2015-Consumer-Banking-Online-Payments-Survey-Protiviti

Bricks and Clicks – Consumer Preferences on Retail Banking and PaymentsSummarizing Results of Protiviti’s Consumer Banking and Online Payments Survey

PROTIVITI • 2015 Consumer Banking and Online Payments Survey 1

In the second quarter of this year, Protiviti surveyed more than 2,000 consumers in the United States to identify the perceptual and behavioral trends behind the numbers in banking practices, including service delivery preferences, online banking preferences, credit card security and the adoption of new payment products, among other topics. Our results revealed a number of notable findings and trends:

I. The Branch Is (Not) Dead, Long Live the BranchIn Banking, Brick-and-Mortar Locations Still Connect With Consumers

If this is the era of online and mobile banking and if branch banking is as dead as many industry observers are saying, why does it seem as if new branches are opening at a faster rate than ever before? The answer, as with so many important questions, is: It’s complicated.

The Federal Deposit Insurance Corporation reports that the number of bank branches in the United States at the end of 2014 was 82,613. That’s down only a tenth of a percent from a 2012 peak of 83,663. In fact, the total number of branches is up 93 percent from 1984, when there was a grand total of 42,717.1

Since then, the number of banking institutions has decreased 61 percent, while physical branches have nearly doubled. Most of that increase has occurred since 1995, the acknowledged dawn of commercially viable online banking. Hardly a case for decline.

As products and channels evolve, banks must begin to consider the omni-channel customer experience. How do channels interact? How do products work together? Many product marketers and managers fall into the “replacement” trap – as in, mobile channel proliferation should replace older channels, such as branch. But on the contrary, we must learn to harness technology – both internal and third-party data – to enhance the branch experience, to make it experiential, and to leverage the branch as a supplement to less interactive channels.

There is ample evidence in our study to suggest that branches remain not only viable, but vital at a time of increasing focus on the “customer experience.” Our survey responses offer a potential view of the future in which branches survive and thrive, albeit perhaps in a different form, even as online and increasingly mobile banking technology increases in popularity.

Key Findings

• In-person branch banking remains a popular choice among consumers.

• There are differences among age, income and gender groups in banking practices – but not as many as some may think.

• Consumers clearly seek an omni-channel experience, where they move within and between channels for product purchases and account management.

1 Source: Federal Deposit Insurance Corporation – Number of Institutions, Branches and Total Offices, FDIC-Insured Commerical Banks, www5.fdic.gov/hsob/HSOBRpt.asp.

www5.fdic.gov/hsob/HSOBRpt.asp

2 PROTIVITI • 2015 Consumer Banking and Online Payments Survey

Channel PreferencesWhereas the emphasis used to be on “multi-channel” – offering customers a variety of banking options, from which they could choose one – the current focus is on offering an “omni-channel experience,” from which customers can choose multiple options according to their evolving needs and circumstances. Customers may begin their journey in one channel, move along seamlessly to another and wind up in a third, all while enjoying an experience that is in line with brand expectations and meets the customer’s informational and transactional needs.

Our survey results show no negative correlation between frequency of branch visits and web and mobile banking use, except for the predictable spike in electronic check deposits for respondents who indicated that they never visit a branch (see Chart 1).

While web and mobile banking have shifted a large percentage of everyday transactions away from older channels (checks, branches, ATMs), customers still want the tactile experience of visiting a branch if they are nearby, and especially want human interaction for more complex or high-value transactions, such as loans, product advice and investment advice. Such consumer preferences represent an opportunity for banks to take advantage of valuable face-time for relationship building and cross-selling.

Chart 1: Consumers Who Use Their Bank’s App or Mobile Website for Regular Banking Percentage of consumers

Check balances

Make transfers

Make bill payments

Deposit checks

Send money to another person

0% 10% 20% 30% 40% 50% 60% 70% 80%

66%68%68%

50%52%49%

46%47%51%

51%39%37%

29%29%29%

Do not visit branches Regular branch visitors Frequent branch visitors

Overall, a surprising 84 percent of respondents reported that they continue to visit a branch of their primary bank at least once a month. Again, this represents an apparent refutation of the premise that branches are moribund.


Among respondents expressing a channel preference, frequent branch visitors were more effusive in their praise of their brick-and-mortar locations than non-visitors were about their mobile application experience (see Chart 2).

Satisfaction runs high across banking channels, with frequent branch visitors nearly unanimous in stating that their primary branch addresses all their banking needs. Regular visitors are similarly satisfied. In addition, both groups are strongly satisfied with telephone banking, while non-visitors report significantly less (61 percent) satisfaction with that channel.

To be sure, the branch of tomorrow may bear little resemblance to the branch of 10 years ago, or even today. As day-to-day transactions migrate online, the branch is likely to evolve into something more experiential – something akin to an Apple store – where customers come to ask questions, learn about products and services, and actually interact with the bank online or virtually while at the branch.

