Digital Banking Leadership: Measures That Matter...6 Digital Banking Leadership: Measures That Matter 2017 Crerste Avirs All rigt reered eroui i rer b a ea i tritl ribite itu ritte

Digital Banking Leadership: Measures That Matter

Cornerstone Advisors | January 2017

2Digital Banking Leadership: Measures That Matter© 2017 Cornerstone Advisors. All rights reserved. Reproduction of this report by any means is strictly prohibited without written permission.

TABLE OF CONTENTS

INDEX OF TABLES

INDEX OF FIGURES

3 Introduction 4 Online8 Mobile11 Bill Pay14 Remote Deposit Capture16 Online Account Opening17 Scorecard18 Additional Resources19 About Cornerstone Advisors

4 Table A 8 Table B 11 Table C 12 Table D 12 Table E 14 Table F 15 Table G 15 Table H 17 Table I

Online Banking MetricsMobile Banking MetricsOnline Bill Pay MetricsOnline Bill Pay Metrics by Asset SizeOnline Bill Pay Metrics by FI TypeRemote Deposit Capture MetricsRemote Deposit Capture Metrics by Asset SizeRemote Deposit Capture Metrics by FI TypeDigital Banking Metrics

Active Online Users % of Checking Accounts by Asset SizeMonthly Cost per Active Online User by Asset SizeActive Online Users per Online FTE by Asset SizeTotal Online FTEs by Asset SizeActive Online Users per Online FTE by Asset SizeOnline Adoption by FI TypeActive Online Users by FI TypeActive Mobile Users % of Checking Accounts by Asset SizeMonthly Cost per Active Mobile User by Asset SizeMobile Adoption by FI TypeMonthly Cost per Active Mobile UserBill Pay Fee StructureBill Pay Costs by Fee Paid TypeRemote Deposit Capture Availability PolicyOnline Account Openings % of New Deposit Account OpeningsOnline to Average Branch Monthly Deposit Account Openings by Asset Size

5 Figure 1 5 Figure 2 5 Figure 3 6 Figure 4 6 Figure 5 7 Figure 6 7 Figure 7 9 Figure 8 9 Figure 9 9 Figure 10 10 Figure 11 13 Figure 12 13 Figure 13 14 Figure 14 16 Figure 15 16 Figure 16


DIGITAL CHANNELS: THE NEW CENTER OF CHANNEL ACTIVITY

After a busy 2015 for digital channel technologies, mid-size banks and credit unions went into 2016 with aggressive plans to enhance, add and renegotiate contracts for digital technologies.

More than four in 10 FIs planned to improve the utilization of their online and mobile banking platforms in 2016. In addition, roughly one in five expected to implement a new or replacement platform in 2016. Across the board of digital channel technologies, new or replacement application activity is significantly up in 2016, in contrast to 2015.

Statistics regarding consumer adoption of various digital banking technologies can be found from many sources. But metrics at the financial institution level are much harder to come by. This report aims to fill the gap, providing benchmarks for digital technology adoption, utilization and cost.

INTRODUCTION

ABOUT THE DATACornerstone Advisors’ digital banking benchmarks come from a sample of 100 mid-size financial institutions (FIs)—51 banks and 49 credit unions—with an average asset size of roughly $2.5 billion.

The FIs range in asset size from just under $500 million to just over $9 billion. The average asset size of the credit unions in the sample is $1.9 billion; of banks, it is $3.1 billion. In total, the FIs in the sample account for nearly seven million checking accounts and 6.2 million consumers enrolled in online banking.


ONLINE

Source: Cornerstone Performance Report

Table A Online Banking Metrics

Weighted Average 25th Percentile Median 75th Percentile

Active online users % of checking accounts 63% 49% 59% 74%Active online users % of enrolled users 71% 63% 77% 93%Monthly cost per active online user $0.72 $0.23 $0.63 $1.22 Active online users per online FTE 16,143 7,872 12,001 25,739 Online FTEs % of IT FTEs 13% 8% 16% 28%Online FTEs % of total FTEs 0.51% 0.35% 0.55% 0.98%

Online banking metrics include (Table A):

• Adoption. Active online users represent roughly 63% of the number of checking accounts, and 71% of the number of customers enrolled in online banking. Among FIs at the 75th percentile of performance, nearly three-quarters of checking account customers are active online banking users.

