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CEO Greg Carmichael is leading a transformation of Fifth Third Bancorp and says trust and reputation are among his key concerns for the industry. CEO Greg Carmichael is leading a transformation of Fifth Third Bancorp and says trust and reputation are among his key concerns for the industry. Photo by Mark Sanchez

Fifth Third CEO prioritizes customer trust amid digital shift in banking

BY Sunday, October 30, 2016 04:54pm

Of all the issues Greg Carmichael deals with each day, trust and reputation are the ones that concern him the most.

Carmichael held that view well before he took over a year ago as CEO of Fifth Third Bancorp Inc. — the leading bank in the West Michigan marketplace — and prior to Wells Fargo & Co. getting hit with a $185 million fine by federal regulators for fraudulently opening accounts and issuing credit cards that customers never approved.

Years after the battering the industry took from the 2008 financial crisis that pushed the U.S. economy into a deep recession, the Wells Fargo situation dealt another blow to the reputation of banks.

Carmichael, who this month completes his first year as CEO of the Cincinnati-based Fifth Third Bank, said the behavior at Wells Fargo gave a black eye to the entire banking industry.

“It’s an unfortunate situation for our industry because it really paints our industry negatively and puts us in a bad light with consumers as an industry. Across the board, it’s just not a good situation,” Carmichael said in an interview during a recent visit to Grand Rapids to address Fifth Third employees.

“So job one is having our customers proud of being with Fifth Third,” he said. “That’s been my mantra going into my position as CEO. This is going to be a bank that’s most valued and trusted by customers.”

The fine and disclosure of the misconduct led to the resignation of Wells Fargo CEO John Stumpf while sending a shot across the bow to the U.S. banking industry.

American Banker magazine noted in a recent article that brokerage analysts this month, in conference calls to discuss quarterly results at the large banks they follow, have been asking questions about the sales practices.

During its quarterly conference call, Mercantile Bank Corp.’s COO Robert Kaminski noted the “inappropriate sales activities at one of the nation’s largest banks” and how his bank responded to it.

“We have spent some time with our staff contrasting the activities — as they have been detailed in the news reports — with client acquisition protocol at Mercantile,” Kaminski said. “Our department heads and managers continually coach team members on the principles of effective customer needs analysis, so that all Mercantile clients are placed in the appropriate products and services consistent with their financial situation and future financial objectives.”

ALIGNING WITH NEEDS

At Fifth Third, Carmichael succeeded former CEO Kevin Kabat in November 2015. Carmichael joined Fifth Third in 2003 as chief information officer, became COO in 2006, added president duties in 2012, and jumped into the CEO’s position with Kabat’s retirement a year ago.

In his first year, Carmichael has sought to continue transitioning the bank for the digital age. In recent years, Fifth Third has slimmed down from 1,340 branches to nearly 1,191 offices across 10 states. Fifth Third has sold or consolidated 108 branches this year and intends to shed another 32.

Carmichael calls the process “a pretty aggressive alignment” of Fifth Third’s branch network that’s coupled with a higher focus on technology.

“We’ve taken a big step to right-size our branch network. We think our branch network is right-sized right now,” he said.

How many branches the bank will need five years from now is uncertain, Carmichael said. He notes that about 45 percent of all checks deposited at the bank come in through a digital channel. He estimates that could grow to 85 percent within three years.

The bank recorded a 25-percent year-to-year increase in the use of mobile banking and more than doubled the number of checking accounts opened online.

As the nature of how consumers and businesses use bank branches evolves, with far fewer basic in-office transactions, banks can operate with smaller branch footprints, Carmichael said.

“Every bank is looking at how they leverage their brick and mortar because people still want to come to a banking center. Banking centers are important. The problem is the transactions and foot traffic in banking centers have dropped off significantly, some more than others,” Carmichael said. “But banking centers are important. People still come to a banking center when they have an issue (or) they want advice. Small businesses need to bring currency and cash checks.”

Fifth Third will continue to roll out additional digital offerings and upgrade online services and mobile banking apps for consumers and businesses as demand grows.

OPTIMIZING CHANNELS

As the digital age further takes hold, banks need to balance investments to deploy and manage new technologies that consumers and commercial clients want with the cost of maintaining an adequate branch network, Carmichael said.

The growth of digital banking creates two problems for the industry: Cyber fraud — “The risk for banks is no longer bank robberies, it’s fraud,” Carmichael said — and a virtual separation of sorts between the bank and its customers. Bank personnel no longer get to know their customers as well because people are not coming into branches as often as they once did.

“We don’t have that conversation because they don’t come to the bank,” Carmichael said. “So how do I sell to them? How do I touch them? How do I use big data to target them through their mobile devices, the web or direct marketing and other ways to know that customer better? Because I’m not getting the foot traffic I used to get, I have to sell to them differently. That’s all the transformation that’s happening.

“And to fund that investment, we have to look at our brick-and-mortar infrastructure and say, ‘Instead of spending X on that, I have to spend a little less and spend more on digital,’ or you’re just creating two complete channels that are not optimized.”

Fifth Third Bank has long been the leader in most markets in West Michigan. The bank holds the top spot for deposit market share in the Grand Rapids metropolitan statistical area, as well as in Ottawa and Muskegon counties. It also ranks second in Kalamazoo and Berrien counties.

In Kent County, Fifth Third held a 21.74 percent share of a $15.08 billion deposit market as of June 30, 2016, according to the FDIC’s annual Summary of Deposits. The bank had $3.27 billion in deposits at midyear through 32 offices in Kent County.

That compares with a 21.53 percent share of a $14.53 billion deposit market in 2015 with $3.18 billion in deposits at 40 offices in Kent County.

“We’re not giving up any ground,” said Tom Welch, Fifth Third’s regional president in Grand Rapids.

Statewide, Fifth Third ranked fifth in deposits, holding an 8.02 percent share, or $16.07 billion, of a $200.3 billion deposit market as of midyear. 

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