A new survey by the American Bankers Association (ABA) found that for the fourth year in a row, consumers named the Internet as their favorite way of conducting banking business, with 39 percent of respondents saying it is the method they 'use most often to manage (their) bank account(s).'  The second most popular way to bank – visiting a branch – continued its downward trend to 18 percent from 30 percent in 2008.

In addition, this year’s survey showed a sharp increase in the popularity of mobile banking, driven mainly by customers in the 18 to 34-year-old age group. Use of the mobile channel by millennials escalated from 4 percent in 2010 to 15 percent this year. Conversely, the use of branches by this age group during the four-year period dropped from 20 percent to 11 percent, with ATM use also dropping from 32 percent to 14 percent. Overall, mobile banking is now preferred by six percent of customers, a 100 percent increase from 2010.

The distribution of primary channel use this year was as follows:

• Internet Banking (laptop or PC) – 39% (36% in 2010)
• Branches – 18% (25% in 2010)
• ATMs – 12% (15% in 2010)
• Mail – 8% (8% in 2010)
• Telephone - 9% (6% in 2010)
• Mobile (cell phone, Blackberry, PDA, I-Pad, etc.) – 6% (3% in 2010)

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A lot has been written lately around the desire for banks to transform their branch networks given the consumer acceptance of alternative channels and the need to reduce distribution costs. In the past week, there has been coverage in both the American Banker as well as in BAI's Banking Strategies publication (see links to recent articles and white papers below).

One such report, published by the financial market research firm Fitch Ratings entitled, U.S. Banks: Rationalizing the Branch Network, expects that both fewer numbers of branches and different types of branches will be serving customers in the future. According to the report, the continuously increasing cost structure of banking, accompanied by a challenging revenue environment and higher capital requirements is prompting banks to evaluate all expense categories — especially their branch distribution system, which is one of the most significant expenses.

Past Branch Growth

For the past 30 years, branch growth continued unabated while the number of financial institutions declined by more than 50%. The growth occurred largely through consolidation and de-novo expansion, with the objective being to expand a bank's footprint and customer base and therefore low cost deposits and loans.

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Historically, one of the reasons people have chosen big banks has been their large network of branches and ATMs. Especially for people like myself, who travel across the country frequently, finding a place to conduct basic transactions without a fee was a competitive advantage for those institutions with a wide distribution network.

Recently, however, small institutions have been working on ways to erode this advantage, closing the gap through expanded ATM networks, improved online banking and now mobile banking services. In short, technology is quickly changing the definition of convenience for bank customers.

A recent study, The New Banking Value Proposition , from market research firm Chadwick Martin Bailey, finds that credit unions and smaller banks are maintaining their perception of having high levels of personalized service while also catching up with their larger competitors in terms of banking convenience. For those smaller institutions who are focusing on new technologies, this can allow them to more effectively compete for the increasing number of accounts in motion. Additional findings include:

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About a month ago, I visited my neighborhood branch office on a Saturday to open a few new accounts and was surprised to see the vast difference in customer traffic outside the branch compared to inside the office. More specifically, it was clear that the traffic outside the office was almost entirely for the ATM, since during my 30 minute visit only 3 people were served through the drive-up window while no less than 25 customers used the ATM. The manager even mentioned that she had offered the drive-up lane to the long line of ATM users, only to be told that, "we only need to make a withdrawal" (I guess many people don't remember the purpose of withdrawal slips).

While I realize the primary advantage of using an ATM is speed and convenience, are bank marketers missing an opportunity to expand communication through this channel? Having a captive audience, if only for a couple minutes, provides the opportunity to both target communications as well as collect insight.

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While the BAI Retail Delivery Conference in Las Vegas doesn't officially begin until today, hundreds of attendees participated in a series of pre-conference workshops, including a session entitled, "Improving Acquisition, Onboarding and Cross-Sell Effectiveness with Multichannel Communication" which I was lucky enough to present with Matt Wilcox from Zions Bank and Tal Harry from Richter7. The workshop was attended by representatives from banks of all sizes and in various stages of multichannel marketing development.

During the session, we had several formal and informal surveys to determine where this limited cross section of the banking industry was with regard to their marketing mix.

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There are not many books (or anything else for that matter) that I find compelling enough to pre-order. Sure, there may have been a Cleveland Indians or Cavaliers championship jersey I jumped the gun on, but I have never stood in line for an Apple product or pre-ordered a movie to be the first on my block to own it.

I made an exception a few weeks back with the book Bank 2.0 - How Customer Behavior and Technology Will Change the Future of Financial Services by Brett King not only because I was intrigued by the title, but because I have been following Brett's Banking4Tomorrow blog for a couple months and I find his take on the changes in our industry both enlightening and spot on. King is also an international speaker and is an industry advisor on Huffington Post (Business News).

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One of the more startling takeaways from the Mobile Banking and Emerging Applications Summit this week was when Bob Hedges from Mercatus mentioned that mobile financial services could improve customer acquisition rates by as much as 60% in key customer segments (age under 50) for early moving banks. In fact, according the research findings which were presented at blinding speed at the conference, a bank's mobile presence was more important than online banking, ATM presence or even the convenience of local branches in a customer's decision to select a bank.

