With Europe’s future teetering on the brink amid the sovereign debt crisis, executives must navigate seismic shifts in regulation, technology, and consumer behavior, many of which challenge the most foundational assumptions of the traditional branch-based sales and advisory model. Yet while there is growing acknowledgement of the need to change, there is little consensus around the type of change required, and even less on how we might go about accomplishing it.

The only certainty, almost three years on from when crisis first hit – things will not get better by themselves. The consumer confidence problem, if anything, has become more pronounced and better mobilized; new ideas have become new competitors, with Movenbank and Bank Simple ready for battle; while deteriorating economic conditions continue to render even the most imaginative cost cutting measures woefully inadequate.  

To help members build “Resolve in Uncertainty” – the confidence to make those big strategic decisions now, before it is too late – The Council is excited to announce our inaugural Financial Services Conference at the Park Lane Hotel, London. Alongside a number of high profile keynote speakers, the event will offer a series of executive work-shop sessions to drill down on the following key competitive challenges:

• Achieving High-Impact Channel Migration – Branches can no longer be the hub of all things financial. Learn how to migrate customers while preserving valuable relationships.
• Implementing Mobile Solutions – Realize opportunities the mobile channel presents for retail customers including payments and social media.
• Leveraging Social Media to Humanize the Virtual Experience – Determine how to change your firm’s strategy to meet the needs of the emerging segment of social bankers.
• Managing Operational Risk – Understand how to effectively manage capital and solvency requirements in the retail bank while taking out cost.
• Capturing the Mass Affluent Mindset – Discover how to serve the needs of the six sub-segments within this attractive yet complex group.
• Exploring Innovations in Global Payments – Learn about global payment initiatives around the world and how to leverage innovations in your business.

Register for this free event here, or visit  www.CEBTowerGroup2012.com for more information. The decisions we make today will likely determine relative market positions for many years to come.

Recent financial regulation in the form of the Durbin Amendment and Regulation-E has prompted big banks to consider changes to their checking offerings and in most cases, impose new monthly account charges to checking accounts. A recent survey of the top 25 banks showed that the average monthly fee is now $4 and it could rise to $8 within a year.

Customers don’t like fees. And they especially don’t like new fees to existing accounts. When asked how they would react if they were charged a $3 monthly fee for their debit card, 61% of debit card holders said they’d find another way to pay. For many customers, “finding another way to pay” means leaving their banks. 4 million customers left the biggest 30 banks last year because of fees and an additional 11 million are expected to leave this year. Where do they go?

For more and more Americans, switching to prepaid cards is the chosen path. According to some analysts, prepaid charges will exceed $200 billion by 2013, up from $28 billion in 2009. Customers are attracted to the prepaid option because of easier approval processes, online bill pay, direct deposit, and no minimum balances. Issuers that waive withdrawal and deposit fees are even more popular. For banks, the options for this product are easily customizable and perhaps most importantly, out of bounds for regulators – prepaid cards exempt from the new cap on swipe fees.

The market is ripe for prepaid cards. However, banks are conspicuously absent from the game. Of the 25 highest rated prepaid card options, only one belongs to a bank (CapitalOne). Other players like Walmart, Green Dot, and NetSpend are dominating the field. American Express has recently introduced the launch of its prepaid card option which it guarantees to be “a cut above the rest,” and many analysts and consumer groups agree. In light of all the recent regulatory and cost pressures facing the industry, prepaid seems to be an attractive pursuit for banks.

To learn more about prepaid cards and other innovative products, visit our Global Product Innovation Library.   

Attend our upcoming webinar to learn how banks must develop and implement new product and pricing strategies to restore overall checking account profitability while maintaining or growing market share.

Sources: Fortune, Detroit Free Press, CreditCards.com

Where We Are Now: Checks have been in steady decline in Europe for the last decade, as the graphic on the left illustrates. The UK has already announced a target date of 2018 for the closure of all check clearing operations, and Australia and America are not far behind. In virtually all cases, rather than let checks die out on their own, authorities are proactively managing the process to avoid confusion and facilitate a smoother transition to paperless payment technologies. In turn, rather than resist the inevitable, banks are often voting in favor of aggressive cut-off dates, if not setting their own institutional dates ahead of those prescribed by national authorities, while gradually lowering check guarantee limits to discourage usage.

What Might Happen: The end of checks will clearly save banks money. They cost around $1.6 to process, approximately four times as much as electronic payments, and take well over four times as long to clear. There will be some collateral damage, particularly around older customers and small businesses that will likely resist “forced” migration, with the very real risk of government intervention in the event of any perceived financial exclusion. The real worry though is around branch traffic: fewer checks will obviously mean fewer people in branch. For an industry so dependent on in-person “reactive sales”, traditional providers will have to think quickly and carefully about an entirely new model of engagement, interaction and service delivery through alternative channels. How will they forge connections, build relationships and drive sales?

