2016 Omni-Channel Shopper Survey

RESEARCH 2016 Omni-Channel Shopper Survey Redefining Banking Convenience New Image

Inside the 2016 Novantas Omni-Channel Shopper Survey 2 Executive Summary 4 Section I: Bank Shopper Segmentation Figure 1: Bank Shoppers by Channel Segment Figure 2: Top Reasons For Considering a New Bank, By Segment 7 Section II: The Millennial Opportunity for Relationship Acquisition Figure 3: How Millennials Compare at the Average National vs. Regional Bank 9 Section III: Redefining "Convenience" Figure 4: Factors Driving Convenience in Banking Figure 5: Driver of Purchase Rates Branch Share vs. Perceived Convenience 11 Section IV: Creating"Distinctiveness" Figure 6: The Impact of Distinctiveness Figure 7: Building Distinctiveness 14 About the Novantas Shopper Studies 15 Contributors and About Novantas Executive Summary In this research brief, Novantas presents current highlights from our ongoing Shopper Surveys of U.S. consumers. These surveys of recent and prospective primary checking account purchasers from the end of 2015 explore the profiles, attitudes, behaviors and trends of consumers who are shopping for and/or opening primary checking accounts. Combined with additional Novantas analysis, the surveys provide insight into how banks can increase consumer awareness, consideration and purchase of their checking accounts. The number of new primary checking accounts opened each year measured as a churn rate or as a percentage of total primary accounts has dropped by half in the past decade. Where previously 15% or more of primary checking relationships were new each year, the rate now hovers around 7%. This decline reflects the combination of very low deposit interest rates, along with the recession and slow recovery. While household acquisition is now tougher, the flip side is that the primary checking relationships last longer, and hence the benefits of acquiring a household relationship are greater. And with gradual acceleration of the economy RESEARCH

2016 Omni-Channel Shopper Survey and rising interest rates, churn rates will be rising as will the opportunity to win new relationships. To help banks navigate a challenging household acquisition climate, this research brief focuses on four elements of survey research and analysis, each of which helps explain who is shopping, what matters to these consumers, and how banks can best win their business. 1. Bank Shopper Segmentation: Consumer behavior and attitudes about the branch and other channels are evolving rapidly, and are changing the nature of the customer acquisition for banks. Our segmentation analysis by channel attitude and behavior reveals the growth of the thin branch ready and other digitally-driven segments, which do not align neatly with age, income and other demographics. By choice or default, banks will attract more of some channel segments and lose others. The banks that best understand these segments, and know how to attract and retain them, will be clearly advantaged. 2. The Millennial Opportunity: Not surprisingly, especially given reduced churn, new checking accounts skew to younger consumers i.e., Millennials matter. National banks are now winning an outsized share of primary checking purchasers, especially among Millennials. Yet the Millennials at national banks also turn out to be more open to switching banks, which creates an opportunity for other banks that can understand and target the best parts of the segment, and then prioritize the necessary digital, marketing and other investments. 3. Redefining Convenience. Given similarity of bank product feature/functionality and pricing, convenience remains among the top differentiators in choosing a bank. But how consumers determine which bank is most convenient for them, or more precisely how they perceive that convenience, is now more involved than simply which bank has the nearest branch. Perceived convenience is a richer, market-specific story encompassing branches, digital banking, ATMs, marketing and brand. And these factors affect local deposit share, making the traditional branch share / deposit share S-curve a more complicated relationship. 4. Building Distinctiveness. As proximity ( the branch nearest me ) wanes in relevance for bank selection, differentiation becomes more difficult. Our survey work finds that bank distinctiveness the ability to stand out in the mind of the consumer along one or more brand attributes is driving primary checking purchase, even when accounting for share of voice, branch share and other factors. The national banks are more advantaged than others in creating distinctiveness. In lifting their marketing game, the priority for regional banks is not just share of voice, but building their distinctiveness. The story that emerges is a complex one with differences specific to segments, markets and banks and points to the need for banks to develop a market-by-market, multi-lever approach to customer acquisition. While branch counts and locations remain a primary lever, they are losing primacy and now must also be integrated with other physical channels, digital banking, marketing message and volume, and brand. These combinations for each bank by market provide an image of convenience and distinctiveness that influence checking account purchase choice. 3