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As I travel across the country and talk to bankers about their early Reg E opt-in results, many are experiencing significantly higher than expected acceptance rates. In fact, some banks have indicated that they have achieved opt-in rates of as high as 85% or more from the highest impacted segments (those who have the highest use of overdraft coverage) and more than 95% from new customers who are opening a new account.

This level of acceptance should provide some comfort to financial institutions who have been concerned about a massive outflow of fee income as a result of Reg E beginning on August 15. Alternatively, this level of opt in sets the bar rather high for those organizations who have either not begun their Reg E communication or had thrown in the towel expecting customers to opt out on a massive basis.

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Chase Bank has recently reached out to their converted WAMU customers who are receiving a newly branded debit card asking them to "always select 'credit'" when paying for their debit card transactions, stating that the transaction is actually safer than entering a PIN.

The slightly confusing message has not gone unnoticed by industry experts who have come out on both sides of the argument around safety. According to an article in the April 21 edition of American Banker, consultants from Gartner and Aite believe that the PIN provides an added level of security, and that the Chase message may be driven more by the opportunity to generate the higher interchange income associated with a signature based transaction as opposed to a PIN transaction.

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As was predicted late last year at the Mobile Financial Services Congress held in Miami, not a week goes by without another bank introducing a smart phone mobile banking application. And with the introduction of the Apple iPad, many banks have expanded their mobile innovation to include the new device.

For instance, TD Bank has recently introduced TD Mobile Ap for both personal and small business customers covering banking, insurance and wealth management products. In addition to providing a mapping tool for branches, ATMs and TD Waterhouse Investor Centers for both the iPhone and iPad, there are must-have applications for viewing balances and activity, paying bills and transferring funds. TD also provides a way to access TD Waterhouse Investment Reps and TD Insurance Agents and provides a seamless link to their Easyline telephone banking services.

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According to seventh annual household banking survey of 5,000 households conducted by Javelin Strategy and Research, it appears that fees and customer service continue to be the primary reasons a person leaves their bank (in addition to moving). What may be surprising to some, however, is that many millennial (ages 18-24) leave their bank due to the lack of ATMs while there is a growing percentage of households moving to a new bank to get mobile banking services. In fact, according to the study, 'ATM availability' edged out 'online features' as a factor that can predict customer attrition.

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Yesterday, Bank of America announced its intention to end its overdraft fees on debit and ATM transactions beginning this summer. Instead of being assessed a fee, the transaction will be denied unless a customers wants to opt-in to overdraft protection. The advertisement in today's Wall Street Journal positions the decision as a way to help customers from overdrawing their accounts and to provide more control and choice for their customers.

The problem is, Bank of America isn't doing anything that isn't already required by the Federal Reserve. They are just avoiding the cost of communicating with all of its customers to ask them to opt-in (at least for now). Excuse me if I don't believe that they will just walk away from millions of dollars in OD fee income.

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Seeing that a lot of industry writers seem to be already announcing the death of Free Checking as a likely outcome of Reg E, I thought it would be appropriate to write an obituary for this product that saw such an active and successful life.

While many may claim to be the father of this service, paternity tests will most likely point to Ralph Haberfeld as the individual who most nurtured this service during the formative years and who was the strongest proponent of the benefits of the fee income associated with Free Checking. Ten years ago, when some banks (and consultants) began "pushing" free checking, there was concern about losing the meaningful income of monthly fees associated with traditional checking accounts.

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The recent changes to Reg. E, impacting how financial institutions can levy fees for overdrafts caused by one time debit card or ATM transaction, have created a period of both challenge and opportunity for financial institutions. Due to the almost certain negative impact on a bank’s fee revenue and potential customer confusion about this new regulation, it is important to be able to effectively and efficiently implement these new requirements, maximizing account holder opt-in responses while providing a positive customer experience.

In this month's ABA Bank Marketing Magazine, Robert Giltner from Velocity Solutions suggests that financial institutions should start their communications process with a mass mail and email campaign to all customers explaining the new regulation. While I agree that all customers should be provided a clear understanding of their options, I don't agree that an all encompassing direct mailing should be done from a cost perspective.

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Already experiencing loss of fee income due to lower transactions and lower OD/NSF fees resulting from higher balances, banks are beginning to develop and introduce new checking products that can supplement these lost revenues.

In place of traditional free checking accounts are value-based accounts that allow customers to customize their account for a fee. Features such as identity theft, rewards and even enhanced OD/NSF protection can be selected from a menu of enhancements that allow a bank to replace some of the fee income that already has been lost or will be lost in response to Reg E.

One of the first to build a new array of checking accounts was BBVA Compass which introduced Build to Order Checking more than two years ago.

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While attending the 2009 Mobile Financial Services Congress in Miami a little over a month ago, there was a consistent message from almost all of the speakers that a mobile banking customer is less likely to attrite, more likely to use additional engagement services such as bill pay, and less costly to serve.

Interstingly, it was also emphasized that while most banks have promoted the use of mobile banking to their current online banking customers, the real financial benefit is realized when a customer who is not as heavy a user of online banking is converted to the mobile channel. In other words, it makes stronger financial sense to try to segment offline customers and implement a proactive channel migration strategy to convert channel usage.

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