• Cost. The average cost per active online user is $0.72, with the median slightly lower at $0.63. There is a wide variation among firms, however, with FIs at the 25th percentile incurring less than a third of the cost of the overall average. At the other end of the spectrum, a third of the firms in the sample are spending $1.00 or more per user.

• Staffing. On average, a bank or credit union employee providing or managing online banking services supports slightly more than 16,000 active users. Top performing FIs are supporting nearly 26,000 users per FTE. Among the study participants, online FTEs account for 13% of IT FTEs and 0.51% of all FTEs in the FI.

In terms of active online users as a percentage of checking accounts, there is little variation across FIs of different asset sizes, with FIs in the $500 million to $1 billion asset range showing a slightly higher adoption than those in the $1 billion to $3 billion and $3 billion to $10 billion ranges (Figure 1).

Among FIs at the 75th percentile of performance, nearly three-quarters of checking account customers are active online banking users.


Figure 1 Active Online Users % of Checking Accounts by Asset Size


$3B-$10B (n=27)

61%

$1B-$3B (n=43)

63%

$500M-$1B (n=30)

67%

Figure 2 Monthly Cost per Active Online User by Asset Size


$500M-$1B (n=30)

$1B-$3B (n=43)

$3B-$10B (n=27)

$0.70$0.71$0.87

The smaller FIs are spending more to support those users, however. At the $500 million to $1 billion FIs, the weighted average monthly cost per active online user is $0.87, about 23% higher than the per-user cost at other financial institutions (Figure 2).

Asset size also helps to explain differences in staffing productivity. FIs in the $3 billion to $10 billion asset range support more than 23,000 active online users per online FTE, more than double the number supported by online personnel at FIs below $1 billion in assets (Figure 3).

Figure 3 Active Online Users per Online FTE by Asset Size


$500M-$1B (n=30)

$1B-$3B (n=43)

$3B-$10B (n=27)

23,198

13,07410,722

FIs in the $3 billion to $10 billion asset range support more than 23,000 active online users per online FTE, more than double the number supported by online personnel at FIs below $1 billion in assets.


Not surprisingly, larger institutions have larger staffs supporting online efforts. With 1.9 FTEs supporting the channel, FIs in the $500 million to $1 billion asset range have a little more than half the staff that FIs in the $3 billion to $10 billion range have (Figure 4). But as a percentage of all FTEs, the online staff at the smaller FIs represents three times as many employees as the online staff at the larger institutions (Figure 5).

Figure 4 Total Online FTEs by Asset Size


$3B-$10B (n=27)

3.5

$1B-$3B (n=43)

2.8

$500M-$1B (n=30)

1.9

Figure 5 Active Online Users per Online FTE by Asset Size


$3B-$10B (n=27)

0.34%

$1B-$3B (n=43)

0.61%

$500M-$1B (n=30)

0.99%

Online adoption also differs by type of FI. Although banks have a higher percentage of their enrolled base of online customers actively using the online channel, they lag credit unions from a percentage of checking accounts perspective (Figure 6).

As a percentage of all FTEs, the online staff at the smaller FIs represents three times as many employees as the online staff at the larger institutions.


Overall, online staffing levels are fairly equal across banks and credit unions: banks average 2.9 online FTEs, while credit unions have 2.5 FTEs. As a percentage of all FTEs, credit union online FTEs account for 0.67%; at banks the percentage is 0.42%. From a productivity perspective, however, credit unions’ online productivity is nearly double that of banks, supporting more than 21,000 active users per online FTE, in contrast to the 11,745 users supported by online personnel at banks (Figure 7).