Section I: Bank Shopper Segmentation Who s in Play and What They Want Each year, 6 8% of banking consumers establish a new primary checking relationship a number that is expected to rise with rising interest rates. Insights into who these shoppers are and what they want from their primary bank are the essential starting point for banks to identify opportunities to win prospects in play, as well as to shore up vulnerabilities to churn from existing customers. The Novantas Consumer Shopper Surveys of course collect demographic information on consumers, but the right consumer behaviors and attitudes have more value in segmenting consumers into predictive and usable groupings. In particular, given the rapid technology-driven changes in available banking channels, we find the consumer reactions to the traditional branch as being especially relevant today. As a result, our surveys ask two sets of questions, to develop branch dependence" vs. branch attachment scores: Branch Dependence a set of behavioral questions, asking how often each customer visits the branch, and for which specific banking tasks the customer uses the branch versus other channels; and Branch Attachment a set of attitudinal questions, examining the extent to which the customer agrees or disagrees with statements about the value of the branch in a primary banking relationship. These two scores allow us to create a branch channel segmentation matrix (see Figure 1), which divides respondents into: more or less dependent on the branch in terms of actual banking transactions, and more or less attached to the branch in terms of the importance placed on it for a primary checking account relationship. While shoppers cut across all channel segments, the segments differ markedly in what they want from a bank, and accordingly have different perceptions about various competitors and are more or Figure 1: Bank Shoppers by Channel Segment The Thin Branch Ready segment, defined by high branch attachment but low branch dependence, is the largest group of bank shoppers. High 15% Branch Traditionalist Branch Dependence 6% 13% Channel Mixer Innovation Seeker Thin Branch Ready Internet Ready Low 29% 29% 37% 37% Low Branch Attachment High Source: Novantas Shopper Survey RESEARCH

2016 Omni-Channel Shopper Survey The Thin Branch Ready Segment accounts for close to 4 in 10 consumers, and has increased close to 50% in the last four years. less open to different competitive sets. As a result, different banks based upon specific market position, distinct capabilities and overall marketing should have different prospecting targets. Thin Branch Ready. Today, one of the most attractive prospecting targets for many banks is the Thin Branch Ready consumer, who has little actual dependence on the branch but nevertheless place importance on access to local branches in choosing a bank. The Thin Branch Ready segment is the largest group of shoppers, accounting for close to 4 in 10 of consumers looking or open to switching their primary checking relationships, a percentage that has increased nearly 50% in the last four years. Nearly half of Thin Branch Readies are at one of the top three national banks today but as a group they have low net favorability towards the national banks. Controlling for awareness, Thin Branch Ready shoppers would consider regional and direct banks more than the nationals for their next relationship. Because they express a higher emotional attachment to the branch, Thin Branch Readies still expect convenient branches and ATMs among their top requirements. But given their lower actual branch usage, they are much more interested in digital capabilities, and less concerned with physical convenience aspects such as convenient hours. Thus the name Thin Branch Ready reflecting that a strong digital offering with a much smaller but still convenient branch network will attract these consumers. This puts Thin Branch Ready shoppers in play for the banks that can provide the necessary elements of brand, product, digital convenience and targeted physical presence. Channel Mixers. As the name reflects, Channel Mixers use all channels to some degree with moderate branch usage, but like the Thin Branch Ready place a relatively high attachment to the branch. Channel mixers account for 29% of shoppers, and place greater emphasis on the physical network than Thin Branch Readies. Channel Mixers generally limit their consideration down to the national and regional banks that offer a denser and more convenient local branch network, and in other ways are like the Branch Traditionalist segment. Branch Traditionalists. This group representing 15% of shoppers has both high branch usage (more so than Channel Mixers) and high emotional attachment to the branch. Like Channel Mixers, the Branch Traditionalists also look for national/regional banks with more local branches. The majority of both segments bank at national or regional banks today, would consider another national/regional for their next bank and are among the most favorable for both the nationals and regionals. Both groups place dominant emphasis on convenient branches as their selection driver, followed by products that fit their needs and convenient ATMs. Given preferred and frequent branch usage, Branch Traditionalists also value convenient hours. Marketing for both these segments for both retention and prospects should reinforce superior physical convenience as well as rapid fund availability. Innovation Seekers. The segment that expresses little emotional attachment to the branch and yet still continues to use the branch are dubbed "Innovation Seekers." They represent 11% of checking consumers, but a modestly higher 13% of all checking shoppers, and appear to be attracted to competitors who can differentiate on product and service delivery. While Innovation Seekers continue to use the branch, they rate convenient branches much lower as a requirement than the typical shopper. Instead, Innovation Seekers focus on products that fit their needs as their primary consideration for selecting a bank, followed by friendly providers that look out for them. They are also more motivated by digital capabilities and interest rates than the average shopper. Regional banks that do not proactively address the needs of this segment may be 5