Remember, it wasn’t long ago that bankers were scratching their heads over the number of customers who would come into a branch asking questions about how to use online banking. This is further evidence that in the minds of many customers, the branch is where their money lives, and the web and mobile applications are just ways they direct the movement of that money.

Chart 2: Banking Channels by Preference Percentage of consumers rating the channel at least 8 out of 10

Website

Mobile application

ATM

Twitter

Text messaging

0% 15% 30% 45% 60%

51%29%

33%29%

33%37%

27%29%

25%28%

Email

Branch

Phone

Online chat

Mail 19%22%

24%25%

22%53%

20%28%

19%19%

Do not visit branches Frequent branch visitors

Frequent branch visitors also tend to hold more credit cards, carry balances on their credit cards and be more engaged with other services, especially ATMs and phone banking.


Assessing Banking Differences Among Generational and Gender GroupsIn our study, websites and branches are essentially tied as the most popular banking channels, with only a few differences across generations. Males tend to favor these two channels somewhat less than women, primarily because their preferences span a wider range, including Twitter, among others. It should be noted that men tend to visit bank branches more often than women do.

Generationally, respondents were grouped 20-29, 30-34, 35-44, 45-49, 50-59 and 60-69 (see Charts 3 and 4).

Younger males use mobile applications most frequently, a finding that holds up across five types of transactions ranging from checking balances (the most popular) to sending money (the least frequent). Men under 30 are more likely than women in the same age group to use their phones to make a variety of smartphone purchases, from merchandise to media and groceries. The gender gap is less pronounced for older generations.

Chart 3: Checking Balances Percentage of respondents in each generation who have checked balances with a mobile app

Ages 20-29

Ages 30-34

Ages 35-44

Ages 45-49

Ages 50-59

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

85%81%

81%79%

78%69%

62%57%

55%55%

Ages 60-69 44%43%

Male Female

Chart 4: Sending Money Percentage of respondents in each generation who have sent money to another person with a mobile app

0% 10% 20% 30% 40% 50% 60%

51%41%

47%32%

34%22%

22%27%

22%15%

14%12%

Male Female

Ages 20-29

Ages 30-34

Ages 35-44

Ages 45-49

Ages 50-59

Ages 60-69


II. Consumer Perspectives on Emerging PaymentsIn-store purchases using smartphones decline sharply with age, with men being more likely than women to do so in every age group (see Charts 5 and 6).

Interestingly, the Starbucks app is an exception, with women under 45 using it more frequently than men of the same age. This contrasts sharply with ApplePay, which skews 70 percent male versus 45 percent female for respondents under 30.

Online purchasing using smartphones falls off rapidly with an individual’s age, as well, but there are also sharp differences among the types of products purchased by gender. Respondents under 30 showed the biggest gender gap, with men far more likely than women to make grocery and travel purchases online via smartphone.

Men under 35 are far more likely to have used web- or app-based wallets than women, and they are evenly divided between Amazon Checkout and Google Wallet as the most popular options. The use of app-based wallets of all types falls off sharply for older generations.

Chart 5: Have you used your smartphone to make a purchase in a retail store in the past 6 months? Percentage of respondents in each generation

0% 10% 20% 30% 40% 50% 70%60%

61%36%

56%32%

36%26%

21%12%

20%17%

13%8%

Male Female

Ages 20-29

Ages 30-34

Ages 35-44

Ages 45-49

Ages 50-59

Ages 60-69

Key Findings

• New credit card chip technology will change the checkout experience, but may not ultimately move the needle in its goal of reducing payment fraud.

• Consumers overwhelmingly believe that chip technology is more secure than magnetic stripe.

• Surprisingly, many consumers believe that mobile payments are less secure than magnetic stripe transactions.


Chip Cards Changing CheckoutNot all changes are consumer-driven. Over the past couple of years, credit and debit card issuers have been rolling out counterfeit-resistant cards embedded with computer chips in addition to the traditional magnetic stripe.

“EMV” chip cards – named for Europay, MasterCard and Visa – are difficult and expensive to duplicate and have been shown to reduce card counterfeiting in Europe, where they have been the standard for more than a decade.

Chip cards require new chip-compatible card readers. Beginning in October 2015, the liability for fraudulent transactions shifted from issuers to merchants, in cases where merchants have not upgraded and enabled their terminals to accept chip card transactions.

The biggest change for consumers is that instead of swiping their cards through a magnetic stripe reader, they will be required to insert their card into a chip reader – typically located at the bottom of the signature pad – and leave it inserted during the duration of the transaction. The verification process is more complex and requires about 1.5 times as long as swiping.

That’s still only a few seconds per transaction, which may not sound like much. But store layouts are based on such things as speedy checkout times. It is conceivable that the switch to chip cards may lead to new checkout configurations – although what that will look like is not yet clear.