How We Can Help: To understand how to better align channel investments with evolving consumer preferences and economic realities, access Re-Thinking Channel Strategy.  For guidance on alternative sales tactics, consult our Sales Productivity Topic Centre, while The Council’s social media work provides insight on how to connect and engage with current and prospective consumers outside of the branch.  

Access to mobile communication technologies now exceeds access to basic banking services worldwide. What if an established non-FS provider introduced account and payment facilities embedded into mobile phones? What would happen to the traditional ATM infrastructure and credit and debit card providers worldwide?

We’re not quite there, but field tests have now started for Google Wallet, a new point-of-sale ecosystem that will allow users to use their smart-phone as their wallet. No longer any need for the bulk, users will be able to store their credit cards, offers, loyalty cards and gift cards on their phone, tap their device onto a Near Field Communications (NFC) reader, and automatically redeem offers and earn loyalty points. What’s more, through Google Coupon, Google is able to offer various location-based sales and special offer recommendations, creating a wallet that not only knows where are, but what you want.

Key Insight: The exact end result may be uncertain, but it seems clear Google and other major players are investing heavily in new payment systems focused on creating a personal, convenient and locally-focused customer experience.

Key features:  

• Convenient Payments: Google Wallet will turn your phone into a wireless credit card, able to “swipe and pay” wherever you see an NFC reader.   
• Security: Beyond the standard PIN system, “Secure Element”, a separate chip that stores encrypted credit card data and will “self-destruct” if tampered with. 
• Location-Based Services: A range of carefully calibrated sales and special offer suggestions based on user locations.

To learn more about the Google Wallet click here, and to understand changing customer relationships and emerging competitors check out our Transformative Forces deck. More on payment technology related innovations can be accessed through our Global Product Innovation Library.

Bank of America, JPMorgan Chase, and Wells Fargo have joined forces to provide customers the option to transfer money to and from accounts more easily. Customers can now move money safely using a mobile number or email address through ClearXchange, the first bank-owned solution of its kind. Instead of writing checks and traveling to and from the branch, customers of the three banking giants will now be able to transfer funds directly from their checking accounts to one another, anywhere across the US. Bank of America and Wells Fargo are already testing the payment system in Arizona. Chase plans to join them there soon.

Key Insight: The nation’s largest banks are discovering ways to fight back against third party vendors such as Google, Apple, and PayPal that have recently introduced mobile payment apps into the market and threaten their revenue streams. ClearXchange will be a competitor to these services and even more importantly, it brings peer-to-peer payments back to the bank account (most third party payment services require customers to open a new account, as well as use their separate app or website). Now customers can log on through their bank’s mobile site or app and have instant access to money transfers and payments.

Key Features:

• Free, for now: The service will be free to customers as it is tested however a spokesperson from Bank of American said the banks will eventually set up separate fee structures for the offering.
• P2P and beyond: BofA, Wells, and Chase are offering the new service as a consumer-to-consumer payments system but the banks are in talks to open the service up to include the option to pay businesses.
• Cost Saver: New payments technology will cut processing costs for financial institutions.

Now What? Other banks will have the opportunity to join this venture in the near future. The big three intend to extend their offer to their peers as the service is rolled out in the coming months. 

Understand the state of the global mobile market by accessing our recent research, Mobile Banking – Observations, Innovations, and Outlooks.

Learn more about how customers perceive and use the mobile channel and others through our latest findings of Channel Preferences and Quality Ratings Amongst Bank Customers.

See how digital channels and mobile payments are challenging traditional retail channel strategies in our latest distribution research.

Retail banking has reached an inflection point, where prevailing assumptions  begin to lag emerging realities. Customer behavior, competition, and business models are changing. Perhaps at no other time in the history of finance has the business model for retail banking been under such pressure. Branch traffic is declining. New entrants into financial services–from start-ups to Google–are prepared to challenge every bank activity. Meanwhile, as the graph to the left shows, many banks have built their networks on fee income that is now being stripped away by regulation.

To succeed over the next 3-5 years, banks must step back, examine their strategic positions, and question the assumptions that drive their businesses. To meet the challenges ahead, banks need a clear picture of the emerging competitive environment and the strategic steps necessary. To this end, we offer our members ”Rethinking Retail Channel Strategy.”

This is a guest post by Hans Eisenbeis of the Marketing Leadership Council, our sister program for Marketing professionals.

In these days of post-recession malaise, there are two things at the center of every consumer’s life: Money and cell phones. It’s only a matter of time before these two merge, and we’ll all be paying for our groceries with a wave of our cell phone.

Or will we? We know that consumers are eager to have some way to make person-to-person payments that doesn’t involve paper checks (still the single largest form of non-cash P2P payment), but the banking industry in its collective foot-dragging hasn’t yet built a global standard for mobile payments — though there are plenty of PayPal wannabes trying to get a piece of the mobile action.

Now it looks as if the financial services industry is finally coming on board with technological innovations like mobile banking and payments that promise to take consumers’ love affair with the mobile phone — especially smart phones like the iPhone and Droid — to new heights.

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