U.S. Bank employees already.
“We’re not going in cold,” said Cecere.
“Charlotte is a test-and-learn market,” said the CEO. While he said that the bank “doesn’t have all the answers,” it has developed the ability to pivot as it learns new lessons. The bank has publically identified Florida, Georgia and Texas as three additional states that it finds attractive.
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T.D. Bank: Still Loves Its Network of Stores
Those who keep trying to write the obituary of the American bank branch must have to work terribly hard to avoid writer’s block when TD Bank comes to mind. The self-named “America’s Most Convenient Bank,” is the U.S. retail banking operation of Canada’s TD Bank Group. From its roots as branch-obsessed Commerce Bank, TD has continued to be a poster child for branching.
TD’s pace of opening branches has slowed from what it once was, but that is far from an indication that the branch is dead there. TD currently serves 15 eastern states and Washington, D.C., with branch banking — still including Sunday banking hours — with approximately 1,241 stores, as the company prefers to call them. The U.S. operation represents about a third of TD Bank Group’s earnings.
In a late 2019 investment analysts meeting, Greg Braca, Group Head, U.S. Retail, TD Bank Group, and President and CEO, TD Bank, acknowledged that the bank was closing more locations than it was opening. However, he said that had to be taken in context.
“We’ve been pruning around the edges and we’ve been rightsizing some legacy markets, where we might have had redundant locations or found a store in a smaller footprint or that was more digital-capable, so that we could consolidate a couple of sites,” said Braca. “But we are still opening new stores. We’re opening them in New York and in Boston, and we’re spending a lot of time in the Southeast.” TD has the third-highest share of deposits and branches in New York City and high shares in other markets.
The Southeast is ripe for expansion, according to Braca. “Think about the migration of the population and the amount of people moving there not only for retirement, but because of taxes, lifestyle, whatever,” said Braca. “We’re building out new stores in those markets.”
“I’ve never been on this bandwagon of making the prediction that we’re going to close half or all stores, or that they’re going to go away,” said Braca. “That’s not part of our core strategy. We’ve had a view around this that’s served us well and will serve us well in the future. … We’re going to continue to build new stores in markets that we want to be in or don’t think we have the right weight or coverage.”
Then Braca made a comment that acknowledges how different “flavors” of strategy go in and out of vogue.
Physical and digital work together. He said that if he’d spoken at that conference a few years earlier, all anyone would want to know would have been “How many stores are you closing? What’s your digital narrative?”
Now, with large banks and others building branches in new markets, Braca observed, “folks only want to ask about how many stores are we building.”
“The truth behind the scenes is that even for the most digitally connected strategy for any bank in the U.S., 70%-80% of the new business volume is still walking into brick and mortar,” Braca said.
At the same time, Braca added, TD has been investing in major rebuilding of its core platforms and other digital initiatives.
“How does it all marry together?” he said. “When you come into a store and it’s not just about service and hours, then it also becomes about digital connectedness, omnichannel and advice. That’s what we’re trying to bring together in the stores.”
Stores offer wealth of opportunity for wealth management. While its convenience strategy has tended to make people pigeonhole TD as solely a mass market player, wealth management has long been part of its business mix. In another investment analyst presentation Bharat Masrani, Group President and CEO for TD Bank Group, noted that TD already has $30 billion in assets under management in the U.S. and wants more. (This does not include TD Ameritrade, historically, nor the pending combination of TD Ameritrade with Charles Schwab.)
Masrani explains that about 16% of TD’s consumers are mass affluents, making them an attractive market for wealth management services. (The role that the TD Ameritrade/Schwab combo would have in serving them remains under discussion. The deal would make TD Bank Group the largest shareholder of Schwab.)
“We are in the process of converting a lot of our Financial Services Representatives into more of financial planners,” said Masrani. “The plan is over the next few years to have approximately 400 to 500 of them through our system.” That would put planners in roughly one in three stores.
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PNC: Thinner Branches But Maybe More of Them
William Demchak of PNC Financial Services Group believes regional banks have no choice but to grow beyond their traditional boundaries. As larger rivals like Bank of America and Chase expand into new geographic markets and compete with the institutions already there, including PNC, the only way for larger incumbents to maintain competitive position is to expand towards being a national bank, and to put more offices in selected markets around the country. Both of the giants are in Pittsburgh, PNC’s home city.
“If you sit in your existing region, you will atrophy through time,” Demchak, Chairman, President and CEO at PNC, told investment analysts during an earnings call. “Our ambition is to be a national retail bank. The form that that takes for us continues to evolve. My own belief is that over time this will involve having a physical presence in all the MSAs in the country.”
While the bigger banks have name recognition, one analyst asked, PNC’s name doesn’t resonate as much out of its original footprint. Why not make an acquisition here or there, and pick up a big book of business in one move?
Demchak responded that doing so means purchasing institutions that only superficially look like the right buy.
“We want the accounts,” said Demchak, “but often we don’t want to have anything to do with that institution’s balance sheet. The branches you get are in the wrong places, with the wrong technology, with the wrong style and the wrong employees.” This makes for a bad ROI.
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Leading with teller-less staffed branches. The alternative that PNC has been pursuing is two-fold.
On one hand it has been pressing for new accounts opened and fulfilled digitally, including a high-yield savings account and PNC’s Virtual Wallet relationship checking account, which has digital money management and payment tools.
On the other it is opening new branches outside the bank’s traditional footprint, which, for retail banking, is mostly east of the Mississippi. The new branches so far have been opened in Kansas City, Mo., and Dallas and Fort Worth, Texas. These branches don’t have teller stations, using offices and conference rooms instead, partially in recognition of consumers’ need for consultation. Staffers there fulfill more functions, universal-banker style, but by design they are also expected to be out in the community more than a usual branch employee would be.
“They are out working events, neighborhoods and centers of influence,” said Demchak. The bank’s marketing in these new areas makes local consumers aware of PNC’s advanced product lineup and technology.
PNC refers to these new, smaller and reimagined branches as “Solution Centers.” While PNC overall has been trimming some branches in its original markets, it is opening new ones and picking up larger deposits in the process. Part of the idea of the new design is lower costs, to make them more competitive forays into saturated territories.
Putting more pins in the map. Another surprise is that PNC believes it will be worth going in with more locations than it originally planned on. Even though PNC has found the potential of digital channels to be growing, and it has described the new branching effort as “ultra-thin,” the physical channel turns out to be a producer with more oomph than PNC expected.
“The branch builds that we’re putting in place are much more successful than we’d assumed,” said Demchak. “We’ll probably go with more builds than we’d originally assumed in our national expansion.”
Demchak said that deposits in some of these new centers grow at three to five times the rate of traditional branches. He sees breakeven approaching more quickly than anticipated.
“Branches matter for large depositors,” he observed. “People will say, ‘Hey, it’s a great offer but I’m willing to drive the 20 minutes to go see somebody rather than do it digitally.”
He told analysts that in a given market where originally five Solutions Centers were contemplated, now PNC might be looking at ten — or even 15.