Investment in
multichannel distribution in retail banking is yet to contain cost
or increase revenue. A survey from consultants Oliver Wyman
concludes multichannel is a topic higher on the agenda than ever
but remains an organisational and operational challenge, owing to
limited distribution models. Douglas Blakey
reports.

 

Bar chart showing banks costs breakdown by market sectors in EuropeEuropean retail
banks are yet to achieve their multichannel ambitions and justify
investment to date, according to consultants Oliver
Wyman.

A report from Oliver Wyman,
Multichannel banking: unravel complexity to turn ambitions into
reality – a survey of 30 European retail banks from France,
Germany, Italy, Spain and the UK
– concluded that investment
in multichannel distribution in retail banking is yet to contain
cost or increase revenue.

Multichannel is higher on the
agenda than ever and most banks questioned for the report expect
alternative channels, such as the internet, to contribute up to 20%
of their unit sales in the coming three years.

Opportunities for adding
value for customers and competitive differentiation are shifting
from products to distribution. However, the banks’ channel
ambitions remain an organisational and operational challenge, due
to limited distribution models.

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Oliver Wyman partner, Simon
Low, told RBI: “The markets better positioned to get to
20% are in Scandinavia. Of the big markets, the UK is best placed.
Italy remains branch-centric as well as Germany, to a lesser
degree. Given the labour laws in a number of the countries we
surveyed, a lot of the benefits will accrue from allocating peoples
time more effectively rather than reducing headcount. Significant
cost reductions will not occur until you can reduce
headcount.

“At the margins we see some
branch closures but do not see a big wave of closures.”

During the last decades,
European banks have heavily invested to move from a branch-based to
a multichannel service model. As a result, multichannel is now a
major investment area in the banking industry.

This trend of significant
investment will not decrease. Even if the branch is still at the
top of banks’ investment priorities, direct channels have acquired
a very strong position and their importance is expected to increase
further, owing to the increasingly dominant role of the
internet.

By developing their direct
channels in order to support their branch-centric distribution
model, banks have faced increases in their operating costs that
have only been partially offset through the decreasing costs of
handling low value transactions.

Indeed, there is actually
limited evidence that growth of multichannel has led to a
significant drop in the cost of serving low-value clients. This is
confirmed by the survey: 70% rank the improvement in cost of
service among their top three priorities for their multichannel
architecture.

Tracking the tangible
benefits of multi-channel is also a challenge. A majority of
surveyed banks still lack some operational key performance
indicators to support the monitoring of channels’ contribution to
the principal stages of the client relationship (new sales,
customer acquisition, customer retention, cross-selling
etc).

In this context, it is
difficult to secure investment and prioritise. Expenditure on
multichannel is still often determined by a qualitative rather than
data-proof process.

The report set out three
recommendations for retail banks:

  • Optimise the
    potential of each distribution channel, remove perceived obstacles
    and unlock hidden value
  • The branch should be used for
    customer acquisition and to provide advice, however its role should
    evolve to a portal for multichannel relations;
  • Banks should increase
    incoming business from the internet, one of the top two investment
    priorities for 75% of respondents;
  • Call centres should evolve
    from traditional telephone banking to sales and service support to
    more specialist roles, such as providing remote expertise for high
    value, low touch customers, and
  • Banks should prepare for the
    next mobile banking wave supported by the fast development of smart
    phones.
  • Enhance the
    integration of customers’ channel preferences to achieve a genuine
    multichannel customer experience and improve contact
    management.
  • Banks should reflect
    customers’ preferred channels in their distribution models;
    and
  • Commercial opportunities
    should focus on selecting, tracking and managing flows of
    information from disparate channels, improving customer
    relationships and ensuring that all channels are used appropriately
    for different sales opportunities
  • Align organisation
    and processes to steer business in a multichannel
    direction.
  • Banks should address management
    structure as less than 20% of respondents group the different
    channels together in the same management line, and
  • There should be greater
    managerial responsibility and related incentives; close monitoring
    of key performance indicators; and optimisation of
    processes.

“The things we are not seeing
are sharing of information across the different channels,” said
Low. “Linking and developing processes that go against multiple
channels has been lacking and banks have not always made sure that
the look, the feel and the brand appears the same across different
channels.

He concluded: “Banks have made significant investments to
expand the functionality of their channels. Now they need to turn
this investment into measurable commercial benefit by using
customers’ channel preferences to optimise customer experience and
channel costs and sales opportunities.”