1、GlobalResearch18 December 2019U.S. Financial ServicesWhen branch banking meets digital banking; expert call; transcript attachedConference call on the interplay of digital and branch bankingWe recently co-hosted an expert call with Eric Wasserstrom on branch and digital banking.ThepanelistsincludedB

2、arbaraYastine,formerCEOofaleadingdigitalbank, andRobertAulebach,formerretaildistributionexecutive,BankofAmerica.Overall,the panelists believe that branch light strategies enhance the effectiveness of digital initiatives.Theyalsodiscussedthechallengesforfullydigitalbanksofdevelopingdeep and profitabl

3、e client relationships and gave their thoughts on the threats and opportunities associated with big techs incursion into financial services. A replay is available at +1 (888) 286-8010, passcode: 63255389 until January 15, 2020. PleaseseeourrecentUBSEvidenceLabreportonentitledUBSEvidenceLabinside: Ta

4、keittothebankaguidetobranchnetworksandstrategies,volumeIII.Financial ServicesAmericasEquitiesSaul MartinezFinancial ServicesAmericasEquities HYPERLINK mailto:saul.martinez +1-212-7132491Eric E. Wasserstrom HYPERLINK mailto:eric.wasserstrom +1-212-7131355AntonioChapa HYPERLINK mailto:antonio.chapa +1

5、-212-7132213Frieda Gonzalez AssociateAnalyst HYPERLINK mailto:frieda.gonzalez +1-212-7134086 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 22. UBS does and seeks to do business with c

6、ompanies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.We present below highligh

7、ts from our recent call with Barbara Yastine, former CEO of Ally and Robert Aulebach, former retail distribution executive, Bank of America. We have edited the transcript below for clarity. Minor grammatical changes that do not impact the meaning of content have been applied. Changes to content to c

8、larify meaning have been underlined. What we consider to be key points have been highlighted in bold. The opinions expressed by Barbara Yastine and Robert Aulebach herein do not necessarily reflect the views and opinions of UBS. UBS accepts no responsibility for the accuracy, reliability or complete

9、ness of the information and will not be liable either directly or indirectly for any loss or damage arising out of the use of this information or any part thereof.U.S. Financial Services Moderators: Saul Martinez / Eric WasserstromDecember 16, 20191:00 pm CTSaulThanks, everybody for joining us. Im a

10、lso joined by EricWasserstrom,ourspecialtyfinanceanalyst.Every year we publish a version of our Guide to Branch Banking,whereweuseUBSEvidenceLabtododeep dives on the branch footprint of the banks in our large cap coverage universe; however, its also become increasinglydifficult,Ithink,tofullydisenta

11、nglebranch strategies with the digital banking strategies meant to grow clients into deep and existing relationships. So the term Omni Channel gets thrown around a lot. Maybethemostdiscussedofthosestrategiesarethose of JP Morgan and Bank of America who have pretty publicly undertaken branch expansio

12、n efforts and targetmarketsevenastheyparefootprintsandlegacy markets.But its not just them. Other banks have also undertaken strategies to grow deposits via additional initiatives, some with branch light approaches in new markets and others without. So the goal of this call is to better understand t

13、he interplay between digital and branch banking, and what could help determine the winners and the losers in the marketplace.To that end, we are very happy to have Barbara Yastine, former CEO of Allied Bank. We also have Robert Aulebach who had held various leadership positions in retail banking at

14、Bank ofAmerica.The format of this call is similar to others weve hadin the past. Well ask questions Id say a rough 40 minutes or so and then well open it up to Q&A. If youd rather we ask your question, dont hesitate to emailEricortoemailmeoranymemberofourteams and well do our best to get your questi

15、onsin.Before we start, customary disclosure, as a research analyst I am required to provide certain disclosures relating to the nature of my own relationship and to that of UBS with any company on which I express a viewonthiscalltoday.Thesedisclosuresareavailable at HYPERLINK /disclosures /disclosur

16、es. Alternatively, please reach out to me and I can provide them to you after the call.So why dont we get started now? Thanks, Barbara and Rob for joining us. Ill start with a bit of a broader question.Illgiveyouahypotheticalsituation.Solarge regionalbank,largebranchnetworkinitscoremarket, looking t

17、o grow outside their existing footprint, largely throughdigitalmeans;maybebranchlightpresenceas well. If their measure of success is both client growth and growing profitably, what do you guys think are the three things they absolutely need to get right? What can blow up their strategy?So Barbara, I

18、 dont know if you want to go first, if you can just give us some insights into how you would think about that.BarbaraSure. Well, the three things that they would have to commit to, think about would be the question of rate and what rate strategy are they going to employ. Presumably,ifthisisoutsideof

19、theirexistingfootprint, they would be willing to consider a rate structure that is competitive with the online only bank. So number one is rate.Number two is that they would need to commit seriouslytodepthofservicesandfeatures.Frankly,for$3 million, anyone can start a bank and have a very basic web

20、presence and gather CDs at an online kind of rate. So I talk about depth of services andfeatures, its the whole plethora. Are there online interbank transfer functionalities? Are there going to be automatic tiered rates? I personally believe that in a digital world you need minimal tiered rates, but

