Branch TransformationTalent, Technology, Buildings and Brand

Matt L’HeureuxFirst Vice President, Product Management

About COCC

• Client-owned financial technology company serving the Northeastern United States since 1967

• Fastest growing financial data processor in the United States

• 2015 American Banker & BAI FinTech Forward 100

• 2015 Hartford Courant Top Workplaces and Top Leader (President & CEO, Richard Leone)

• 2015 Banker & Tradesmen’s Gold Award in Banking Technology

• COCC.com / @coccinsight

Agenda

• Changes in channel preference

• Goals and objectives of branch transformation

• Talent

• Branding

• Design

• Technology

• Virtual branch

ad·ap·ta·tionnoun

the action or process of adapting or being adapted

a change or the process of change by which an organism or species [your institution] becomes better suited to its environment

Thursday, November 05, 2015 12:36 PM ET

Bank of America Corp. downsized its branch network by a net 39 locations during the third quarter, making it

among the most active on that front as it continued an ongoing effort to sell off some stores and shutter others in

order to bring down costs and focus ever-greater attention on serving customers via digital avenues.

Branch counts dwindle in Q3'15; digital banking looms largeBy Kevin Dobbs and Zuhaib Gull

• We continue to experience shifts in consumer activity away from branches towards self-service options

• Customers increasingly are doing more business online, at ATMs and, most notably, via their mobile devices

• It is win-win because it costs less to meet its customers where more of them now want to do their banking

• Mobile is better for the institution and it is better for the customers. It is one-tenth the cost relative to processing at financial centers and more convenient for customers.

• Bank branch counts have steadily declined for the past six years. Foot traffic at banks has plummeted as Americans grow accustomed to handling routine business of all stripes online and by using mobile applications

• Lending profitability has been under pressure amid the drawn-out low interest rate environment, motivating banks to contain costs by minimizing their physical footprints

• The right-sizing of the branch network through closing or downsizing branches is a major component in the bank's organization-wide cost cutting initiatives

• We still believe in the value of a well-structured branch systempositioned to serve the needs of our current and potential clients both living and working in our marketplace

• Many customers still want to meet in person for major transactions, to learn about new products or to address problems

• Branches in high-traffic areas still function as important billboards, reminding customers that banks are committed to serving neighborhoods and communities

For selected states

Excludes credit unions

Data compiled Oct 29, 2015

Source: SNL Financial

Branch Openings and Closings inQ3 2015

State Total Branches Net Openings/Closings Openings Closings

Connecticut 1,228 -14 0 14

Illinois 4,617 -31 8 39

Maine 496 -3 0 3

Massachusetts 2,196 -10 2 12

New Hampshire 428 -4 1 5

New Jersey 3,107 -30 11 41

New York 5,274 -22 21 43

Ohio 3,856 -10 5 15

Pennsylvania 4,372 -54 8 62

Rhode Island 264 0 0 0

Tennessee 2,185 -12 9 21

Vermont 246 -3 2 5

TOTAL 28,269 -193 67 260

A continuing migration of customer transactions to electronic channels will

require financial institutions to bring down their branch costs while coming

up with alternative designs for the Branch of the Future.

Building the Branch of the Future (BAI, 2015)

North American Consumer Banking Survey (Accenture, 2015)

Four key findings suggest how banks can evolve customer relationships from staying close and becoming more proactive to using their competitive advantage, managing customer

data and keeping pace with a new generation of banking customers:

BRANCH

Reinventing the Branch Experience

81%of consumers would notswitch banks if their primary bank closed the local branch.

RELATIONSHIP

Going Beyond Financial Transactions

79%of consumers consider their banking relationship to be transactional; up 8% since 2014.

DATA

Making the Most of Customer Trust

86%of consumers trust their bank over all other institutions to securely manage their personal data.

MILLENNIALS

Winning Millennial Customers

18%of millennials switched their primary bank within the past 12 months; compared to 10% of customers 35 to 54 and 3% of people 55 and older.

