In the last five years, industry debate about the branch’s place in the digital era of banking has been on-going, with the most extreme views proclaiming its extinction. However, despite being viewed as the dinosaur of banking channels, the branch is now making a comeback.
Historically, branches were thought to be under threat because they are expensive. When faced with rental, equipment and staffing costs, you can understand why everyone thought the UK’s first online bank First Direct was onto a winner. As a result, the 80’s and 90’s saw banks turn their focus to call centre, mobile and online channels to lower transaction costs, improve service and get customers out of the branch. The branch became neglected, fuelling the debate about its place in the future of banking.
But the simple reality is, the majority of consumers still need human interaction and as far as their money is concerned, they need that physical reassurance that their money is safe; this is particularly pertinent in a world where trust in banks has been eroded. The invisibility that comes with virtual worlds makes this all the more important and despite the fact that digital banking brings new levels of convenience, we are not robots and we need the human side of banking to co-exist and complement online and mobile channels.
A Middle Eastern bank tested this theory by giving customers access to tellers only through a hallway that was kitted out with touch screen ATM’s, kiosks, and other digital devices, but there were still queues for the teller, even though the electronic devices could fulfil this role.
Customers are also looking to the branch not only as the human face of their banking relationship, but also as part of the convenience they expect today. This is evident in the views of more than 1,000 consumers in emerging markets that we surveyed with Celent last year, who classed branch location as a top three factor when choosing who to bank with. There remains an acceptance among consumers that some transactions, such as credit applications, require a branch visit.
And from a bank’s perspective, the branch remains a vital source of profitability in driving revenue from existing customers. Online and mobile are largely transactional channels, with face to face time responsible for approximately 80% of new product sales. So despite claims that the branch has seen its day, branch networks have continued to grow right across the world. In the US, the number of bank branches and offices has risen by 22% since 2000, to almost 90,000 and in Europe the number of branches has increased steadily over the last decade*. In emerging markets, with large unbanked populations, there is still a drive to increase branch numbers although logic might dictate technology and purely digital channels to be cheaper options to acquire these new customers.
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The truth is, trust and confidence must exist in an organisation, in order for it to acquire customers, and that is most readily gained through a physical presence, especially among those with little knowledge of banking products and services. There is a wave of branch transformation taking place in the Middle East, with branch redesigns and the splitting of Islamic and conventional products into separately branded and physically separate networks.
So, while it is clear that the branch is very much alive and kicking, banks are increasingly starting to recognise that this channel needs to evolve with the digital age to complement the customer experience across all other channels. With that, the digitalisation of the branch is born.
Once viewed as a stagnant, archaic part of a bank, the branch is getting a long overdue make over. Banks are breathing life back into the branch by getting more creative and using innovative technologies to boost the customer branch experience. In Singapore, banks are holding branch re-design competitions using social media channels, encouraging customers to submit branch designs that are incorporated into the branch rollout.
In the Middle East, you can see the tech wave creeping into the branch as the walls are decorated with touch screens, there are children’s and women only branches and the lavishly designed interiors play to the region’s historical culture of making a branch visit a social event. In the UK, the arrival of Metro Bank saw customers encouraged to bring their dogs into the branch by providing free biscuits for their canine friends. If anything, it could be argued that the branch is one of the more exciting strands in the banking channel web of today.
Aesthetics aside, a major change is taking place in making the branch more digitalised, which is a fundamental part of shaping this channel to safeguard its role as a sustainable source of income for the bank. Across both developed and emerging markets, the digitalisation of the branch is underpinned by three key drivers – customer service, competition and costs.
Banks are aware that they need to be able to meet the expectations of their increasingly tech savvy customers. Heavy emphasis has been placed on enriching the internet and mobile experience and as a result, customers can get an extremely good view of a bank’s product portfolio. Customers self-educate a lot more and this is now exposing flaws in the branch model, as customers go into the branch better informed than branch staff, negatively impacting the branch customer experience.
This is driving the need to digitalise the branch using technologies to enhance the customer experience through initiatives such as proactive recognition of customers or rollout of tablet solutions to provide an alternative service option for branch staff to interact with customers.
Banks also need to recognize that staff turnover is pushing the need to underpin their branch models with new technologies. Turnover in branch banking is relatively high and front office positions often attract the younger generation, who themselves expect new technologies to be part of their working lives.
Increasingly banks are starting to invest in software that mobilizes customer service staff to enhance the personalisation of service delivery. This is a vital element of helping the branch return to profitability whilst lifting the image of the bank. Empowering customer advisors with the ability to provide a more open, yet better informed service to their clients will significantly contribute to the cross sell success of the bank, as well as helping to restore trust in the customer/bank relationship.
In many markets, competition for custom is rife. Europe is an obvious example, where a shrinking customer base is creating an outright war for signing up new clients but also driving this increasing need for banks to retain and cross-sell to existing clients. Whilst the economic downturn killed some banks, it gave birth to new entrants, with the UK seeing its first new bank open on the high street in more than 150 years.
New kids on the block like Metro Bank whose customer centric branch proposition and bold brand identity created a stark contrast to the grey, conservative branch of yesterday. Banks are starting to embrace new technologies to help transform the customer experience and better compete with this new level of competition.
The final key driver is cost reduction. The cost of a branch transaction is approximately 20 times higher than a mobile transaction and more than 40 times higher than an online transaction. Faced with this kind of disparity, it is imperative that banks re-evaluate their branch strategy to improve cost efficiency**. Digitalisation of the branch helps to introduce new efficiencies that the branch has not seen before. While the multi-channel banking relationship is undoubtedly no longer a nice to have, it makes acquiring a single customer view all the more harder.
Bringing new technology into the branch helps to piece together this picture, driving new efficiencies that not only help to boost the customer experience, but drive down long term costs through automation. A Middle Eastern client has invested in new technology to reduce its front office system infrastructure from 12 applications to one, a good example of how IT rationalisation through new technology can generate significant cost savings for a bank through lower TCO strategies.
Once at the centre of a survival debate, it seems as if for now, banks can’t live without branches. The physical interaction they offer to customers is still in demand and it plays a vital role in helping banks to generate sustainable sources of income. But, banks cannot rely on the branch of old and must re-vitalise this channel to bring it in line with the digitalised world that customers expect across all aspects of their banking relationship. Embracing new technologies is a fundamental part of breathing new life into the branch and digitalising its existence so it becomes a game changing asset for the bank.
Dean Young is vice president, product management at SunGard retail banking