By Sullivan, Mary Beth
American Banker , Vol. 175, No. 76
Byline: Mary Beth Sullivan
The delivery of retail bank products and services has been an expensive and complicated business.Over the years, consumers have demanded access to their banking accounts through awidening array of channels while at the same time ranking branch convenience rank as the No. 1 reason for primary bank selection.
As competition for deposits heated up in the first half of this decade, retail banking businesses responded by building thousands of branches, deploying more ATMs and electronic funds transfer at point of sale
devices, hiring more salespeople, lengthening call center hours and investing in online banking functionality- all of which continued the long-running trend of increasing the costs of retail banking operations.
Unfortunately, that trend is poised to continue as retail banks absorb higher costs of regulation, build better online banking platforms, add mobile capabilities, and invest to provide better experiences for customers at every touch point.
These challenges are difficult enough in the current environment, but another factor further complicates things: changing consumer behavior.
The recession,the crisis of faith in corporate America, and the growing influence of Generation Y in the marketplace have combined to alter purchase and product-use behaviors dramatically.Banks hoping to succeed over the long term will have to transform their business models to adapt to the new profitability dynamics of the business and the shifting behaviors of the American consumer.
Consider one significant behavioral trend: the locallymade, locallyproduced movement.Consumers don't particularly like "big" anymore; they want to know where things are made, and they increasingly purchase services from companies with ties to their local communities.Farmer's markets have sprouted up everywhere; minor league baseball attendance is setting records even as major league attendance declines; and community college enrollment is growing at double-digit rates.The local community is thrivingIf it weren't for the economic decline's impact on small businesses, many local businesses would be thriving too.
Which isn't to say big brands will suffer.Some name brands have already jumped on the go-local bandwagon.Starbucks is opening stores with names like Roy Street Coffee & Tea,that resemble mom-and-pop strore.ESPN's local online editions threaten to displace local sports coverage in major cities around the country. Even Wal-Mart and McDonald'shave recently embraced localization - with product selection and store designs tailored to the local culture.
It would be nice to believe that the movement of significant deposit dollars into banks over the last 24 months, much of it into community banks, was part of thego-local trend.But that conclusion is likely false.Banks undoubtedly benefited from the flight of money away from Wall Street.However, many banks also engaged in classic price competition by raising money market and savings interest rates and paying cash up front for new accounts. …