Millennials

• 80 million people representing the largest potential lifetime value of any consumer segment

• Adaptive behavior generally not seen in other generations

• 74% cited “mobile banking is very important to me”

◦ 76% more than the Baby Boomer response

• 23% visited a branch in the last 30 days

• 33% visited a branch in the last year

• Typically visit a branch with hopes it will augment their mobile experience

Millennials Relationship with the Branch (FMSI, February 2015)

Millennials

• 71% would rather visit the dentist than pay attention to something their bank has to say

• 73% prefer to use alternate financial channels such as Google, Amazon, Apple, PayPal or Square rather than work with a bank

• 58% are interested or very interested in proactive recommendations from banks for new products or services they might find useful

◦ They want these recommendations to be made with consideration for their existing accounts (personalized, data driven sales and marketing)

Marketing to Millennials In Branch and Out (BAI, 2015)

TD Bank Survey (2014)

The Advantages ofIn-Branch Banking

55%

51%48%

35%32%

27%24%

21%

2% 2%

Responses from Millennials

U.S. Multi-Channel Customer Research 2014 (Novantas)

For What is the In-Branch Channel Preferred?

70%

41%

45%

53%

58%

26%

19%

37%

54%

25%

15%

35%35%

22%

13%

36%

Deposits Withdrawals Transfers Resolving Issues

2006 2011 2012 2014

All Respondents

U.S. Multi-Channel Customer Research 2014 (Novantas)

Channel Preference to Replace a Debit Card

40%

35% 35%

32%

28%

19%

23%21%

19%21%

19% 18%

26%

31%33%

37%

41%

48%

$25K-$50K $50K-$75K $75K-$100K $100K-$150K $150K-$250K $250K +

Teller/Branch Phone Online/Mobile

Respondents by Household Income

My Banking Relationship is Defined by…

29%

71%

2014

Advice/Relationship Driven Transactional

21%

79%

2015

Advice/Relationship Driven Transactional

My relationship is defined by my bank providing advice that improves my financial well-being

Advice/Relationship Driven:

My relationship is defined by simple transactions like paying bills

Transactional:

North American Consumer Digital Banking Survey (Accenture, 2015)

The Virtualization of Financial Advisory Services

Robo-Advisors

• Use algorithms to match investment portfolios and plans to individuals

• Questionnaire collects info such as amount to invest, expected return and risk tolerance

• Routinely adjusts the portfolio diversification

• Low account minimums and lower fees

• Currently limited to more basic investment needs

• Customer pays trade fees while the provider earns management fees (typically in the range of 0.25% to 0.50%) *

* Digital Disruption – How FinTech Is Forcing Banking To a Tipping Point (Citi GPS, 2016)

Omnichannel Banking: More Than a Buzzword (The Financial Brand, (2014)

Channel Usage Shifts and Increases

81%79%

72%

49%

36%

74%

49%

58%

16%

19%

54%

16%

28%

6%

9%

Online/Mobile Branch ATM Call Center Agent Automated VRU

Used In the Last 6 Months Used At Lease Once Per Month Used At Lease Once Per Week

FMSI Teller Line Study (2015)

Cost Per Teller Transaction

45 19

90 133

$ 1.12

$ 0.48+

Source: McKinsey & Co. (The Financial Brand, May 2014)

Estimated Impact on Efficiency Ratio for a Typical Retail Bank

Cost opportunity

Revenue opportunity

-0.2-0.3

+0.1-0.1

-0.4

-0.2

Total Estimated Impact on Efficiency Ratio: -7.1

-3.9

+1.1-0.8

-0.6

-1.5

-0.5

Migrate teller deposit and withdrawal transactions to digital channels

Migrate teller payments and services to digital channels

Increase use of online bill pay

Increase use of debit cards

Increase adoption of online-only statements

Introduce new branch formats with smaller footprints

Thin the branch network

Total opportunity

Increased costs offset by additional revenue

Lost revenue offset by reduced costs -6.9

Goals• Lower the branch cost structure

◦ Reduce the incremental cost of geographical expansion

◦ Improve efficiencies

◦ Fund the expansion of digital banking

• Reinvent the branch experience (modernize)

◦ Increase customer satisfaction

◦ Focus on enhancing relationships (over transaction processing)

◦ Refresh the brand

◦ Attract and retain millennial customers

• Grow (increase sales)

