Lack of consumer confidence has taken a toll on retail banking, and economic concerns will continue to affect this line of business throughout the year, analysts say. With the level of unemployment rising, there has been a decrease in new account opening-the bread-and-butter for the branch network.
According to Avivah Litan, vice president of financial services, Gartner Inc. (Stamford, Conn.), because consumers are focusing on paying off debts and making it through rough weather on the employment front, opening new accounts and applying for loans has not been the highest priority.
"Until consumers gain confidence in the employment situation, I don't think that there will be more consumers taking out loans," says Litan. "Right now everyone's in so much debt, that the main focus is climbing out of debt and not taking on any more debt."
Litan says that the extent and timing of the job market recovery will affect the strength of the retail banking line-of-business this year.
"If you listen to the forecasters, it's probably going to be a hesitant first six months, and then depending on how the job recovery goes, it's going to be a strong second half," she says. "Consumer confidence is not going to be the big panacea that everyone's hoping that it's going to be until the jobs stick up."
Robert Hall, EnAct Group executive, Carreker Group (Dallas, Texas) agrees, saying that if the economy does get better, banks will have to try harder to hold on to their customer bases.
"If in fact the economy continues to grow - and it appears that we have moved out of recession into a stronger economy - one of the real important issues for banks is to hold onto their fair share of their customer share," says Hall.
Banks are trying different techniques to keep customers, but Hall offers two suggestions to financial institutions hoping to keep customers: Steer away from big mergers, and offer customers a more personalized relationship.
Given the recent announcements with Bank of America-Fleet and JPMorgan Chase-Bank One, reasonable bankers may differ. But will the trend continue? "That seems contrary to what we see in terms of the numbers, of where revenue growth been flowing," says Hall. "In 2004 there will be a group of organizations that continue to focus on a closer, intimate and affective relationship with customers. Some will continue to be involved in merger acquisition activities, but I think it will be hard for those organizations to grow and enhance customer relationships."
Although slowing activity in retail banking has had an effect on bank revenues, says Litan, financial institutions are shying away from cutting costs. Indeed, many have begun to ramp up IT spending in order to stimulate revenue growth.
"From the IT world, we're definitely seeing a turnaround from the recession," she says. "We are seeing banks come around from the cut-cost stage to figure out how to grow revenue space so we are seeing increased IT investment."
The increase in IT spending may have to do with recent Check 21 legislation. Banks now have to find ways of dealing with image exchanges, according to Litan.
"Checks are fundamental now to retail banking, and only the largest banks have really been putting in infrastructure and investment to electronic check exchange," she says. "Now you're going to see innovation at the stores, like imaging the checks at the point-of-sale terminal, and cutting costs that way."
Adds Litan, "This is the biggest thing to hit banks in the last ten years, even though no one is looking at it like that."