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FIs reconsider account offerings, branch networks

March 20, 2014 by Terry Dooley — SVP & CIO, ITS, Inc

Financial institutions across the U.S. still face increased operating costs and decreased revenue. With the goal to at least maintain — if not increase — revenue, profitability and customer satisfaction, FI leaders are taking a closer look at their debit and checking offerings, as well as their branch networks.

A recent Aite Group report, "U.S. Checking and Debit Account Trends: Networks, Branches, and Product Management," highlights some of the ways in which FIs are continuing to be affected by the Durbin Amendment, as well as the impending EMV migration. It also offers some insight into the specific ways FIs are looking to reexamine current contracts and network affiliations, as well as cut costs this year.

Predictably, the report found that cost is the number one factor FIs of all sizes consider when selecting PIN and signature networks for their debit offerings. With EMV on the horizon, the report expects many FIs to reevaluate their network affiliations, in an effort to negotiate and/or generate new contracts at a lower cost.

The report predicts that FIs reconsidering their contracts will pressure networks to decrease prices with the idea of securing greater market share.

FIs are also looking to cut costs by consolidating or closing branches. Specifically, 65 percent of FIs deemed their interest in closing or consolidating branches as moderate to high. Forty-two percent of those predicted that level of interest would grow over the next 12 months.

Consumer behavior in response to increased online and mobile banking technology has led to a decline in the number of FI branches across the country. In fact, according to a recent SNL Financial report, U.S. FIs collectively cut 390 branches in the third quarter of 2013.

Conversely, a number of FIs are interested in not only keeping branches open, but also adding customer value in the process. According to the report, improving customer interactions was also of interest to FIs participating in the study. Aite found that 65 percent of the larger FIs surveyed expressed interest in enhancing their current locations by updating them and offering additional advisory services.

As Aite Group senior analyst Madeline Aufseeser said, financial institutions are motivated to change the branch. "If they can provide more resources for the customer in the branch, then they can use it to develop more sticky customer relationships."

The report found minimal interest on the part of FIs surveyed in adding self-service kiosks as a branch substitute. Even so, 35 percent of large FIs and 23 percent of credit unions predicted this option to become more appealing over the next 12 months.

As the fallout from Durbin continues to materialize, mobile and online banking popularity continues to surge, and the industry moves closer to the EMV migration, there's no doubt FIs must focus on enhancing their bottom line.

FIs will be reviewing and partnering with processors and debit networks which focus on helping them improve their bottom line by working to defray the cost of EMV, investing in cooperation of their future, and ensuring products and services are provided in a manner that allows community banks and credit unions to create new revenue streams.

Cutting operating costs (while maintaining a high level of customer service and satisfaction) is top of mind for many FIs as we settle into 2014.

About Terry Dooley

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