Plan and Execute

• Identify the problem/opportunity

• Define success

• Research and plan

• Execute

• Measure

• Refine

Branch SolutionsMatrix

AttractNew

Customers/Members

Retain Customers/Members

EnhanceImage/

Branding

ReduceFootprint

Increase Efficiency

AddCustomer

Convenience

Reduce Expenses

ExpandHours

Centralize Expertise

Expand Geographical

Reach

Attract aNew

Segment/Demographic

Branch Design/Redesign

Pop-Up/Mobile Branches

Cash Recyclers

Interactive Teller Machines (Remote Assisted)

Next Generation ATMs

Contactless ATMs

Self-Service Kiosks

Tablet Banking

Video Conferencing

Digital Signage

Informational Kiosks

Account Holder Verification System

Workforce Optimization

Universal Bankers

CRM Assisted Service Professionals

Paperless Banking

Instant Card Issuance

iBeacons

Online/Mobile Banking

Dimensions of Branch Transformation

• Talent and workforce management

◦ Focus on advice and expertise (less transaction processing)

• Branding

◦ Unique and customer driven

• Design

◦ Balance space optimization with privacy and convenience

• Technology

◦ Purposed to improve experiences

• Virtual Branch

◦ Better integrated and mutually supportive digital channels (omni-channel strategy)

Customer Satisfaction

• Branch locations

• ATM locations

• Products and services

• Reduced fees

• Mobility

• Communication

• People (call center, online or in the branch)

Talent Management

• Preserve quality of service

• Improve sales

• Reduce customer attrition

• Reduce costs

• Increase transaction efficiency

• Grow revenue

Mission Excellence

• Service excellence is critical

• Each bank offers the same services and follows essentially the same regulations

• Ernst & Young survey in 2014 revealed that 56% of those that have “complete trust” in their primary FI said it was because of “the way I am treated”

• A workforce management strategy can ensure that people deliver the optimal customer/member experience

Optimize people, process and technology to create and sustain superior performance.

The Value Chain

Productivity =OutputInput

Expand output levels with the

same cost structure

Reduce cost structure while

retaining output levels

Input Process Output

Analyze the Data to Identify Staffing Needs

Workforce Management

Bank Transaction

Trends

Operating Hours

Branch FTE Schedules

Branch Transaction

Data

Average Transaction

Length

Other Duties

Account Openings

and Closings

Staffing

• Consider various staffing models

• Review the benefits of a workforce management solution

• Analyze competencies of staff

• Shift appropriate front line personnel to back office operations (e.g. online banking administration)

• Develop training programs

• Shift towards Universal Bankers

Ensure employees embrace the

technology and can effectively explain

the benefits to your account holders.

Universal Banker

• Multi-faceted job responsibilities acting as both teller and platform service representative

• Less cash handling and transaction processing and more product advice, referrals and problem resolution

• In depth product knowledge and increased sales responsibilities

• Produce more qualified referrals to other lines of business

• Possess enhanced relationship building skills

• Create positions more appealing to those seeking career growth and opportunity

• See ABA Universal Banker Certificate

CRM Assisted Service Professionals

• 360° view

◦ Relationship dashboard

◦ Services dashboards (incl. external services)

• Profit profile with accountholder grade

• Households

• Contact management

• Sales leads

With complete access to CRM details, universal bankers can provide

advice that is enhanced by up-to-date information on

the customer’s entire relationship alongside a

view of all their interactions.

Talent Management

• Plan

◦ Define service goals

◦ Project results

• Execute

◦ Measure and analyze

• Improve

◦ Refine and optimize

Online and mobile banking contribute to a decline in personal relationships

that drive business for banks and credit unions. Financial institutions must refresh the customer experience.

Branding

• Consistent

• Simple and concise

• Customer focused

• Relentlessly relevant

• Value-driven, purpose-led

• Impactful (e.g. success stories)

Your brand is what people say it is. So get them to say what you

want them to say.

