Page 11 - Banking Outlook 2014 - An Industry at a Pivot Point

Banking Outlook 2014: An Industry at a Pivot Point | 9

In our view, few mandates are more important to the banking industry right now than a
relentless attention to connecting with customers as a means of building new revenue
streams. Banks must begin to act less traditionally and follow the path forged by other
customer-centric organizations that allow themselves to be shaped by customer demand,
using more mobile, more two-way, more “right-now” experiences to give customers what
they want when they want it. Examples are around virtually every corner, especially in the
online marketplace, where savvy merchants know what their customers buy and when they
buy it, and use that information to pitch other goods and services that may interest them.
Connecting with

Customers

In the banking industry, connecting consistently with customers will require that banks understand the
demographics of their markets, including the characteristics that define their best customers, and knowing
which products and services they are willing to pay for. It also means developing the right distribution
channels, as consumers increasingly use more than one channel.
One recent study found that consumers handle four top banking activities—bill paying, viewing balances
and transactions, viewing statements, and transferring money—more frequently on the Web than any other
channel. Additionally, the exceptional value propositions of banking are becoming increasingly unclear, as
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consumers also can find banking services in many more nontraditional venues now, too, including mom-
and-pop, check-cashing storefronts and major retailers.
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For some banks, the drive to connect with new customers may lead to providing services they haven’t
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
seriously considered in the past, for customers they haven’t previously courted—including the 34 million
Americans who are unbanked or underbanked. How big are the opportunities? The direct-deposit-advance,
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or payday-loan, market is estimated at $23.1 billion. The peer-to-peer payments market is estimated at
$17.1 billion. Both are served today primarily by nonbank institutions. True, federal regulators have cautioned
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banks not to operate direct deposit advance businesses in ways that could increase their credit, compliance,
legal, and reputation risks.
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But that doesn’t mean smart banks can’t find a way to compete responsibly in this space. Check-cashing,
bill-paying, prepaid debit cards, and international money transfers are other services America’s unbanked
and underbanked have demonstrated they are willing to pay for. Banks must demonstrate that they are
willing to provide those services without abusing the customer, or risk forfeiting that business to the other
companies stepping in to fill the void. The FDIC has actually been encouraging banks on this front, urging
them to address the unbanked and underbanked with expanded offerings of low-cost checking and savings
deposit accounts, transaction services, and small-dollar loans. The challenge isn’t miniscule—costs for
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servicing such clients have, in the past, often exceeded the revenues they generate—but the opportunity is
too big to ignore.

5 “The State of North American Digital and Multichannel Banking 2013,” by Tiffani Montez, Forrester Research Inc., 4/2/13
6 FDIC: 2011 FDIC National Survey of Unbanked and Underbanked Households – http://www.fdic.gov/householdsurvey/
7 Aite Group “The Debanked: A US $1 Billion Prepaid Debit Card Opportunity,’’ Aite Group, February, 2012
8 FDIC, Proposed Guidance on Deposit Advance Products – http://www.fdic.gov/news/news/press/2013/pr13031a.pdf
9 “Walmart vs. Big Banks: The Battle for Poor Customers,” by Halah Touryalai, Forbes, 12/14/12