In response to COVID-19, many financial institutions have closed brick-and-mortar branches to comply with stay-at-home orders or social distancing protocols. Customers are using digital channels in place of in-person visits to their local branch. Financial institutions need to explore efficiency opportunities across their branch network to lean into the digital space, while maintaining capital and reducing operating costs. Join DHG’s Chief Data Officer, Amit Arya and Ashley Ensley, a partner in our financial services industry, for a discussion on data analytics tools to help financial institutions optimize their performance and prepare for innovation opportunities.
[0:00:09.7] JL: Welcome to today’s edition of DHG’s GrowthCast. I’m your host, John Locke. At DHG, our strength relies on our technical knowledge, our industry intelligence and our future focus. We understand business needs and are laser-focused on company goals. In this ever-changing world, DHG’s GrowthCast provides insights and thought-provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace.
Thanks for joining us as we discuss tomorrow's needs today.
[0:00:42.3] ANNOUNCER: The views and concepts expressed by today's panelists are their own and not those of Dixon Hughes Goodman LLP. Always consult the advice of your legal and financial professional before taking any action.
[00:00:58] JL: Our topic today focuses on the value of data analytics in the banking industry, specifically branch optimization and how a data analytics framework can help financial institutions. Our guests today are Ashley Ensley, a partner at DHG's financial service industry and Amit Arya, DHG's Chief Data Officer. Welcome Ashley and Amit.
[00:01:24] AE: Hey, John. Thanks so much for having us today.
[00:01:26] AA: Thanks, John.
[00:01:27] JL: Well. Obviously, we're in a unique time in our society, but also in the banking sector, I’m sure. Ashley, can you give our listeners a little bit of an idea of the impact that COVID-19 has had on the banking sector?
[00:01:42] AE: Yeah, John. Absolutely. We've just seen so much change and rapid change in the financial institutions sector. First and foremost, COVID-19 really led to what I would say, an acceleration of an adoption of digital channels. Traditional foot traffic has been significantly reduced, mostly due to stay-at-home orders and social distancing protocols. That led financial institutions to really push towards more enhanced online banking services, things such as mobile deposit capabilities.
It really impacted consumer behavior and how they would have historically used a brick and mortar branch at their financial institution. I would say, perhaps COVID-19 accelerated this, but also, has fundamentally altered the way we as consumers will go about in-person banking, probably for the foreseeable future.
[00:02:47] JL: Yeah, that's becoming more and more obvious as none of us are out and about at all, even using ATMs much anymore, right?
[00:02:55] AE: That's right. That's right.
[00:02:56] JL: Why is branch rationalization such an important consideration for banks right now?
[00:03:02] AE: We talk about branch optimization and we're talking about why is it important right now. I want to start by saying, historically, this is not new. Financial institutions have been performing these studies as part of their strategic planning. Historically as a result of changing dynamics, but mostly to evaluate, should we keep a branch open, or should we make a decision to close a branch?
John, we've really accelerated the discussion right now around branch optimization, due to COVID, as well as merger and acquisition activity. It is greater than ever. Many banks are re-examining this optimization process to assess how to best utilize these new and emerging digital channels, to allow their customers to emerge financially strong from this pandemic.
[00:04:01] JL: Yeah, I’m sure banks have a lot in play right now, trying to manage all of these different dynamics and variables.
[00:04:09] AE: Oh, absolutely.
[00:04:10] JL: Which brings up the question around loan applications. How has the current environment impacted the average loan application process?
[00:04:19] AE: Outside of mortgage refinancing, in a depressed rate environment that is historically low right now, loan growth has been difficult for a lot of our financial institutions. It's resulting in a significant margin squeeze as well. By performing these studies, banks are going to be able to better manage their efficiency ratios. They can consider different opportunities for revenue. Much of this being driven by a digital framework and by leveraging new analytical tools. They need to use this data to make data-driven decisions, even more to meet the needs of their customers, but also to reduce their operational costs.
[00:05:08] JL: Yeah. What are the long-range implications here for financial institutions?
[00:05:14] AE: Right now, in this environment, it's mostly about reducing operating costs. I would say, also very important, just gaining efficiencies. That margin compression, the focus on ratios and allowing our financial institutions to really take their focus to what are other streams of non-interest income. Branch optimization is a way to have a positive impact on all of those.
[00:05:41] JL: Well, it's really interesting. I’m sure, something that all the leaders in the banking industry are spending a lot of time, trying to figure out what is the best route here. Could you give our listeners just an example of some of these value-added consultation services that you were referring to?
[00:06:01] AE: Yeah. Digital technology again, just more important than ever as customers adapt this behavior. A lot of customers before didn't use online banking. They've now had to transition from being able to walk into a branch, to doing all of this from their phone. Financial institutions need to make decisions for their branch locations, to help them lean into this digital space, also allowing them to maintain capital and reduce their operating costs.
[00:06:30] JL: Ashley, what are some considerations for banks regarding their branch optimization? How can they navigate this current state caused by the pandemic and M&A activity to optimize their branches the right way?
[00:06:44] AE: This is really going to focus on technology and improvements they can make in their modern IT infrastructure, things such as artificial intelligence and machine learning. So much of this is driven by data, in allowing the financial institutions to make good data-driven decisions. We've got Amit here to talk to us about that today and look forward to hearing what he's going to tell us all about data.