Digital Signage/LCD Touchscreens

• Self-service with personal support

• Modern look to replace pamphlets

• Multimedia

• Information is not grab-and-go

• Requires new marketing skills

• Attempts to do something in the branch that people may prefer to do on their mobile device

Informational Kiosks (Tablets)

• Self-service with personal support

• Modern look to replace pamphlets

• Multimedia

• Information is not grab-and-go

• Requires new marketing skills

• Attempts to do something in the branch that people may prefer to do on their mobile device

Design

• New offices will likely have a smaller footprint

◦ Reduce capital investment, occupancy costs and headcount

◦ Crowded during peak hours

◦ Diminished privacy

• Updated design of existing offices should be one optimized to achieve clearly defined goals

4 Key Zones of the Ideal Client Experience

APPROACH

High level client engagement through

multiple channel offerings

TRANSACT

A fundamentally different client

experience through an open transaction area

SOLVE

Intricate client interactions conducted

in a seated, collaborative environment

EXPLORE

An interactive and social client experience

NES Group, Mansfield, MA (nes-group.com)

Branch Design

• Open floor design

• Concierge style, better facilitating personal interaction

• Pods for Universal Bankers

• Reflect you brand, mission and values

• Private offices and conference rooms as needed

Branch Design

• Make the customer experience more comfortable

◦ Lounge-type environment

◦ Charging stations and Wi-Fi

• Purpose-driven innovation

◦ LCD screens with more image-driven messages that can easily be changed

Before

After

Archetype Typical Size Technology Staffing Utilization

Self Service500 to 1,000

sq. ft.

- Full self service- Advanced function ATM

- Video teller

- Not staffed- May have video teller

for live support- Urban core

Express1,000 to 2,000

sq. feet- Full self service or assisted self service

- Concierge (1 to 2 FTEs)- No dedicated tellers

- Urban core- Rural replacement to substitute

for closing branch

Neighborhood2,000 to 3,000

sq. ft.

- Assisted self service or cash recycler pods- Video conferencing access to business

line partners (mortgage, business banking, investments, etc.)

- 3 to 4 Universal bankers- No dedicated tellers

- Urban core- Suburban strip mall

- Rural replacement to substitute for closing branch

Traditional4,000 or more

sq. ft.

- Cash recyclers to supplement traditional teller lines

- Assisted self service in high volume locations

- 6 to 8 FTEs- Universal bankers as a component of branch

staffing

- Hub branch- Center of expertise staffed with

business partners

Branch Design

March 2015 Digital Banking Report (Peak Performance Consulting Group)

Pop-Up/Mobile Branches

• Position the brand as forward thinking, adventurous, innovative and responsive

• Flexible and low-cost, allowing for the testing of new concepts and products

• Gather feedback and watch consumer behavior, reactions and preferences

Branch SolutionsMatrix

AttractNew

Customers/Members

Retain Customers/Members

EnhanceImage/

Branding

ReduceFootprint

Increase Efficiency

AddCustomer

Convenience

Reduce Expenses

ExpandHours

Centralize Expertise

Expand Geographical

Reach

Attract aNew

Segment/Demographic

Branch Design/Redesign

Pop-Up/Mobile Branches

Cash Recyclers

Interactive Teller Machines (Remote Assisted)

Next Generation ATMs

Contactless ATMs

Self-Service Kiosks

Tablet Banking

Video Conferencing

Digital Signage

Informational Kiosks

Account Holder Verification System

Workforce Optimization

Universal Bankers

CRM Assisted Service Professionals

Paperless Banking

Instant Card Issuance

iBeacons

Online/Mobile Banking

Technology

Get Tech Expertise in Your Bank's Boardroom (excerpts from)By Kevin Wack

January 4, 2016

In the early days of the ATM… My granddad, a longtime board

member, spoke against the proposal [for an ATM]. He had grown

up in a small Nebraska town during the Great Depression, and he

reasoned that customers wanted to talk to their banker. That

personal connection conveyed a sense of trust.

Today the technological challenges facing the industry are far

larger than they were in the 1970s, and the need for tech expertise

on bank boards is greater. Yet banks of all sizes are lagging.

A recent study by Accenture looked at 109 large banks globally

and found that only 6% of their board members overall have

professional technology experience. More than 40% of these

banks did not have a single board member with a professional

technology background.

