Significant changes in how banks and credit unions conceive, design and promote consumer banking products are starting to develop, according to Accenture.
As this trend solidifies, more banking institutions will craft packages of products and services similar to Amazon Prime accounts, where customers gain advantages by bringing multiple relationships to the same institution.
In a sense this Accenture prediction could mark a return to a more favorable view of “cross-selling,” a term that fell out of favor in the wake of the Wells Fargo sales scandals. But this new version of cross-selling would be accomplished differently than in years past, taking the form of a package of customer “benefits.”
Radical personalization also will start to occur in coming years, with dynamic packaging tailored to an individual’s needs and pricing tied to the overall banking relationship.
Accenture sees the return of higher interest rates and the battle for deposits setting all of this in motion, slowly at first, but eventually snowballing into an era of rapid product innovation.
‘Classic’ Banking Collides With Tech in Big Bang
“Effective zero interest rates suspended ‘gravity’ for a little while,” says Michael Abbott, senior managing director and global banking lead at Accenture. By “gravity,” Abbott means classic spread banking.
“Now, you’re seeing the fundamentals come back into play,” he says, “where deposits matter, lending matters, and the two are coming back together, which is what banks have done for hundreds of years.”
Maybe so, but not in nearly 20 years — which, Abbott readily points out, does make this time around very different. “The last real rising-rate environment, at today’s levels, was around 2005. To put that in perspective, that was before the iPhone was introduced, in 2007,” Abbott says.
The iPhone and related technology have been both a financial services milestone and the cause of massive change in banking. Same for other tech advances that emerged during this timeframe, including artificial intelligence and machine learning.
So the current rate environment — while perhaps familiar to longtime bankers — is playing out against an entirely new backdrop that will fuel unprecedented creativity and accelerate innovation.
In an interview with The Financial Brand Abbott elaborated on themes from Accenture’s report on the top trends in banking for 2023.
Trend: Product Innovation Picks Up Steam
A key argument behind Abbott’s premise is that extremely low interest rates drove financial institution products into silos. “They were forced to build and offer products that could stand on their own,” he says.
Skinny net interest margins and low lending rates meant that deposits weren’t worth nearly as much to many banks and credit unions as they had been. As rates have been rising, the situation is turning around.
“A deposit balance of $25,000 is worth $720 a year in income when the rate is 3.75%,” the Accenture report says. “When it’s 0.25%, it earns only $29 a year.”
“So, all of a sudden you go from an environment where deposits were something that you were trying to minimize or even shed to something that you want to hold onto,” says Abbott. He suggests that institutions of all sizes will look for ways to lock in more business on both sides of the balance sheet by getting creative with bundled accounts.
The concept of broad financial relationships built around packages of services isn’t by itself new. The groundbreaking Merrill Lynch Cash Management Account — which was made possible by a commercial bank decades before the term “banking as a service” existed — debuted in the late 1970s. On a smaller scale, packaged offerings have been devised by vendors for banks and credit unions for decades. What Accenture is describing would be many steps beyond those, and demographically broader and deeper.
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What a ‘Banking Prime’ Account Could Look Like
“You’re going to see banks start to create integrated products that will provide value across the entire banking equation,” says Abbott. “You’re going to see institutions building Amazon-Prime-like offerings where because you’re a member of ‘X’ or because you pay ‘Y,’ you will be able to get a selection of benefits across everything you do with the institution.”
This relationship approach, while already used in some cases for business customers, will be applied in a more organized way and more broadly, even on the retail side.
It’ll be a momentous shift that changes a process the banking industry has been using for decades, Abbott says. “Isolated product innovation,” where financial institutions come up with an idea based mainly on whatever needs a particular line of business has at the time, will give way to “broader, customer-centric innovation,” where institutions look at what would make sense from the customer side and do so holistically across all lines of business.
Here’s an upscale example of what Abbott expects. Say, some customers bring an institution a total of $100,000 in various types of deposits. Keeping that balance level would entitle them to a significant boost in the cash-back rate they earn for credit card purchases. On top of that, other features could include a higher interest rate on savings and a discount on their mortgage interest rate.
This would be a platinum-level offering, of course, but Abbott suggests multiple levels of such integrated packages could be offered. Some packages would be based on types of customers, while others would be based on balance levels.
In a sense, this effort to integrate product offerings would work to reverse a trend of consumers dealing with multiple financial providers and undermining the concept of a primary financial institution, according to the Accenture report.