Figure 7 Active Online Users by FI Type


Credit Unions (n=49)

21,442

Banks (n=51)

11,745

Figure 6 Online Adoption by FI Type


Active online users % of checking accounts

Active online users % of enrolled users

72%53%

65%81%

Credit Unions (n=49)Banks (n=51)

Credit unions’ online productivity is nearly double that of banks, supporting more than 21,000 active users per online FTE.



Table B Mobile Banking Metrics


Active mobile users % of checking accounts 27% 16% 25% 36%Active mobile users % of active online users 43% 28% 42% 53%Active mobile users % of enrolled users 70% 61% 81% 99%Monthly cost per active mobile user $0.57 $0.25 $0.61 $1.78

Mobile banking metrics include (Table B):

• Adoption. A little more than one in four checking account customers are active mobile banking users at the FIs in the sample, with the median slightly lower. FIs at the 25th percentile of performance have only penetrated 16% of the checking account base, while those at the 75th percentile are at 36%. In addition, FIs count 43% of their active online users as active mobile users.

• Cost. The average cost per active mobile user is $0.57, with the median slightly higher at $0.61. There is a wide variation among firms, however, with FIs at the 25th percentile incurring less than half of the cost of the overall average. At the other end of the spectrum, almost three in 10 FIs spend $1.50 or more per active mobile user.

Mobile adoption is relatively consistent across FIs of different asset sizes (Figure 8). However, as is the case with online costs, smaller FIs are incurring higher costs on a per-mobile-user basis than larger FIs. FIs in the $500 million to $1 billion asset range are spending $0.88 per mobile user, while those in the $3 billion to $10 billion range are spending $0.35 (Figure 9).

MOBILE

A little more than one in four checking account customers are active mobile banking users at the FIs in the sample.

Almost three in 10 FIs spend $1.50 or more per active mobile user.


Figure 9 Monthly Cost per Active Mobile User by Asset Size


$3B-$10B (n=27)

$0.35

$1B-$3B (n=43)

$0.74

$500M-$1B (n=30)

$0.88

There is wide variation in mobile adoption by type of FI, however. Banks count just 18% of their checking accounts as active mobile users, while credit unions have nearly double the usage at 35%. As a percentage of active online users, credit unions have penetrated nearly half the user base, while banks have only penetrated about a third. Banks do have a higher percentage of their enrolled mobile users using the channel, however (Figure 10).

Figure 10 Mobile Adoption by FI Type


Active mobile users % of active online users

Active mobile users % of checking accounts

Active mobile users % of enrolled users

49%34%35%

18%

66.3%81%

Credit Unions (n=49)Banks (n=51)

Figure 8 Active Mobile Users % of Checking Accounts by Asset Size


$3B-$10B (n=27)

25%

$1B-$3B (n=43)

29%

$500M-$1B (n=30)

28%

Banks count just 18% of their checking accounts as active mobile users, while credit unions have nearly double the usage at 35%.


Figure 11 Monthly Cost per Active Mobile User


Banks (n=51) Credit Unions (n=49)

$0.44

$0.86

In addition to the wide variation in adoption, there is a wide variation in cost. On a per-user basis, banks are spending nearly twice as much as credit unions are spending (Figure 11).

On a per-user basis, banks are spending nearly twice as much as credit unions are spending.


BILL PAY


Table C Online Bill Pay Metrics


Active bill pay users % of checking accounts 13% 9% 12% 17%Active bill pay users % of active online users 21% 16% 20% 26%Active bill pay users % of enrolled users 59% 46% 64% 91%Monthly bill pay transactions per active user 4.55 3.59 4.99 5.92 Monthly bill pay cost per active user $2.46 $2.28 $3.24 $4.54 Monthly bill pay cost per transaction $0.54 $0.50 $0.62 $0.85

Online bill pay metrics include (Table C):

• Adoption. Mid-size FIs have just 13% of their checking account base using online bill pay. The leaders—those at the 75th percentile of performance—have just 17% penetration. Roughly one in five active online users pay bills online at their bank’s or credit union’s site—and FIs at the 75th percentile don’t perform much better. Not even six in 10 enrolled users are actively paying bills online at their FIs’ websites.

