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HSBC's retail head talks branching, mortgage and millennials

McLean, Va.-based 's CEO of retailbanking and wealth management, Pablo Sanchez, delivered a keynote address atAmerican Banker's Retail Banking Conference this week in Las Vegas where hesaid success in retail banking is all about consistently and repeatedlydelivering services of high value to customers. But that is often easier saidthan done. But Sanchez said retail banks of any size and footprint canintegrate differentiated product and service offerings through customer-centricbusiness operations to hold an edge in today's highly competitive market.

Sanchez was to his new positionwith the New York-based HSBC USAInc. unit effective June 1, 2015, after most recently serving asnational director of consumer banking at JPMorgan Chase & Co. In his role at HSBC, Sanchezheads the U.S. retail banking and wealth management business, includingmortgage and insurance.

In an interview with S&PGlobal Market Intelligence, Sanchez spoke about the branch of the future, thechase for millennials and the potential impact of rising interest rates ondeposits.

The following is an editedtranscript of that conversation.

S&P Global MarketIntelligence: What's been the biggest challenge of your new role so farcompared to what you expected?

Pablo Sanchez: HSBC has been a lot of fun.I've been on the job for about 10 months, and working for a global franchisethat has this kind of scale in the retail banking business worldwide issomething new to me. I worked at JPMorgan and had 5,600 branches and 60,000people that worked for me for a while, but this is a different challenge. Soit's understanding that and this franchise, but it's been a wonderfulexperience.

SNL Image
Pablo Sanchez
CEO of retail banking and wealth management, HSBC Bank USA

Source: HSBC

What is your expectation forthe size of HSBC's branch network going forward?

Iactually really like our branch footprint today. We're in some of the bestmarkets in the country both on the east coast and the west coast, and I see usoptimizing what we have. Of course we're repositioning branches and doing thingslike opening up financial centers in our big employee centers around thecountry, but I like our footprint. I like where we are. And we're just going tooptimize that.

The size of branches in thefuture has been a big topic here this week. What's your take on what theoptimal size of branches will be?

Intoday's world, we're really talking about the bank branch moving away from thevast majority of the space being transactional centers and being more advicecenters. So when you think about that and what the needs are and giving peoplethe ability to self-serve and bank when, where and how they want to, I thinkthe bank branch for sure is going to continue to shrink. The exact size? Whoknows. But about 1,800 to 2,200 square feet seems to me to be about the rightplace. I built 1,000 branches in my time at JPMorgan Chase, so I have a fairamount of experience doing that.

How do you make thebrick-and-mortar locations work in concert with the digital offerings?

Ithink they're very complementary. And, quite frankly, the death of thebrick-and-mortar branch has been exaggerated for 20 years. In the research wecontinue to do, we continue to find that when people chose a bank they want abrick-and-mortar branch that is either close to where they work or where theylive. Now, how they transact with that organization once they open that accountis much different. They want to be able to bank when, where and how they wantto. So doing those routine transactions — things that they can self-serve on —they want to do so. Everybody is going to have to play in the digital space.Personally, I bank a lot with my mobile phone and my internet banking account.That's going to be a staple of how you do the customer journeys on a go-forwardbasis. But I still see the need for people to be able to interact face-to-facewhenever they have real financial needs.

There has been talk here thatbranches will be more lightly staffed down the road, but a lot more will beexpected of those employees. Will it be harder to find qualified talent, andwill there be a cost issue as those people will likely have to be bettercompensated?

Ithink that as the whole industry converts from more operational to much more interms of being an advice center, individual people will earn more. But therewill be less of them. So I think the net cost of all of that is going to be awash. As an example, when you think about utilizing the digital capabilitiesthat we have, typically in the industry it's about $3 to do a tellertransaction, about 80 cents to do an ATM transaction and about 8 cents to do adigital transaction. So when you think about taking that capability and thatfunctionality and really using it to your advantage, I think the overall costhas to go down in the business. And you see that happening industrywide now.

What about finding thosepeople or training the staff you have now to get to that universal bankerlevel? Is that problematic?

We'vebeen working on [a universal banker] model here for a few years, where we havea single point of contact for a customer. Quite frankly, we don't have a bigissue finding the talent to do that. The systems improvements today make that alot easier. So it's easier to do the administrative functions and those kindsof things and you can really concentrate on training people on how to givegood-quality advice.

Is all the talk about theneed to capture millennials overblown and, if not, how do you differentiateyourself to attract that business?

Withall the talk about technology, this is still a people business. And when youthink about where our growth is and where we need to go, you have to payattention to that group. They continue to emerge and they continue to changesociety and our norms. So it's extremely important that we think about that.

From a retail perspective,has one of your markets stood out recently?

I'mreally happy with all of our markets, but in particular the San Franciscomarket has done exceedingly well. The leadership there has done a tremendousjob.

There are some big markets thatHSBC does not branch in. Has there been any discussion about expanding thebranch footprint?

Wethink about really optimizing the markets that we're in before we think aboutdoing other things. We have opened some financial centers in Chicago and Buffaloas an example, but they're not really full-blown branches. The customer that wereally have an advantage with is the internationally oriented group, whetherthey come from Europe or Asia or what have you. I think we're positioned wellto do that, and I don't see a need to do much more, at least at this time.

Switching gears, I wanted toask about the expected interest rate hikes this year and what you think itcould mean to your deposit gathering.

It'sbeen my focus since I've been here to make sure that we deepen ourrelationships with our customers. From a product-offering perspective, we'repretty competitive. Our standard base savings rate is almost two-and-a-halftimes the national average. So whatever happens with the rates happens. That'snot something that we build into our plans any more.

In general, what is youroutlook for the traditional retail offerings in light of where the U.S. economyis today?

Therecontinues to be an opportunity for the industry and especially for HSBC in allof our product lines, especially in wealth management, where you can deepen thecustomer relationships. That's where most of the opportunity is. But you haveto work on both sides of the customer's balance sheet. If you really want to besomebody's primary bank you have to be able to do the credit side. Mortgage isa center-of-the-plate product for us as it really makes our customers stickier.When they have a mortgage with us they not only attrite less but they give usmore balances and they're prone to buy something else. So we're really focusingon the mortgage business. And the credit card business is a big focus becauseif you want to be somebody's primary bank you want them to pull out that card.