21、 are you automatically going to put people in the category that they should be? I would also throw fees into that bucket as well.So, just thinking about or being willing to commit to a digital-like strategy around services, features and fees.Then the third one is there really needs to be a commitmen

22、t to an intense curiosity about data on customer behavior and using that data to personalize the experience, but that doesnt mean, “Hi, Barbara!” Idontneedapersonalizedemail,butthatsomeoneis actually looking at my behaviors as a customer andusing that information to deliver potentially valuable info

23、rmation as well as product to me. So its rates, depth of service, features, and fees, and then finally it is a real commitment to using that data.SaulGot it. Rob, what would you add to that or how would you think about that?RobertSowhatIwouldaddtothatisyoualsohavetohavea pretty big marketing presenc

24、e, even if youre going physical or digital, but you have to somehow get your name recognition out there in the marketplace. The marketplace is littered with a lot of brands and financial institutions, and somehow you have to get out there and differentiate yourself and feel like you have I like to p

25、ut it - you have an inflated presence, your presence is more than what you have. I think thats another thing I would add to the list.EricGot it. So, if we could talk a little bit about more traditional branch strategies and what makes a bank successfulintermsoftheirexpansion.So,obviouslyJP Morgan an

26、d Bank of America disclosed that theyre adding400brands,500branchesrespectively,mainly in expansion markets, but in some of their legacy markets too, and some of the other banks have discussedbranchlivepresences,buthowdoyouthink about national banks? You talked about marketing and brand, but do you

27、think that they are in a privilegedposition?Doyouthinkthatthesebankscan do things in terms of branch expansion that others cantbecausetheydohaveanationalbrand,because theres a perception of perceived convenience, they have feet on the ground in terms of commercial and wealth managers, bankers there.

28、 Can they do things that a hypothetical, large regional bank that we mentioned would have a very difficult time doing in new markets and being able to gain deposits? Or do you think that paradigm is different now because of digital offerings and whatnot?RobertI actually think its a combination of bo

29、th. I do think its a bit hard for a regional to cross the country and go into a new market. If theyre doing something contiguous that may be alright, but for Regions to go to California, that would probably be a reach because theyre just not known for that. As opposed to somebody like JP or Bank of

30、America who while they have presence there, they can go to other places. Ill useDenverasanexample,thatsnear.ButIwouldgo back to one of the things Barbara talked about, and that is using your data and looking at where these big banks, theyve had customers that have moved from certain geographies to o

31、thers or they have cardrelationships or whatever, and so using that data to see where you might already, in the digital world you mightactuallyalreadyhaveafairamountofcustomers and now you have the ability to bring all the products andservicestothem.So,thatsnotasariskyendeavor as going into somethin

32、g where you dont have anybody.So,Ithinkthatthatsanadvantagethattheyhave,and thenalsojusttheirmedia,becausetheyhavesomuch overlap and bleed into other markets that it doesnt incrementally cost them that much to do the existing or more marketing.One other thing I would add is that a lot of people talk

33、 aboutbranchesandtheyarebackinvoguethesedays for expansion, but its not just the retail customer, but its the commercial and the wealth management and the mortgage businesses. So that when youre going to a market, you really need to commit to all of those. Ifyouregoinginforonelineofbusiness,itsproba

34、bly going to be difficult. So, coordinating with those and having a presence with those and having wealth managers something like Bank of America has the advantage that they have a lot of Merrill offices in placesthattheydonthavebranches,sowhentheygo in,peopleknowMerrillandtheycanleveragethat.So, th

35、ats what I meant earlier about leveraging all the lines ofbusinesses.EricSoonBankofAmerica,youobviouslyhelpedrunBank of Americas branch network. How did you think about what the optimal size of a branch network is in any given market? I know weve discussed this in the past, but how do you think abou

36、t, like comparing then to now, and talking about legacy markets, how doyou think about what the optimal network size was say 10 years ago, 15 years ago, and how would you think about it now? How do you think what the optimal numberofbranchesistohave,say,aleadingpresence in a given MSA? What kind of

37、infrastructure would you need if you were a Bank ofAmerica?RobertSoIwouldsaythatfive,sevenyearsago,alotoftimes youwerecallingupforacoveragemodel.So,like,we want a branch for every 10,000 households or we want to cover 80% of the population within a certain drive time of a branch or something like th

38、at, I think those are still applicable today, but they have gotten broader.Somaybetheoldparadigmwouldhavebeen you need a branch for every 10,000 households or 15,000. Today it might be 15,000 or 20,000 or 25,000.Youdontneedasmuch.Thenyourcoverage area, a lot of times you might say, well, its a 5 or

39、7minute drive time, where today you might be saying its more like 15. So, if you can visualize branchesout there and circles around them, in the old days the circles werent as big and so you needed a lot more dots on the map.Today,youdontneedasmanybecausethecircleswill cover a bigger part. I think t

40、hats one of the biggest changes and thats what you see in your studies, where you talked about how much overlap branch networks have. And I think all the banks, or many of them have dropped the amount of overlap that they have down, which is a cost save, but a lot of them have been taking some of th