• Use. FIs are seeing between four and five bill pay transactions per month among their active bill pay users. FIs at the 75th percentile of performance see close to six transactions per month.

• Cost. The average cost per active bill pay user is $2.46, with the median even higher at $3.24. Among the 100 FIs in our sample, 15 are spending $5.00 or more per active bill pay user. In addition, FIs are paying $0.54 per bill pay transaction.

Bill pay metrics are relatively consistent across FIs of different asset sizes. However, as is the case with online and mobile costs, smaller FIs are incurring higher costs on a per-user basis than larger FIs (Table D).

Not even six in 10 enrolled users are actively paying bills online at their FIs’ websites.



Table D Online Bill Pay Metrics by Asset Size

FI Asset Size$500M-$1B (n=30)Weighted Average

$1B-$3B (n=43)Weighted Average


Active bill pay users % of checking accounts 14% 13% 13%Active bill pay users % of active online users 21% 21% 22%Active bill pay users % of enrolled users 50% 61% 61%Monthly bill pay transactions per active user 4.88 4.19 4.70 Monthly bill pay cost per active user $2.96 $2.82 $2.09 Monthly bill pay cost per transaction $0.61 $0.67 $0.45


Table E Online Bill Pay Metrics by FI Type

FI TypeBanks (n=51)

Weighted AverageCredit Unions (n=49)

Weighted AverageActive bill pay users % of checking accounts 10% 16%Active bill pay users % of active online users 19% 23%Active bill pay users % of enrolled users 62% 57%Monthly bill pay transactions per active user 4.78 4.44 Monthly bill pay cost per active user $3.19 $2.11 Monthly bill pay cost per transaction $0.67 $0.48

There are differences in bill pay metrics across banks and credit unions, however. Among credit unions, 16% of checking account members are paying bills online at the credit union, in contrast to 10% of checking account customers who pay bills online at their banks. In addition, banks are paying 51% more per bill pay transaction than credit unions (Table E).

Nearly half of the FIs pay on a per-transaction basis only, while 40% pay for both users and transactions (Figure 12). FIs that pay on both a per-user and per-transaction basis spent roughly half as much per active user as the FIs that pay on a per-user-only basis (Figure 13).


Figure 12 Bill Pay Fee Structure


Per-user and per-transactionPer-user only

Per-transaction only

47%

14%

40%

Figure 13 Bill Pay Costs by Fee Paid Type


Per-transaction only (n=34)

$0.58

$2.70

Per-user and per-transaction (n=29)

$0.49

$1.89

Per-user only (n=10)

$0.80

$3.71

Bill pay cost per transactionBill pay cost per active user

FIs that pay on both a per-user and per-transaction basis spent roughly half as much per active user as the FIs that pay on a per-user-only basis.

Nearly half of the FIs pay on a per-transaction basis only, while 40% pay for both users and transactions


REMOTE DEPOSIT CAPTURE

Of the FIs in the sample, 84% currently offer remote deposit capture to their mobile banking users. Just 6% offer 100% real-time availability to users, while almost half provide no real-time availability at all (Figure 14).

No real-time availability

Figure 14 Remote Deposit Capture Availability Policy


Risk-basedreal-time

100% real-time availability

Partial flat amount availability

46%

19%29%

6%

Among mobile banking users, about one in four use RDC capabilities. Overall, just 7.4% of checking account customers use RDC features. On a monthly basis, users are making slightly less than one transaction. FIs at the 75th percentile are seeing close to two transactions per month, however (Table F).

From an adoption perspective, FIs in the $1 billion to $3 billion asset range are the anomaly, with lower RDC adoption among these FIs than smaller or larger FIs. These FIs see slightly higher monthly usage than both their smaller and larger peers, however (Table G).


Table F Remote Deposit Capture Metrics


Active RDC users % of checking accounts 7% 2% 5% 9%Active RDC users % of active mobile users 27% 10% 18% 35%Active RDC users % of enrolled users 41% 27% 57% 100%RDC transactions per active user per month 0.91 0.60 1.20 1.92

Overall, just 7.4% of checking account customers use RDC features.