Figure 2: Top Reasons For Considering a New Bank, By Segment The Thin Branch Ready segment is especially likely to cite non-branch channels, while Channel Mixers and Branch Traditionalists are the most likely to cite branch attributes. THIN BRANCH READY Leading Online/ Mobile Convenient ATMs CHANNEL MIXER Convenient Branches Convenient Hours BRANCH TRADITIONALIST Convenient Hours Convenient Branches INNOVATION SEEKER Interest Rate Friendly INTERNET READY Leading Online/ Mobile Source: Novantas Shopper Survey Low Fees particularly vulnerable to competitors picking off their Innovation Seekers. Over 25% of Innovation Seekers are with regional banks today, but they are more favorable toward and would consider both direct and national banks more so than regionals for their next relationship. Internet Ready. Finally, and smaller than you might think, are the Internet Ready, who neither use the branch nor value you it. This group currently is only 6% of checking account shoppers, and is not a primary prospecting target for most banks given its current size and requirements but the pace of its growth demands monitoring. Given emotional and behavioral detachment from the branch, Internet Ready shoppers select banks based on product features that fit their needs, digital capabilities and low fees. More than any other segment, Internet Ready shoppers have the greatest awareness, consideration and favorability towards the direct banks; that said, less than 20% of Internet Ready consumers have made the transition to a direct bank. These customers, when they get around to choosing another bank, are susceptible to switching to direct banking, and may well require an attractive fee/rate mix to keep the more attractive ones. Based on our ongoing consumer research efforts, Novantas believes that all banks will increasingly need to understand and speak to channel-based segments of consumer customers and prospects. Viewing shoppers through the lens of channel segments on a market-by-market basis more clearly reveals insight into the opportunities and threats, and can provide conviction for the strategies required to win. A few examples of opportunities: Branch reconfiguration efforts can be improved by understanding which of a bank s markets can attract the right customers with a thinner branch network, versus others where more caution is required given customer segment mix. Regional banks can develop an offensive growth campaign to target Thin Branch Readies who might be dissatisfied with national banks. RESEARCH