41、ose savings and then turning around and investing in newmarkets.EricGreat. Barbara, if I could ask you about the pros and consofsayanentirelydigitalmodelofbankingversus having a branch light strategy. So, some of the banks that I cover have gone fully digital where they have effectively branch banki

42、ng, then they have a digital banking strategy that is outside of their core footprint, different systems, different deposit systems and whatnot, no branch presence. Then you have those who are looking to go digital but with a branch light strategy. Can you just discuss how you think about thosestrat

43、egiesandwhatyouthinktheprosandcons ofsayanentirelydigitalmodelversushavingsomesort of branch infrastructure, even if its a light infrastructure in place in expansionmarkets?BarbaraSure. I want to start by being upfront and saying thatI am a big believer in digital married to a branch light strategy,

44、 not unlike Amazon who we see growing into physicalpresencesforveryspecificreasons.Illcome back to why and what I think you could do with that.Buttomethebiggestprosofhavinganentirelydigital model is it forces banks to be more creative some are, some arent but you cant just assume that somethingmagic

45、alisgoingtohappenwhentheywalk into a branch. So you think about having multiple product experts in the branch, you think about certain things like that. But online you dont have a branch, and so I do think people who are more broadly thinkingaboutthecustomerrelationship(andwellget into this a little

46、 bit more as we talk about some of the digital challengers) who are either single product focused,oritisactuallytakingthemaprettylongtime to get to a broader financial offering for their customer. But, digital only, youre forced to say what do I have that I can engage with this customer about and so

47、me of that stuff is reallyterrific.Frankly, theres no reason that branch-based banks cantdoit.Theydohavesometechnologychallenges, but I think its just DNA in the way that things have happened there, theres so much to do that they dont take advantage of the data as much as the digital playersreallydo

48、.So,whatisit,necessityisthemother of invention, and so I do think the digital folks, the digital only folks are kind of more creative about thinking about engagement. Bad news is, they dont have a full product set to engage around, for themost part.The branch light strategy allows a bank to be able

49、to offer a level of peace of mind to that customer base for either information or you could say cross-sellingor if there ever is an issue that that person knows that theyhaveabranch.Sonumberone,itdoesgivepeace of mind. Number two, it is an opportunity for an excellent human connection. In my view, y

50、ou cant oversell the value of that, which by and large I dont thinkthetraditionalbanksdoaverygoodjoboncethe customeractuallyhitsthebranch,oftakingadvantage of that human connection. So I think if youre thinking of going digital, but I have some branch light network, it will cause bankers to truly re

51、think what that experienceiswhensomeonecomesintothatbranch.EricRight. Both of you have talked about the importance ofdata,understandingthecustomer,beingabletouse that to be able to have tailored offerings or a better connection with that customer. Citi deployed a strategy where the growth in retail

52、banking in the US is, to a large degree, tied to their ability to sell loans and investment products, private products to card customers in the US. Obviously theyve exited a number of markets and now their branch presence is pretty limited, and a lot of it is through digital means. I guess my questi

53、on is, how do you think about the challenges of doing this and how successful they can be, what do they need to do? Historically, Ive always thought of you sell a deposit and then other products to that product as opposed to having the loan relationshipandthengoingtheotherwaywithdeposit products.Can

54、youjusttalktothechallenges,Barbara, of that strategy? What do you think they need to do right?Howsuccessfuldoyouthinktheycouldbe?BarbaraWell, first of all, I think that they could be very successful, but its all going to come down to the execution. You point out a very important fact, which is that

55、a card-based or a loan-based relationship. If I think back to my Ally days of retail auto loans, cards haveanadvantageoverretailautoloans.Ithinkthere is more brand recognition with cards and most ofthesecardscomewithavaluepropositionthatbuildsa good amount of brand identity in the mind of the card u

56、ser. So, thats one of the things that I think is a good starting point for Citi, with a card base.But, its not just about dropping offers. I mean, its not just about mailing offers saying Do you want a CD?” or “Do you want a loan?”, which is one of the issues that needs to be contended with because

57、the card business has a very specific go-to-market strategy, which is always just drop in lots of mail, lots of sells where you test different things and theres a big science around cards. When youre talking aboutnow expanding to this broader relationship, theres a lot more EQ going on there which n

58、eeds to be marriedto theterrificanalyticsaroundthecardbusiness.But, number one, is introducing the customer to the broader Citi offerings and figuring out how to make sure that customer knows that Citi is interesting in a much broader relationship. So its kind of like the world of Citi, you are part

59、 of the world of Citi: here are the other things that we can do for you, which might include small business, by the way, or small business transaction accounts, and so there needs to be that investmentbyCiti.AndIdoreallybelievethatitsonly onceyouvemadethatinvestmentthatyouregoingto have much luck ge

60、tting pickup with a broader degree of product, rather than by just sending another piece of mail.And I also think it is a longer term game. Good cross sellreallyisalongertermgame.Soitsnotlikeyoure going to have huge success overnight. Its going to take some time to get people to think more broadly a