There is bound to be confusion during the transition, as consumers swipe their cards by habit and have to be trained in-line by clerks and cashiers. The new chip-reading technology will also affect consumers accustomed to using their mobile phones to pay at checkout. One of the more popular phone-pay programs emulates magnetic stripe data, which for a chip card would now direct them to insert their card – or in this case, a phone. No doubt such details will be worked out over time, but they are likely to slow down the checkout process during the transition.

EMV is not a new technology. We have seen that in many markets, where the technology has been in place for more than a decade, any reduction in counterfeit cards was more than offset by an increase in fraudulent phone and online – or “card-not-present” – transactions.

Chart 6: Online Smartphone Purchasing by Millennials (ages 20-29) Percentage of millennial consumers purchasing each type

Merchandise

Apps for phone

Media

Groceries

Travel

0% 10% 20% 30% 40% 50% 70%60%

68%61%

66%58%

63%48%

44%19%

43%29%

Male Female

Ironically, for all the rigmarole, some experts say the change to EMV credit cards may have little effect on credit card fraud overall.


In many markets, card issuers took the additional step of requiring a personal identification number instead of a signature – unstructured data that is typically archived, but not used for transaction approval. In the United States, the PIN feature has not been employed. EMV, therefore, becomes a mechanism to reduce card counterfeiting, and will not have any material impact on card-not-present fraud or major system hacks.

Many retailers have taken the added step of activating near-field communications (NFC) to accept mobile transactions, when they upgraded checkout terminals. Overwhelmingly, consumers believe that chip card technology is more secure than magnetic stripe technology. However, they also believe that mobile payments transactions are no more secure, and in many cases less secure, than magnetic stripe transactions. While the promise of greater and more frequent transactions from mobile payments has yet to materialize, it is likely that the slowness of EMV transactions, coupled with the security and speed of mobile transactions, will drive retailers to finally encourage mobile payments at the point of sale.

Chart 7: Consumer Opinions on Mobile Payment Security vs. Magnetic Stripe Percentage of consumers

More secure & Much more secure

No different

Less secure & Much less secure

0% 10% 20% 30% 40%

22%

30%

35%

No opinion 13%

Chart 8: Consumer Opinions on Chip Security vs. Magnetic Stripe Percentage of consumers

More secure & Much more secure

No different

Less secure & Much less secure

0% 20% 40% 60% 80%

70%

21%

4%

No opinion 5%


Closing ThoughtsThe more things change, the more they remain the same. Predictions calling for the imminent demise of branch banking are, to say the least, premature.

Even as consumers embrace the convenience of new technology for routine queries and transactions, branches remain core to the banking relationship, as well as a trusted source of information and touchstone for a robust 84 percent of customers.

Bankers have long counted branch location and accessibility among the top new account generators. And our survey results clearly show that frequent branch visitors tend to be more engaged with the bank and show a higher affinity for using other services, particularly ATMs and phone banking.

Younger consumers, especially men, have embraced mobile payments for a wide array of purchases – both in-store and online, while women under 45 have shown a strong interest in specialized online pay apps for high-affinity retailers such as Starbucks. There is no evidence, however, that this has had a negative effect on primary banking relationships, as men, across generations, remain among the most frequent visitors to branch locations.

The bank on the corner may very well evolve into something different than the one you are used to. But there will still be a bank on the corner for years to come.

While there is growing adoption of mobile payments through various technologies (NFC, MST, etc.), there is no clear “winner” in this space. As the sector evolves, we must understand how each player addresses each of four key cornerstones: security, ease of use, ubiquity and business model.

When considering security, EMV (especially with signature) only addresses card counterfeiting. ApplePay adds biometrics and encryption, but misses on provisioning concerns.

None of the technologies has solved for ease of use when compared to magnetic stripe. EMV is far more complex, ApplePay requires a multi-step process at the point of sale when switching between cards, and LoopPay has EMV integration issues.

Ubiquity is an area of contention, with many merchants resisting the acceptance of mobile payments and unsure which technology to back. This likely will change with the continuing evolution to EMV acceptance and merchants’ realization that mobile payments are simpler than EMV transactions.

Finally, the business model is unclear to many. Few of the schemes have actually shifted consumer behavior and provided players in the value chain with a return on their investment. Today, no player or technology, large or small, has solved for each of the four key cornerstones of security, ease of use, ubiquity and business model.

The future of branch banking is bright, even as the technology-driven multi-channel delivery model gives way to a more customer-experience driven omni-channel reality.


About ProtivitiProtiviti (www.protiviti.com) is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit, and has served more than 60 percent of Fortune 1000® and 35 percent of Fortune Global 500® companies. Protiviti and our independently owned Member Firms serve clients through a network of more than 70 locations in over 20 countries. We also work with smaller, growing companies, including those looking to go public, as well as with government agencies.

Named one of the 2015 Fortune 100 Best Companies to Work For®, Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

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