2016 Omni-Channel Shopper Survey For Channel Mixers and Branch Traditionalists, regionals can continue to win fair share in scale markets, but must also develop channel migration strategies by segment over time. In contrast, for Innovation Seekers, banks will need to proactively address the product and service needs to retain these customers in the face of more innovative competitors. By linking segments to branches, banks can better determine how to optimize branch resources, encourage channel migration by segment, and link sales force calling efforts. Regardless of the chosen opportunities, capturing them will require a focused commitment to honing and consistently delivering a distinctive brand value proposition, delivered via digital convenience and a targeted physical presence specific to each local market. Section II: The Millennial Opportunity for Relationship Acquisition What Matters to Millennials As younger, less established consumers, Millennials make up a disproportionate share of new-to-bank checking prospects. But they are proving a challenging acquisition target for regional banks, with our survey results showing the national banks winning an especially high share of this cohort. But our findings also suggest openings and a large reward for regional banks that make a concerted and sustained effort to win over Millennials. Two key insights drive the Millennial opportunity and threat for regional banks. First, Millennials at national banks represent an attainable target: while Millennials favor national brands, these national brands are also a source of Millennial churn, and specific regional banks have been able to match nationals in the age mix of those considering them. Second, Millennials Millennials are proving a challenging acquisition target, but also offer a large reward over time. are a long-term relationship worth pursuing: While many Millennials are not currently profitable for banks, some sub-segments clearly are, e.g., older Millennials, who approach the income of the next older cohort, and over time many more will become desirable and provide replacements to aging older generational cohorts. To date, the national banks have held a distinct advantage with Millennials. Analysis based on our U.S. Shopper Study of recent and prospective primary checking purchasers shows the three largest retail banks Bank of America, Chase and Wells Fargo outpacing the next 17 largest retail banks in both drivers of account acquisition, as well as awareness and consideration stages of the shopping funnel (see Figure 3). The essential challenge for regionals is gaining consideration among Millennials. Among Recent Purchasers (consumers who opened their primary checking account within the past 3 years), the average in-market top-3 national bank was considered by those under 35 years in age 43% of the time, compared to 33% for older purchasers. For other top-20 banks, the average rate of consideration by Millennials was only 20%, matching the 20% consideration rate among older customers. In short, not only are the nationals outpacing large regionals in consideration overall, they are doubling the average regional consideration rate among Millennials. Nationals lead regionals in unaided and aided awareness, but the gap between nationals and large regionals holds true even when controlling for awareness: fully 50% of recent Millennial purchasers who had awareness of a national bank in their market also considered that national bank in their purchase decision; the comparable figure for regional banks was only 32%. As these trends suggest, the good news for national banks is that Millennials are choosing 7

them more often. Digging deeper, the good news for regional banks is that Millennials now at national banks are more open to moving. Today, 63% of Millennials who have their primary checking at a national bank also said they were open to switching that relationship, compared with 51% of Millennials at large regionals. In addition to representing customers of the future, at least some of these Millennial prospective switchers represent a promising near-term opportunity and many more are attractive longer term. First, within the Millennial age range are a number of very attractive segments. Examining prospective switchers, 68% of checking holders under 35 have household incomes exceeding $50,000, a figure that approaches the 72% of prospective switchers aged 35 to 44. And second, older Millennials are well on their way to looking like the next age cohort of older customers in terms of balances and products held. Winning with Millennials involves several activities, many of which will have knock-on effects with other cohorts and segments. Shift investment from branch to brand: Relative to older prospective switchers, Millennials are more likely to value strong brands over dense branch networks. This trend will accelerate, as perceptions of convenience are driven more and more by marketing, as well as by digital capabilities and experiences. As discussed below, brand building should emphasize distinctiveness standing for something beyond branches. For Millennials, this is especially so. Appeal to the locavore. Millennials do not feel tied to national brands and can appreciate brands that engage with and support their community. Where the regional bank is the local brand, build on that reputation and incorporate it into the value proposition. Gain permission to bid. In surveying online checking shoppers through Novantas BankChoice Monitor, we have identified numerous markets where Millennial shoppers favorably consider a regional bank more often than do older customers, but make that bank their final choice less often. The challenge: making the case that the regional bank supports the convenience and product features that Millennials expect. To do that, banks must invest in digital experiences and other elements of the value proposition that will speak to the distinct needs of Millennials. Segment Millennial sub-segments. As an age cohort, Millennials are especially varied in their life stages, current income and personal finance trajectory. In work for one bank, we identified six segments within Millennials, with overlapping age ranges, each with particular needs and differing near-term and longer-term Figure 3: How Millennials Compare at the Average National vs. Regional Bank When purchasing, Millennials more so than other age groups prefer a national bank; but they are also more likely to consider switching from a national bank. 43% RECENT PURCHASERS Who did you consider? Who did you choose? PROSPECTIVE SWITCHERS Would you consider switching? Age 33% Under 35 20% 20% 19% 15% 21% 19% Over 35 6% 7% 5% 7% National Regional National Regional National Regional Source: Novantas Shopper Survey RESEARCH

