Case Study: Expanding Your Bank Brand with an Off-Premise ATM Partnership Steve Karp, Senior Vice President, SunTrust Enterprise Payments Strategy November 3, 2011
Today s Discussion 1. About SunTrust 2. Role of ATM Channel in Retail Banking 3. Rationale for Branding 4. Partnership Criteria 5. Analytical Methodology 6. Tactical Considerations 7. Key Performance Indicators 8. Strategic Leverage 2
SunTrust is the 9 th largest bank in the U.S. Headquarters Atlanta, GA Employees 29,235 Revenue Assets $8.7 Billion $172 Billion Branches 1,661 ATMs 2,919 Debit Cards ~ 5 Million Note: SunTrust data as of June 30, 2011, except revenue (based on full-year 2010). Industry ranking as of June 30, 2010 based on total domestic deposits 3
ATM branding represents a key component of SunTrust s overall channel strategy Typical mix for a big bank 4
There is a compelling body of evidence that speaks to the critical role ATMs play in retail banking ATM withdrawal fees ranked as most important feature in consumer s DDA choice 1.5x more important than branch location (GCI / McKinsey & Co.) Proximity to home and work identified as the most important factor in selecting a bank 1.4x more important than free services (J.D. Power) Accessibility identified as most influential attribute affecting a consumer s choice of financial institution 1.7x more important than good service (Maritz) Location of ATMs/branches accounted for 20% of DDA attrition (FRB) Density of a bank s remote ATM network is one of the five statistically significant factors in predicting core deposit growth (First Manhattan Consulting) High rate of foreign ATM transaction activity is strongly correlated with higher customer attrition rates (Dove Consulting) 5
In early 2008, SunTrust decided to pursue an offpremise ATM branding partnership Three key ATM channel questions: Do we have enough ATMs? i.e., scale and density Are they in the right places? i.e., location Do they do the right things? i.e., functionality With a network of about 2,400 ATMs, SunTrust lagged its regional peers by ~500 and its national competitors by ~1,000, based on: Ratio of ATMs/branches Ratio of ATMs/debit cards Other alarming trends: Growing position as a net issuer of foreign ATM transactions (sign of declining relative ATM density) J.D. Power s 2008 Retail Banking Satisfaction Survey indicated that SunTrust lagged its peers in number of convenient ATMs 6
Realistically, how does a bank like SunTrust play catch up? Compete with ISOs to win retail placements: Banks are at cost structure disadvantage Downward pressure on transactions make profitability more challenging Leverage Corporate and Treasury relationships to more aggressively grow offpremise footprint: Difficult to build scale quickly Opportunities defined by client relationships, not footprint needs Branding partnership: Gain quick access to prime real estate Leverage capability and infrastructure of partner More cost effective than wide-scale proprietary ATM deployment (even if you somehow had secured the rights to good locations) 7
When evaluating third-party ATM branding partners, SunTrust took into account several key criteria Core competency and focus on off-premise ATMs Experience working successfully with financial institutions Turnkey front and back-office (e.g., in-house switch/terminal driving) Control of the right real estate: Super-regional and national retailers Everyday spend category (e.g., grocery, gas, drug) Brands that fit for SunTrust Buying power with key service providers 8
SunTrust employed an analytical screening methodology to identify and prioritize market needs 70 Markets SunTrust retail customer footprint 25 Markets 90% of footprint population 21 Markets Available branding sites Apply screening criteria to determine markets with greatest need for additional ATM coverage 9
Eight screening criteria were applied to each of the 21 markets to develop a branding opportunity score Macro-Economic: Projected population growth Overall market deposit growth ATM KPIs: Ratio of ATMs/branches Ratio of ATMs/debit cards Ratio of foreign issued/total ATM trans. Ratio of foreign issued/foreign acq. ATM trans. SunTrust Corporate Priorities: STI deposit growth Branch strategy designation 10
Using a staged, prioritized roll-out, SunTrust deployed 480+ ATMs in CVS stores across 4 states/19 markets CVS was the right retailer for SunTrust Density of CVS stores in targeted MSAs allowed saturation in key markets ATM distribution lift: 2.5x in Charlotte 2x in South FL 3x in Charleston, SC 2x in Jacksonville 11
STI worked closely with Cardtronics to develop and implement a compelling brand look at CVS locations 12
We had to navigate a series of tactical considerations as the partnership unfolded Surveying and in-store placement process: What level of penetration can ATM deployer deliver? Anything less than 85%+ is going to create a challenge Who determines if a store can support an ATM.HQ, regional, local? Who decides where ATM goes in store? Is window and/or exterior signage allowed? ATM look and feel: How similar/different than bank-owned off-premise ATM? SunTrust decided on unique topper and wrap Certain functionality lost from owned ATMs though e.g., preferences 13
SunTrust Key Performance Indicators (based on 24 mth vintage portfolio) # SunTrust Trans. per ATM 40% above plan SunTrust Trans as % of All Trans ~50% (range is 40%-60%) Availability Local Market Deposit Share Local Market DDA Acquisition Rate Local Market DDA Retention Rate 10-20 bps better than STI Difficult to isolate impact of ATM branding 14
If you agree that the ATM channel is a differentiator, branding partnerships can provide strategic leverage Source: Aite Group, U.S. Bank ATMs: Self-Service Trends in a Challenging Environment, August 2011 15
Closing Perspective on ATM Branding Partnerships 475 Branded Off-Premise ATMs 475 Bank-Owned Off-Premise ATMs +5 Yr. TCO = $10 million +Outsource operational, technology, and revenue risk +Allows bank to focus on their strength Assets = $5+ mil. 5 Yr. TCO = $20 million+++++ Assume all operational, technology, and revenue risk Spend more time running the ATMs than leveraging their capabilities 16