Table G Remote Deposit Capture Metrics by Asset Size

FI Asset Size$500M-$1B (n=30)Weighted Average



Active RDC users % of checking accounts 8% 5% 9%Active RDC users % of active mobile users 29% 16% 36%Active RDC users % of enrolled users 44% 26% 51%RDC transactions per active user per month 0.74 1.02 0.91


Table H Remote Deposit Capture Metrics by FI Type

FI TypeBanks (n=51)

Weighted AverageCredit Unions (n=49)

Weighted AverageActive RDC users % of checking accounts 4% 10%Active RDC users % of active mobile users 22% 30%Active RDC users % of enrolled users 32% 45%RDC transactions per active user per month 0.87 0.92

Consistent with the other digital categories, credit unions see higher RDC adoption than banks do (Table H).


ONLINE ACCOUNT OPENING

Among the FIs in the study, 72% reported online deposit account openings. These online account openings represent roughly 6% of the total number of deposit accounts opened at the FIs, with FIs at the 75th percentile seeing a little more than 8% of their new deposit accounts coming from the online channel (Figure 15).

Although the percentage of total deposit account applications coming from the online channel is small, the online channel’s contribution is almost equivalent to the output of two branches. For every deposit account opened in a branch, the online channel is opening 1.84 accounts. There’s wide variation across FIs, however. FIs with less than $3 billion in assets opened less than one account online per account opened in a branch, while those in the $3 billion to $10 billion range opened five accounts online for every account opened in a branch (Figure 16).

Figure 15 Online Account Openings % of New Deposit Account Openings


25th PercentileWeighted Average Median 75th Percentile

8.2%4.3%

1.8%

5.8%

Figure 16 Online to Average Branch Monthly Deposit Account Openings by Asset Size


$500M-$1B (n=30)Overall $1B-$3B (n=43) $3B-$10B (n=27)

5.08

0.970.72

1.84

Although the percentage of total deposit account applications coming from the online channel is small, the online channel’s contribution is almost equivalent to the output of two branches.


SCORECARD


Table I Digital Banking Metrics

Weighted Average

25th Percentile Median

75th Percentile

Online

Active online users % of checking accounts 62.8% 48.9% 59.5% 74.2%Active online users % of enrolled users 70.6% 63.1% 77.3% 92.8%Monthly cost per active online user $0.72 $0.23 $0.63 $1.22 Active online users per online FTE 16,143 7,872 12,001 25,739 Online FTEs % of IT FTEs 13% 8% 16% 28%Online FTEs % of total FTEs 0.51% 0.35% 0.55% 0.98%

Mobile

Active mobile users % of checking accounts 27% 16% 25% 36%Active mobile users % of active online users 43% 28% 42% 53%Active mobile users % of enrolled users 70% 61% 81% 99%Monthly cost per active mobile user $0.57 $0.25 $0.61 $1.78

Bill Pay

Active bill pay users % of checking accounts 13% 9% 12% 17%Active bill pay users % of active online users 21% 16% 20% 26%Active bill pay users % of enrolled users 59% 46% 64% 91%Bill pay transactions per active user 4.55 3.59 4.99 5.92 Bill pay cost per active user $2.46 $2.28 $3.24 $4.54 Bill pay cost per transaction $0.54 $0.50 $0.62 $0.85

RDC

Active RDC users % of checking accounts 7% 2% 5% 9%Active RDC users % of active mobile users 27% 10% 18% 35%Active RDC users % of enrolled users 41% 27% 57% 100%RDC transactions per active user 0.91 0.60 1.20 1.92

Account OpeningOL account opens % of new retail accounts 5.8% 1.8% 4.3% 8.2%Online to branch account openings 1.22 0.31 0.68 1.72


ADDITIONAL RESOURCES

The Insight Vault provides bank and credit union executives with research insights, planning insights, operational benchmarks and analysis, tech trend insights, disruptor watch, and analysis of relevant news and industry performance. Each section focuses on “so what?”—what the data, trends, and analysis mean to FIs. The Insight Vault draws on Cornerstone Advisors’ proprietary research and operational benchmark data, as well as our consulting engagements.