2016 Omni-Channel Shopper Survey relationship potential. The right segments for a bank to target will vary widely. For example, in some markets it may make sense to target students; in other markets, the lower likelihood such relationships will pay off makes the acquisition effort unattractive. The Millennial opportunity for regionals is real and potentially quite profitable. It will require digital and other alternative channel investments to gain permission, and a shift in marketlevel resources towards marketing and away from physical branches. The combined focus of Section III: Redefining "Convenience" investment should be with an eye towards building a distinctive brand, e.g., positioning the bank as the local alternative invested in the community. It will further require looking within the Millennial cohort to identify segments to target in different markets. Banks that take these steps will be in a position to win more Millennials as they open their first checking account, or peel off Millennials dissatisfied with other banks, and to enjoy profitable relationships with the potential to last decades. Consumers Are Broadening Their Definition of Convenience Beyond Nearby Branches Traditionally, most consumers chose their primary checking account bank based on physical branch proximity. In that world, convenience largely meant having branches nearby, and more likely one of the closest branches to home or work. This was because, quite simply, the bank branch or ATM was necessary for deposits and withdrawals. As banking technology has evolved first with ATMs, then online banking, and now remote deposit capture and mobile banking the need to visit a teller in the branch has declined precipitously, with a decided acceleration in the last several years. The Novantas Shopper Study continues to ask consumers how they define convenience in choosing a primary checking account bank, and finds both significant change as well as noteworthy stability. Two conclusions stand out: Convenience is rapidly being redefined less around the nearest physical branch, and more around strong digital capabilities, general branch proximity, free ATMs, and other factors. Convenience remains a critical factor in how consumers choose their primary checking account bank. Figure 4: Factors Driving Convenience in Banking A non-physical factor leading online and mobile capabilities now trumps having nearby branches in terms of creating convenience; so does having no foreign ATM fees. What would do the most to make the bank convenient? 26% 20% 23% 18% 30% 18% 16% 13% 10% 9% 2014 2015 4% 6% 4% 1% 2% 1% Leading Online/Mobile No Foreign ATM Fees Branches Near Me Source: Novantas Shopper Survey Many Branches and ATMs ATMs Near Me Convenient Branch Hours Phone Other 9