Many small banks have directors who are in their 70s and are not

comfortable using a smartphone, Vonder Heide adds. "How in the

world can they make an informed decision on the nuances of

bank technology? They can't," he says. "If you have a candid

conversation with board members, as I have dozens of times each

year, they say, 'You know what? I am so uncomfortable with

technology. And I realize that I'm personally liable if I screw up.

But what can I do? I just hope that nothing goes wrong.'"

Paperless Banking

• Document management with eSignatures

• Electronic receipt storage

• Email receipts

• Workflows and document tracking

• Enhanced security

• Less data entry/reduced human error

• Reduced usage of printers and paper

• Recapture workspace

Customer Identification

• Debit Card

◦ Swipe debit/ATM card and enter PIN

• Biometrics

◦ Fingerprint reader

◦ Retina Scanner

◦ Fujitsu PalmSecure

– Contactless (hygienic)

– False rejection rate of only 0.01%

Video Conferencing

• Representatives can work in remote locations

• Personal connection for customers that cannot reach the branch

• Enables flexible staffing

• Different personnel requirements: Must be comfortable on video

• May require design changes and strict guidelines to protect the FI’s professional image (e.g. backdrop and lighting)

Tablets

• Turn unproductive wait times into business opportunities

◦ Work lines to process deposits, balance inquiries and transfers

◦ Schedule appointments

◦ Demonstrate how to use online banking or mobile channels

• Online account opening

• Remote banking

• Position yourself as more as more advanced institution with modernized tools and processes

Microsoft Tablets

• Full transaction support outside of the institution

• In-branch mobility

• Video conferencing

• eSign

Remote Banking on Secure Virtual Desktops

• Microsoft RemoteFX

• Enhanced user experience through virtual desktops

• Redirect USB devices to virtual machines

• Shared encryption, authentication, management and device support

• Compatible with most devices including iPads

Cash Recyclers

• Accept, validate, sort, store and dispense cash

• Reduce cash inventory and improve cash forecasting

• Improve accuracy

• Reduce transaction times (and wait times)

• Shift focus from the physical transaction to relationship building

• Remove the need for the traditional large bank vault

• Increase security

Self-Service Kiosks (e.g. Reevex)

• Web banking plus cash

• Lobby use only

• Reduce or reallocate the workforce

• Handles more transaction types than ATMs

• Self service

• Guided adoption

• Training opportunities

• Limited personal interaction

Next Generation ATMs

• Reduce costs while maintaining the expected level of personal service

◦ Approximately half the cost per transaction as compared to a teller

• Facilitate time-shifting (bank on your own schedule)

◦ Heavy usage before and after work hours

• Only effective if it matches customer preference

• Assisted self-service; staffing may be required to demonstrate ease of use

• Assume at least 10% of your customers/members will hate it

NCR Interactive Teller Machine (ITM)

• Remote assisted service

• Transactions processed by remote staff

• Cash recycling

• Not an ATM: ATMs remain for foreign customers and as the best option for quick cash withdrawals

• United Bank (Georgia) credited for being the only bank to open during a few days of unusual ice storms

Diebold

• Advanced function ATM (including passbook printing)

• Cash recycling

• In-lobby teller terminal includes options for self-service, video and teller-assisted

Nautilus Hyosung

• All-in-one banking kiosk

• Advanced function ATM

• Video conferencing

• Cash recycling

Glory TellerInfinity

• In-branch teller-assisted service

• One staff member supports multiple devices

• Integrates with alternative authentication technologies

• Capable of serving customers and non-customers

• Expanded transaction set

• Complete transactions that require teller override

• Cash recycling including low denominations

Glory Global Solutions, Inc.

TellerInfinity

Focus on Sales

Banks need to make sure that using the interactive tellers results in staff

devoting more time to sell products and services to customers in the branch.

