For retail banks, two key outcomes from the
credit crunch have been: a greater desire to cut operating costs
and a renewed focus on providing a better service for customers.
This reaction may sound obvious during an economic downturn.
However, banks that implement cost savings without impeding the
customer’s experience can look to achieve the Holy Grail – an
effective business strategy which cuts OPEX while actually
improving customer interactions with the bank.
Technology has played a formative role in cost
cutting to date as retail banks look to become leaner. A highly
competitive landscape is driving the search for marginal
technological gains which could hand banks an advantage, and with
such an emphasis on innovation it is perhaps surprising that we are
yet to see video banking services on the British high street.
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Although video conferencing is beginning to
catch on, the UK banking industry has not embraced the technology
within its Branch of the Future concepts in the same way as its
American counterparts. There are a multitude of reasons for this,
not least the sizeable geographic differences between the two
countries.
Against a backdrop of seeming reluctance, it
is perhaps unsurprising that we are yet to see video technology for
customers in the retail banking sector. The question is – how long
banks can preserve this status quo before pressure to cut costs
forces them to look more closely at the idea?
There are already a number of drivers for
video services. For example, we know that banks are scaling back
branch networks. The Campaign for Community Banking Services found
that three UK branches per week are closing their doors for good.
This figure is expected soon to rise to five weekly closures.
By 2018 the group predicts UK branch numbers
will have fallen 16%, to approximately 8,000 outlets. Customers
value being able to go in to a physical branch, but all of the
figures indicate that branches are closing. Real estate agent Jones
Lang LaSalle says the number of retail bank branches in the
developed world will be halved by 2020.
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By GlobalDataAlthough branch numbers are in decline, few
expect the branch network to disappear altogether. Mobile and
internet banking will fill some of the gaps, but face-to-face
contact is required for more complex, non-transactional
processes.
The likely future model will see smaller
branches acting as service centres which will focus on high-value
products and the resolution of customer issues. Smaller branches
with fewer staff could act as a catalyst to initiate the widespread
adoption of video technology.
Video allows more services to be offered in
branch without adding more staff. An in-branch video “teller
cubicle” could connect customers to a centralised contact centre,
where trained agents would offer a greater range of face-to-face
services to the customer. Current regulations require banks to use
specially trained staff to sell their more complex products, which
results in limited numbers of trained staff wasting time travelling
between different branches.
Video technology would eradicate this problem
and would enable trained agents to serve more customers, thereby
reducing costs. Line managers who are required to sit in on some
sessions to ensure compliance would also be well served by video,
particularly where a sales team covers geographically diverse
locations.
The potential advantages are clear for retail
banks, but wealth management and retail customers will still need
to be convinced. Online banking was once in a very similar
position, but now over 50% of the UK’s population uses internet
banking to manage its money.
A growing proportion of the UK is identified
as tech-savvy “generation Y”, who have fewer qualms about using
video services, thanks to the advent of consumer video services
such as Skype and Apple’s FaceTime.
This section of the population is more open to
the notion of accessing wealth management and retail banking
services by means of a video or virtualised interface, and can be
identified as anticipated early adopters who would help to drive
uptake of any proposed video services. With each new generation,
technology becomes a more accepted part of our daily lives.
The cost of banking is a secondary incentive
for bank customers. It should not be forgotten that customers cover
the cost of branches, so as long as cost reductions do not affect
service levels then a move to video would represent a good deal for
customers. With the expected demise of “free” retail banking,
customers are likely to become more price-sensitive and will have
greater awareness of banks trying to pass on costs to the
customer.
Excitingly, the technology required to
underpin effective video services is already here. Packet-switched
IP networks provide high quality of service at a lower cost, and
bandwidth issues have been addressed recently in many retail
banks.
Video compression and data collaboration
technologies have opened the door to more “lifelike” interactions
over video conferencing, with telepresence suites and
high-definition displays improving the overall quality of the
experience. Banks will need to verify that their networks can
deliver the required consistency and quality of service, but those
with fully converged Next Generation Networks should have no need
to build a dedicated network to support video.
All of this begs the question: why aren’t
video services already being rolled out in the UK? There are
examples of successful schemes with Ziraat Bank’s Video Teller
Machines (VTMs) in Turkey and BankInter’s video calls in Spain. Is
it simply that no UK bank wants to be first to take the leap? Such
caution would be understandable, but another cause is likely to be
the relatively high cost of research and development and large
scale roll out of any solution.
Video services have great potential to provide
ROI in the long-term, (especially if they replace branches in more
rural areas), and yet financial institutions have become more risk
averse as a result of global uncertainty in the banking
industry.
Still, the business case is compelling. The
ability to deliver convenience for customers at a reduced cost will
be a differentiator, and US data shows the cost of setting up a
video-enabled branch to be substantially less than a traditional
branch which has more staff and a larger footprint – £1
($1.56)-1.4m and £2-2.25m respectively.
An example business case for video banking in
the public domain predicted a 392%, five-year ROI, based on
seven-day a week opening hours and improved sales per agent.
Differentiated business models will produce different savings, but
this base model is a powerful illustration of the potential of
video services.
Although no UK high street bank has yet taken
the plunge, the benefits of video services technology have been
made much more transparent by examples abroad. In future we will
see video technology being used to handle more complex transactions
across a wide range of high-value financial services.
Applying video to the correct usage scenarios
has the potential to deliver benefits such as greater efficiency,
better compliance monitoring, more relevant services and a better
experience for customers. There are retail banking institutions in
other countries already making significant gains from video, which
shows that the opportunity is already here. Banks which define a
strategy now will be able to capitalise on the added benefits of
early adoption.
Mark Gibbons is the managing consultant at
Hudson & Yorke