CONVENIENCE BEING REDEFINED In the Shopper Study, we asked consumers what one factor would make a bank more convenient (See Figure 4). The highest ranking single factor is no longer a physical characteristic like proximity to the branch; rather it is a digital one, i.e., leading online and mobile capabilities, which had 26% of the responses. This speaks volumes about the diminishing importance of having the nearest branch to a potential customer. The second most frequent response at 23% was no ATM fees for using another bank s ATM; nearby branches came in third at 18%; behind that were many branches and ATMs (13%), nearby ATMs (9%) and extended hours (6%). Furthermore, comparing the current shopper survey to the one fielded a year earlier reveals how quickly what "convenience" means is changing. The importance of nearby branches fell 12%, while leading online/mobile rose by 6% and no foreign ATM fees rose by 5%. We fully expect this shifting away from proximity to continue for the foreseeable future. The current survey responses that depend on proximity nearby branches and ATMs together total only 27% of responses, while other factors are more important in defining convenience for almost three-quarters of consumers. Clearly this reflects that consumers are feeling less obliged to bank at the nearest branch or ATM, and are growing more comfortable with a branch, say, within five or ten minutes of home or work. This widening of the physical perimeter of what is acceptably nearby for a branch opens up a number of other levers for banks to define themselves as convenient. These levers ATM networks, signage, billboards, print and digital media are allowing banks to help shape and define the consumer perception of convenience, in some respects independent of the actual number and location of branches. CONVENIENCE TRUMPS BRANCH DENSITY IN DRIVING DEPOSIT SHARE To understand the profound ramifications of the shift in defining convenience away from the nearest branch and toward digital and other factors, Novantas inserted a specific convenience survey question in our Shopper Survey. We asked respondents to rank order the top three banks in their local market in terms of convenience. We took these rankings by market, assigned weights for first/second/third, and constructed a perceived convenience index for each bank by market (see Figure 5). In our survey, we also asked recent shoppers Figure 5: Driver of Purchase Rates Branch Share vs. Perceived Convenience While branch share remains important in determining checking account purchase rate, the combination of factors that define convenience is more predictive. 45% Purchase Rate 30% 15% 0% 0% 15% 30% 0% 15% 30% Source: Novantas Shopper Survey Branch Share Perceived Convenience Index RESEARCH

which bank they chose when they opened a new primary checking account, and determined a purchase rate by bank in each market. Separately, we assembled branch share data by bank in the same markets. That allowed us to compare branch share and perceived convenience in terms or recent purchase rates by market. Regressing purchase rates for each bank in each market to the bank s branch share in that market shows a positive relationship higher branch share leads to a higher purchase rate. But using consumer perception of convenience as the independent variable yields a better and more powerful fit to predicting purchase rates. Hence, branch share is not the sole predictor of purchase rate for primary consumer checking accounts. Rather, a more complicated set of levers affecting the consumer s perception of convenience will drive purchase rate. IMPLICATIONS FOR BANKS: REDEFINING THE S-CURVE OF DEPOSIT SHARE Traditionally, bank branch share in a market has been highly correlated to its deposit share. And there has been an S-curve where banks with higher levels of branch share over-perform significantly in deposit share, and under-perform at lower levels. This phenomenon was driven by Section IV: Creating "Distinctiveness" 2016 Omni-Channel Shopper Survey Simply having the nearest branch no longer defines convenience a more comlpicated set of levers are now in play. physical branch proximity. So long as physical proximity defined convenience, banks with dense branch networks took more than their fair share of deposits, while banks with only a few branches underperformed. But as is evident from the consumer research, convenience is no longer only having the nearest branch; in fact a non-physical factor online/ mobile now leads in defining convenience. Nearby ATMs matter, including the fees for them, as do hours to a lesser degree. Branch proximity and overall market density while still important is now only one of many considerations. Banks managing their physical networks by market can no longer simply looking at branch share the traditional S-curve for deposit share has more driver variables. A more holistic picture of market presence is required in particular: 1. Greater performance will come from market-by-market optimizing of multiple levers digital capabilities, marketing, and branch/atm networks. 2. Institutions that fail to invest in non-branch levers will struggle to win new primary checking account relationships. 3. There are more preference shifts ahead, and banks must plan and evolve their strategies over time. Standing out in a world where branch proximity matters less As the rate of consumers establishing new primary checking relationships has slowed over the past five years, the fight to win banking households in motion has intensified. Banks are continuously refining their means of appealing to those considering a new bank, both substantively with product, channel, pricing, and experience features and emotionally, by conveying a brand personality that resonates with consumers. As a result, in the minds of the individual consumer, every bank has its own mix of attributes. The Novantas Shopper Study probed this topic to better understand consumer attitudes on differences between banks and its impact on checking account purchase rates. As described earlier, attributes regarding physical bank networks, like having branches/atms near me and having lots of branches/atms, are integral components of the consumer s perception of bank convenience. These physical characteristics in major markets tend to favor national banks. For example, on average 43% of survey respondents rated national banks as having branches 11