[00:07:10] AA: Yes. Thank you, Ashley. This is in fact a fairly involved exercise. The key to success is truly to leverage this data-driven decisions, if you will. At the heart of any analytical process is a lot of data density that allows the decisions to be made by informing all parties of the facts, rather than opinions, if you will. A robust analytical framework is really what is needed to evaluate what the optimal branch footprint should be.
There are a lot of considerations that go into the process of how to optimize your branch network. Some that come to my mind are how do you maximize your customer experience, while minimizing cost, when you embark on this exercise? In addition, the banks should also be looking at the attrition risks that come from closing a branch, as well as the associated reputation risk, when you move out of community by closing a branch.
A data-driven decision framework can certainly help identify and understand what the market trends are and what are the changes in the operating environment, especially the ones like we have seen with the COVID-19 era, where the footprint has really dropped off in the brick and mortar locations. A robust data, analytical infrastructure can also help develop four sides, allowing the banks to make qualitative risk assessments for the future.
[00:08:49] JL: Amit, let's talk a little bit more about data-driven decision-making. Can you share with our listeners some of the methodology behind using data for branch optimization?
[00:09:01] AA: Certainly, John. At DHG, we do use a robust business methodology, which is a combination of our customized analytical framework, which generates these data-driven decision-making process, as well as a robust business process to analyze, synthesize and make recommendations, which are unique to each bank's situations.
Now the process itself is broken into two parts. The first part is called the discovery phase, where we come in and we listen to the primary objectives that the bank is trying to achieve. We analyze the bank's systems, their data, which then goes into our analytical platform to create a so-called customized data-driven decision recommendation, if you will.
We do work with the financial institutions’ IT and the management team to procure, transform, blend all the data from various sources for analysis, to support us in this decision-making process.
[00:10:12] JL: Amit, what data is actually used within this framework to help these data-driven decisions?
[00:10:20] AA: Well, John. It's data, data and more data when it comes to this exercise. There's a lot of data that is involved, yes. Some of the data that is core to this data-driven decision-making process is your transaction volume. We look at transaction volume between your so called digital channels, versus your physical locations, the brick and mortar locations. We also analyze the customer data, where they live, what interactions they have around different products, and if those interactions can be had digitally.
We also analyze the branch operational metrics. For example, what was the foot traffic during a particular time of the day, or during the days of the week. In addition to just analyzing branch data, we also look at the macro data, or data outside of the bank, such as the geographic data around population density, segmentation of population by income. Then there is some key performance indicators that are unique to each banks based on their size, the book of business, which we also bring into the analysis, so that each analysis is unique and customized for the bank in question.
[00:11:43] JL: What are really the benefits here for banks who would potentially use this branch optimization framework?
[00:11:51] AA: In addition to what Ashley already mentioned earlier and I emphasized, cost optimization is obviously the so-called low-hanging fruit. In addition to cost optimization, a bank can really leverage this exercise to improve their functionality and streamline their operations at the back-end. It allows for better flexibility when implementing new technologies, because now you have a better footprint to deploy your investments in new technologies and you're able to proactively develop strategies to leverage and drive your data-driven decision-making framework forward.
In addition, this exercise can also open up the branches to assess new increased innovation on how to use their existing physical branch locations, which as we are emerging out of the COVID-19 pandemic, the technology-driven innovation is really changing the way people are interacting, not only with the digital channels, but also with the physical ones.
[00:13:00] JL: Well, there's no question that leaders of financial institutions are looking at all the different options available to them and trying to get some feel for the future. Isn't that right, Ashley? I mean, it is a challenging time for the bank leaders that you're dealing with, isn't it?
[00:13:17] AE: Oh, absolutely. John, the one thing I would add here is that this really just needs to be a key focus area for the financial institutions as we continue to move through the pandemic and for the foreseeable future. We may not ever get back to life as we know it in the traditional banking channels that our financial institutions once operated under. We've really got to increase the ability for our financial institutions to use this data to make decisions.
[00:13:52] JL: Yeah. Amit, I guess, you're probably getting inquiries from time to time on specialty issues and situations. How can people just reach out and contact you, or Ashley, relating to some of these data-driven decision-making models that we can offer?
[00:14:10] AA: Yes, John. We are getting inquiries and they have accelerated during the COVID era as firms look to improving their operating environment and adapt to this new normal that we all live in. We can be reached at firstname.lastname@example.org. We will be more than happy to evaluate the current operating environment and help our friends of the firm in creating a better data-driven decision framework.
[00:14:47] JL: Great. Well, Amit, Ashley. Thank you so much for your time today. It's a fascinating topic and I’m sure one that's ever changing and hopefully, we'll have some great stories to tell in a few months about how we've been able to help people. Thanks both for your time today.
[00:15:02] AE: Thank you, John.
[00:15:03] AA: Thanks, John.
End of Episode
[00:15:06] JL: Thank you for listening to DHG GrowthCast and our discussion on using data analytics tools to optimize performance of bank branches. Our guests today have been DHG's analytics leader, Amit Arya and Ashley Ensley, a partner in DHG's financial services industry.
We hope that you now have a better understanding of how data analytics can help banks and their individual branches run more efficiently and effectively during the pandemic economy. I’m your host, John Locke, and I look forward to reconnecting with you soon on another episode of DHG GrowthCast.