This challenge arose as focused fintechs splintered financial services into smaller pieces. “Consumers wanting to take advantage of the new value that was being created had to expand their portfolio of financial service providers,” the report states. They tended to mix and match among the choices offered by fintechs, digital banks, and traditional banks and credit unions.
In addition, technology — especially in terms of digital banking and digital account onboarding — made it easier to move money around among various providers.
How to Hold On to Funding:
Personalized and segmented package offerings could help make deposits stickier.
Abbott also urges bank and credit union planners to figure out ways to adapt their offerings to the way people think about their finances, rather than obsessively sticking to the way a banking institution thinks about providing products. “You can’t say, ‘I don’t care what you think. You’re going to go through the experience my way.'”
Further innovation will come in the effort to hold on to the deposits and other relationships garnered through these package accounts.
Creativity Will Fuel Constant Change
It won’t be a one and done matter: Accenture sees banking institutions expanding what their packaged offerings provide. They will “continually add features and new capabilities that scale as the customer relationship deepens: the more you use, the more you get,” the report says.
“There are so many opportunities to do things and invent new products that the customers don’t even know they want, that it’s actually mind boggling.”
— Michael Abbott, Accenture
Though not mentioned in the report, there’s another aspect of the Amazon Prime strategy that banking could learn from. Amazon uses the established Prime relationship to expose the customer to additional opportunities — at a price beyond the annual Prime fee.
Take Amazon Prime Video. While the app provides many movies and shows, it is also a gateway to both rental and sale of streaming entertainment that is not included in Prime, as well as subscriptions to other channels. Some of the latter are paid while Amazon’s Freevee provides “free” entertainment with unskippable commercials, which bring in revenue in another way.
Point to Ponder: What could banking institutions hook onto package accounts that would drive new revenue opportunities?
A twist on packaging that can cross-sell is already showing up in the credit card sector. Note how credit card issuers are increasingly allowing customers to draw on their lines of credit in novel ways that funnel them into other credit products. For example, JPMorgan Chase allows customers to use their card’s associated mobile app to request that a portion of their credit line be issued as a personal loan. The interest rate on the loan is lower than it would be for purchases on the credit card, and no new credit evaluation is involved. Customers simply select the term they want and the proceeds of the personal loan are deposited into their checking account.
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Trend: Branches Become Important (Again)
Accenture’s report also talks about “the renaissance of the branch.”
It tees this up with the reflection that, before the pandemic, “few banks spent time wondering whether their branch network was a blessing or a curse — it was simply an unavoidable part of doing business.” Meanwhile, the point that branch closures during the height of the pandemic accelerated adoption of digital services has become an overdone meme.
The downside of digital: Abbott worries that along the way, some banking players lost a key connection with the people and businesses they serve.
“The industry became functionally correct and emotionally devoid. It’s lost the ability to have a conversation with consumers.”
— Michael Abbott, Accenture
Digitization made it easier for customers to serve themselves, but also hurt banking institutions’ ability to distinguish themselves from each other. Now that deposits have grown more important, this situation must be remedied, according to Abbott.
“In an environment where deposits have value to the bank and where some customers still believe their money resides in the local branch, these relationships matter,” the report says.
Abbott stresses that he is not calling for a return to the days of the “hallowed branch.”
“Don’t think of the next generation of the branch as something built around a vault,” he says. “Think of it as an Apple Store. It’s a place where you can have a relationship. That can include some basic transactions, advice and counsel.”
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Focus on Financial Wellness Gives Branches a Boost
The focus on improving customers’ financial well-being will intensify. Abbott says upcoming Accenture research indicates that even Millennials are very interested in more consultation now.
Abbott doesn’t expect many following the lead of JPMorgan Chase, which has opened hundreds of branches in new markets in recent years. But he does expect increased attention to how new locations are opened and where they are deployed.
“I think you’ll see banks judiciously place branches in the right places, where they can provide deposit gathering, for sure, but also where they can provide advice and counsel,” all within a certain proximity of their customers, says Abbott.
What should such locations look like? That’s still in flux, ranging from locations like the Chase flagship branch in Manhattan to café branches to branches that resemble community centers, he says.
“We haven’t cracked the code yet,” Abbott adds. But space to have private conversations about financial concerns or wealth management issues will be critical
Future branch strategy is one of the most common inquiries Accenture’s banking group receives. “The number of questions is off the charts,” says Abbott.