near me, compared to 35% for regional banks. Similarly, on lots of branches/atms the nationals outpolled regionals 38% to 23%. As well, having strong ratings for leading online/mobile banking also proves to be important for the perception of convenience, and Novantas modeling of the drivers of checking acquisition rates points to this attribute as particularly important to shoppers. Again, national banks have stronger leading online/mobile banking ratings than regional banks overall, 21% for the nationals versus 12% for the regionals on average across multiple markets. But beyond factors contributing to perceived convenience, Novantas analysis shows that having market leading attribute ratings in at least one other area contributes to outsize acquisition rates. Specifically, being distinctive relative to other banks in a given market generates strong leverage of investments like branch share and share of voice. In the Shopper Survey, we probed consumer views along a number of bank factors with those related to branch and ATM networks (plus online/ mobile access) combined to assess convenience. Other attributes besides price we grouped as contributing to distinctiveness of a bank: Makes it easy to manage your finances Can serve all your banking needs Is a good value Friendly and helpful Looks out for its customers Helps you plan for your future With these attributes, we developed a single distinctiveness index, using a weighting that rewarded unique ratings more than average ones, and from the survey responses measured each bank s distinctiveness in each market. That provided a set of distinctiveness bank-market data points, to serve as an independent variable to compare relative bank performance. For performance, we looked at survey purchase rates by bank in each market, creating a power ratio of a bank s purchase rate in a given market over its branch share in that market. Results from regressing the purchase/branch share Power Ratio to Distinctiveness are depicted below (see Figure 6). The more distinctive a bank is perceived in a local market, the higher the bank wins new checking account purchases relative to its branch share in that market. While the relationship is certainly not the only factor, the direction is quite clear. And while most data points have Figure 6: The Impact of Distinctiveness Bank distinctiveness, measured by attributes other than physical network and rates, helps to explain why some banks are winning new checking accounts in excess of their branch share. Power Ratio (purchase rate / branch share) Source: Novantas Shopper Survey Distinctiveness (composite of non-physical attributes) RESEARCH

2016 Omni-Channel Shopper Survey Within individual markets, attribute distinctiveness can help to explain the difference in purchase rate and power ratio performance. power ratios in the 50% to 200% range, there are a large number of bank-market instances where the bank is winning new accounts at several times above its branch share, and alternatively at a small fraction of branch share. Hence, we find that distinctiveness, defined as significantly higher ratings than competitors in a market on one or more non-physical non-price attributes, drives higher purchase rates for a bank relative to its branch share. We believe the causal impact of distinctiveness is both direct upon the purchase decision, and also indirect by acting on the consideration stage (the likelihood that someone aware of a bank actually considered the bank). Through our Shopper Survey, we examined this pattern for distinctiveness both nationally and in individual markets. The data shows that the national banks have an advantage. Specifically, the three largest banks with national footprints have an average distinctiveness index that is half again larger than the average for Figure 7: Building Distinctiveness the next 17 largest banks. So even beyond national bank perceived Once the foundation of convenience is in place for each convenience, they are also achieving other higher measures of distinc- market, then identifying the right differentiation will reinforce and build share. tiveness.within individual markets, attribute distinctiveness can help to explain the difference in purchase rate and power ratio performance (see Figure 7). Foundation of Every business needs to have Convenience Leading Online/ Convenient Branches a well conceived value proposition that is executed with credibil- What combination will Mobile establish convenience in each market? ity. Compared to other industries, retail banking has been saddled with decades of commoditized product, pricing and channel Convenient ATMs Convenient Hours experience. Bank consumer shopping criteria has devolved into a narrow set of basics, and For Example: consumer expectations are relatively low. Further, consumers Distinctiveness What will differentiate the bank from the pack? often assume that banks are not particularly on their side. All of these things contribute to a relatively low bar for achieving Help Plan My Future differentiation. But it also sets up the mandate for distinctiveness to Other Examples of Distinctiveness: be real, and for marketing to be Hassle Free Good Value sufficiently compelling and Friendly Most Convenient One-Stop Shop Looks Out for Me effective to yield marketplace Source: Novantas Shopper Survey credit for a bank s chosen points of difference. 13

