Seacoast Bank decided to move to a digital-first strategy in 2011. Several years later, having implemented the online and mobile technologies that put it on par with the largest financial institutions in the U.S., CEO Dennis Hudson is now figuring out how to integrate the bank’s newfound digital capabilities more deeply into its business model.
Digital transformation initiatives are commonplace in the banking industry today, but what makes Seacoast Bank unique is the extent to which their board and senior management has embraced the journey, recognizing that digital impacts everything from how the bank needs to approach their cost structure to how they communicate with customers.
In this exclusive interview with The Financial Brand, Seacoast CEO Denny Hudson and CMO Jeff Lee explain how Seacoast Bank is implementing their digital strategy, and how being a community bank actually helps give them a leg up on the tech battlefront.
TFB: Why is digital transformation so critical in banking?
CEO Denny Hudson (DH): Convenience in the banking industry has always been based on geographic location. But banking is no longer defined by the place you go but by something you do. Banking processes were designed for a paper- and cash-based world… and for the benefit of the bank. They were driven by the bank’s goals and priorities. We’d tell customers what line to stand in, what forms to fill out, and how long they had to wait. Those days are gone. We must now redesign every business process from the customer’s perspective, which has huge impacts on every aspect of the entire business model.
TFB: For such sweeping changes to be successful, there must be a mandate from the top. Was the board convinced?
DH: Absolutely. Not only did we give our board ample evidence that we needed to change, but we also transformed the board itself. We replaced about one-half of our board members with folks who have more value to add in this transformation effort — people who support and truly believe in this direction.
TFB: What about costs? That’s got to be a concern, especially for a community bank.
DH: For most institutions, it’s not intuitive that “smaller” can be better when it comes to technology, but this was our “aha” moment. Implementing the technology to support our digital strategy has been surprisingly inexpensive. Tech costs have collapsed, and technology is now scalable for smaller environments like ours. And actually, our size give us an advantage. We don’t have the massive data silos like you find at larger institutions. We have a rich data set warehoused in one central place that we can get our arms around.
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TFB: What about branches?
DH: Historically as an industry, we’ve had a lot of fixed costs tied to our physical footprint. Those fixed costs can put you out of business, which is what we see happening in the retail world. Retail sales are down, but their cost structure hasn’t changed. The same thing could be said for banking. That’s why we are taking down the old infrastructure designed to serve customers in the 20th century.
TFB: Does that mean you are closing branches?
DH: We’ve been closing and consolidating branches for the last four years, but we feel we are approaching it in the right way. We first make certain that our customers are comfortable interacting with us in other ways — digital channels and self-service options.
TFB: How many branches have you closed?
DH: That’s a tricky question because we’ve had some acquisitions and mergers, but I can say that we have about the same number of branches as we did four years ago but we are now double the size. So, our number of customers per branch has doubled. The efficiency ratio is significantly improved.
TFB: Are you saying branches are obsolete?
DH: No. Even online retailers like Amazon believes in brick and mortar; they’re opening physical stores, and they see the future potential in retail/distribution hybrids like Whole Foods. In banking, the branch used to be the only way to distribute products and services. But today it’s just one part of an incredibly complex integrated distribution system.
TFB: Digital isn’t just about backend systems. What role does digital play in your marketing mix?
CMO Jeff Lee (JL): Digital is critical. About 30% of what we do from a brand standpoint and about 25% of prospect marketing is digitally enabled. What I particularly love about it is that we now have true end-to-end measurement of our digital marketing efforts in place.
We don’t look at any marketing channel in isolation on its own. They all have to work together. However, we do closely watch how the varying channels we used compete against each other; the one with the highest ROI wins.
TFB: Between digital and data, it’s possible to construct robust segmentation models. What’s your approach?
JL: We layer segmentation. At the top level, we use pretty standard macro segments. So for small business, the segments are by industry type. Consumers are segmented as mass, mass affluent, and affluent. We then segment customers by behavioral framework, analyzing the channel preferences of every single customer. Ultimately we develop clusters within our macro segments to determine how to service those segments.
TFB: Has a segmentation model that shifts away from traditional demographics yielded any surprises?
JL: It definitely made us rethink the notion that we should just close more branches, which was too simplistic. When you dig in and analyze who is actually using branches, you find the low-value customers you might expect. But we also found that our high-value and ultra-high value customers also use branches. The data forced us to become really smart in how we approach pruning our branch system. Sure, we may be able to save more labor and real estate costs, but if we close branches haphazardly, we could be driving value out the door and our bottom line down.
Now if we are contemplating a reduction in square footage in a particular market, we spend at least six to eight months concentrating on getting customers comfortable interacting with us differently before we make any changes.
TFB: How has the shift to digital affected marketing?
JL: Hurricane Irma really demonstrated the power of digital. A number of our customers were impacted. We reached out to customers ahead of the storm to help them get prepared. Then after the storm, we used geo-targeting to contact customers in areas that were heavily impacted to let them know where we were open and how we could help.
It may sound counter intuitive, but we’ve also used direct mail to successfully drive digital outcomes. For instance, we identified clusters of customers who could benefit from using mobile banking but weren’t. We used direct mail to send these customers a check for $5 — compliments of the bank — that they could use to deposit in their account using our mobile deposit capture tool. We had an 8% response rate on the campaign, and those customers that tried mobile deposit continue to use it.
TFB: There’s a lot of talk these days about the customer journey? What does that mean to Seacoast?
JL: We can see every customer touchpoint — for example, when a customer went online, or opened an email. What’s become clear is that we still have more work to do on streamlining and improving fulfillment to make it easier for customers. We can certainly see cross-channel behaviors, and by studying these customer journeys, we’ve had success lowering costs on routine transactions. Ultimately we want to allow customers to fulfill whatever they want on their channel of choice. Customers will increasingly expect lighting fast fulfillment and a seamless experience on their mobile device.
TFB: What’s your advice for other financial institutions?
DH: A digital strategy pays off in two ways. First and most obvious is the cost differential between branches and digital channels. Second, you have more satisfied customers. As you improve their experience, profitability increases.
We actually consider ourselves lucky to be in an industry where the highest cost channels are declining in customer usage and the lowest cost channels are exploding. We will continue to take advantage of that.
TFB: Thank you very much gentlemen. We wish you both continued success.