- ”Six Video Teller Mistakes to Avoid”, American Banker (March 8, 2016)

Smartphone Enabled ATMs

• Setup the transaction on the smartphone

• Go to any of the FI’s ATMs

• Enter one-time use PIN, QR code or use NFC to complete the transaction

• Prevents skimming

• Reduces wait time

• Cards and PINs may become undesirable as compared to NFC and biometrics

iBeacons

• Apple’s iBeacons work with Bluetooth Low Energy (BLE) to integrate the physical and mobile channels

• Enables an iOS or Android mobile app to receive tailored promotions, coupons and offers

• Customer must have the mobile app installed and opt-in to receive personalized promotional alerts

• Can be activated when the mobile device is near a specific office/ATM or at a specific location within a branch

Leveraging iBeacons

• Welcome message with list of available services

• Customer recognition: Alert branch staff with details of the customer’s relationship

• Personalized product offers

• Location specific offers: Offer RDC at the deposit slip counter

• Customer education (e.g. protecting your identity)

• Surveys

• Message customers after they use an ATM

• Post visit retargeting

10 Ways iBeacon Can Improve Banking Sales & Service (The Financial Brand, May 2014)

Retail Analytics

• RetailNext: Facial recognition

• Euclid Analytics: Identify customer smartphone wi-fi signals

Euclid Analytics for Retail BankingAs your retail bank evolves, you need to understand the customer visitor

patterns to make data-driven decisions. Euclid delivers the visitor

information you need to inform key marketing and operation decisions

from measuring the effectiveness of specific promotions to understanding

how customer behavior impacts the success of each branch.

Scheduling

• Online appointment scheduling through any channel

◦ Website

◦ Online/mobile banking

◦ Email campaign

◦ Social media

• Systematically match customer needs to appropriate service representatives

• Maximize engagements from a pool of resources at varying locations and with varying specialties and skills

An Integrated Mix of Physical & Digital Options

03/17/2016

PORTLAND, Ore.--(BUSINESS WIRE)-- Umpqua Bank, a subsidiary of Umpqua Holdings Corporation (NASDAQ:UMPQ), will be consolidating 26 store locations later this year. Consolidations will begin in June and continue through the summer of 2016. Umpqua has notified all customers affected by these consolidations, and will be automatically transferring customer accounts to the most convenient store.

“Today, customers can bank online and on their mobile devices – and convenience is defined not by bank locations but by an integrated mix of physical and digital options that make it possible for customers to bank when and where they choose,” said Greg Seibly, Umpqua Bank’s president of consumer banking. “These store consolidations reflect those changes in customer behavior and allow Umpqua to continue operating as efficiently as possible while investing in a unified physical and digital customer experience.”

Virtual Branch (Mobile and Web)

• Lowest cost per transaction

• Largest adoption

• Always available

• Easiest training

• Broad functionality

• Easy-to-leverage targeted marketing capabilities

• Dynamic content, in-session messaging, chat and video chat can reduce the loss of personal connection

Virtual Branch

• Create a consistent look across channels while balancing the need to simplify the experience as screens get smaller

• Chat and video chat

• Social media integration

• Marketing analytics

• Site analytics

◦ Geolocation and device details

◦ Traffic sources

◦ Page statistics

It is imperative to enable customers to decide where, when and how they do their banking.

The San Francisco store, which opened in 1997 in theHaight-Ashbury district, is especially notable for itssize. Occupying a 24,000 square foot former bowlingalley, the store regularly stocks upwards of 100,000CDs, vinyl records, and audio cassettes, both newand used.

Branch Counts Dwindle in Q3'15; Digital Banking Looms Large (SNL Financial, 2015)

Looking Ahead

• The overall branch reduction trend will continue because of the technology piece of this. But when rates rise, the pace could at least slow.

• When interest rates do eventually rise, depositors likely will start shopping for better rates. When this happens, banks will find themselves competing for core deposits, and branches likely would play a role in banks' sales and marketing efforts.

Build a Comprehensive Branch Transformation Plan

Branch Transformation

People

Process

Brand

DesignVirtual Branch

Technology

Budget

Optimizing Distribution

• The value of the branch will need to be redefined

• By 2020 banks are likely to have a far greater number of physical points of presence but far fewer traditional branches

• Banks will manage distribution holistically, supported by shared platforms that distribute products across all channels

• Competitive reach is no longer determined by branch networks but instead by technology and advertising

• Banks need to choose what posture to adopt against the emergence of new competitors and models; shape the future, be a fast follower or manage defensively to resist change

PwC Retail Banking 2020

Thank youMatt L’Heureux