About the Novantas Shopper Studies Novantas Shopper Studies provide market-level insight into the consumer attitudes and behaviors shaping primary household acquisition. In the course of fielding the most recent round of Shopper Studies, Novantas conducted online surveys in 2015 of 8,465 recent primary checking purchasers and prospective checking switchers in 39 MSAs across the United States. Novantas Shopper Studies profile respondents by primary checking bank, products held, balances, age, income and other attributes. The surveys explore bank brand equity through unaided and aided awareness, brand favorability and brand attributes for up to ten brands in each market. The current surveys asked 5,416 Recent Purchasers (those who opened their primary checking account within the past three years) about their purchase experience, including the brands they considered and why, reasons for choosing their primary checking bank, and the shopping and purchase methods they used. An overlapping set of 6,008 Prospective Switchers (those open to or thinking about switching their primary checking bank) were asked about banks they d consider, reasons for considering these banks, and preferred shopping and purchase methods. Each respondent was asked a set of Novantas Branch Segmentation questions. Our Branch Segmentation provides critical insight into the divergence between consumer attachment to branches and their actual usage of branches, which shape the role of the branch in consumer bank selection, service, subsequent sales and the overall relationship. As described in this report, understanding the brand impressions, functional considerations, and banking behaviors and attitudes that drive primary bank choice is critical to diagnosing acquisition challenges and identifying market opportunities. These questions must be asked and answered within the context of individual market dynamics, including the banks competing in that market and the attributes of the households in motion. Accordingly, Novantas analyzes the results from its shopper studies by individual geographic market, taking into account that market s physical distribution profile by bank, as well as the digital, marketing and direct mail campaigns present in that market. These individual market studies then form the building blocks for actionable insight on households in motion for new checking accounts, and the optimal acquisition strategies across a bank s network. RESEARCH

2016 Omni-Channel Shopper Survey Contributors CHRIS MUSTO Chris is a Director and leader in the Marketing and Distribution Practice at Novantas. Chris advises on digital and omni-channel distribution and servicing and leads the firm s research center of excellence, which focuses on shopping, purchase and servicing attitudes and behaviors. KAREN GRAHAM Karen is a Director and leader in the Marketing Distribution Practice at Novantas, based in Chicago. Karen brings over 20 years of customer-driven growth strategy advisory experience. Karen was a founder and Managing Director of Nexus Advisors, a customer-focused growth strategy consulting firm, and previously at The Cambridge Group and Booz & Co. BRANDON LARSON Brandon is a Director and leader in the Marketing Distribution Practice at Novantas, based in New York. He specializes in omni-channel preferences and behavior, and has worked extensively with the retail banks in the U.S and Canada. PAUL KADIN Paul is a Managing Director and leader in the Marketing Distribution Practice at Novantas, based in New York. He brings 30 years of retail bank management and marketing experience to client engagements. Paul headed Retail Bank marketing and Global Marketing consumer strategy at Citi, and was Division Executive for New York City branches at Chase. ABOUT NOVANTAS Novantas is the industry leader in analytic advisory services and technology solutions for financial institutions around the world. We create superior value for clients by providing information, analyses, and automated solutions that improve revenue generation across pricing, product development, treasury and risk management, distribution, marketing, and sales management. For more information, visit www.novantas.com. To contact these contributors, call 212.953.4444 or email info@novantas.com. 15

RESEARCH Published by Novantas, Inc., 485 Lexington Avenue, New York, NY 10017. 2016 Novantas, Inc. All rights reserved. "Novantas" is a trademark of Novantas, Inc. No reproduction is permitted in whole or part without written permission from Novantas, Inc.