In addition, clients of this exclusive subsription service will have an opportunity to engage with Cornerstone consultants on a quarterly basis to discuss the report and its implications.

For a complimentary copy of the report, email us at [email protected].

The Cornerstone Performance Report for Credit Unions provides an extensive analysis of credit union staffing/process benchmarks and technology utilization/deployment.

At the foundation of the report is the Cornerstone ScorecardTM, an indispensable peer comparison tool that details more than 200 key productivity and staffing benchmarks across 15 key operations areas, making it a valuable planning and budgeting tool.

The report also includes expense and revenue improvement opportunities in Compensation, Information Technology, Risk Management and ATM/Debit Income and Credit Card Interchange/Fees.

For more information click here or visit bitly.com/cornerstone-report-cu.

Drawing on data from a survey of 55 banks with assets of $1-40 billion, the Cornerstone Performance Report for Mid-Size Banks provides an in-depth analysis of staffing, volumes, processes, and technology spending, utilization and deployment at mid-size banks.

The Cornerstone Performance Report for Mid-Size Banks can identify potentially millions of dollars of performance improvements and cost savings.

The report includes the Cornerstone ScorecardTM, a detailed presentation of more than 200 benchmarks to help bank CEOs evaluate where they should be targeting their strategic initiatives.

For more information click here or visit bit.ly/cornerstone-report-bank.

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AFTER 15 YEARS IN THIS BUSINESS, Cornerstone Advisors knows the financial services industry inside and out. We know that when banks and credit unions improve their strategies, technologies and operations, improved financial performance naturally follows. Cornerstone’s multidisciplinary team is backed by the experience that comes from hundreds of thousands of gritty, in-the-trenches client hours. We live by the philosophy that you can’t improve what you don’t measure. With laser-focus measurement, financial institutions can develop more meaningful business strategies, make smarter technology decisions, and strategically reengineer critical processes.

Our comprehensive advisory services include:

ABOUT CORNERSTONE ADVISORS

PAYMENTS Payments Growth Initiative; Credit Card De Novo Program; Payments Stress Test; Credit Card Selection & Contract Negotiations

RISK MANAGEMENT ERM Model Definition and Roadmap; Risk Assessments and Remediation; Risk Audit and Testing; Risk Systems Selection

SYSTEM SELECTION & IMPLEMENTATION Core & Ancillary System Selection; System Conversions; System Implementation; Vendor Evaluations

DELIVERY CHANNELS Delivery Channel Planning; Branch & Contact Center Transformation; ATM & ITM Deployment; Digital Banking Selection & Implementation

INSIGHTS & KNOWLEDGE SHARING Research Reports & White Papers; GonzoBanker.com (our blog); GonzoBanker Roundtables; Webinars, Podcasts & Professional Speakers

STRATEGY Strategic Planning; Board & Executive Facilitation; Strategic Execution; Organizational Alignment

CONTRACT NEGOTIATIONS Core & Ancillary System Negotiations; Merger Contract Negotiations; Debit & Credit Card Contract Negotiations; Data & Voice Contract Negotiations

PERFORMANCE SOLUTIONS Benchmarking & Process Improvement; Branch & Call Center Performance; Consumer, Commercial & Mortgage Lending; Revenue Generation

TECHNOLOGY Technology Assessments & Planning; Vendor Evaluations, Implementations & Utilization; Vendor Management; IT Governance & Risk

MERGERS & ACQUISITIONS Transaction Advisory Services; Merger Integration Services; Merger Contract Negotiations

For more information on this report:

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CONTACT

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Digital Banking Leadership: Measures That Matter...6 Digital Banking Leadership: Measures That Matter 2017 Crerste Avirs All rigt reered eroui i rer b a ea i tritl ribite itu ritte