The primary challenge for retail-banking leaders is to manage a shift away from a distribution paradigm that, in just a few years, has become almost obsolete. Mohamed Dabo reports

Covid-19 has accelerated longstanding consumer and business shifts away from the branch and toward digital channels.Assuming that digital channels become the default sooner than previously expected, the role of the branch will necessarily evolve, although human-centred support will remain essential especially in transitioning to new models.

Interestingly, a McKinsey research reveals the digital preferences of older Western European consumer cohorts (ages 51-64 and 65-plus) aligning for the first time with those of younger demographics for most banking services.

What follows are excerpts from the McKinsey study.

In addition to an uptick in digital intent, there has been a decline across markets in consumers’ desire to visit branches for transactions – shifts that may stick for the long term.

Distribution channels will look very different in the next normal
If banks are successful in converting these stated customer preferences into actual behaviour, digital is expected to become the default channel for most customers and the sole sales and service channel for many.We estimate that 80% of simple servicing transactions and two-thirds of simple product sales could be digitally fulfilled, particularly in countries where significant digital inroads have already been made.

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This is already the reality for some banking leaders – in 2019, the top 10 banks in developed markets had 80% of their customers digitally active (60% on mobile apps).

Human-centred remote channels will evolve significantly but remain essential
In the wake of Covid-19, branch closures led to call volumes spiking by one-third and wait times more than tripling between December 2019 and April 2020.This pattern likely reflects lagging digital capabilities, as poorly designed or missing digital features force customers to call their bank; pre-Covid-19 Finalta research indicates a four-fold higher global rate of inbound calls per active customer (1.6 vs. 6.4) for banks with immature digital journeys.

The challenge is not only to improve digital service journeys but also to minimise agent time spent on low-value activities suitable for “human-like” interactive voice response (IVR) resolution.

Banks will adopt flexible approaches to deploy distributed talent pools
Remote access, including advisors working from branches, call centres, and home offices, will become a key component of supporting customer needs not easily migrated to digital.With a handful of leading retail banks being able to handle 50% of all complex needs via remote, we believe 35% can serve as a fair mid-term target, with wide variances across markets.

Branches’ focus will evolve to assisting customers’ complex needs

Although Covid-19 has accelerated the decline in branch preference (10% to 25% of customers in Western European markets intend to visit less frequently going forward), 30% to 50% still prefer this channel for assistance with complex products and issues, according to our Financial Decision Maker Pulse Survey.Branches will increasingly feature self-service (including intelligent ATMs and in-branch kiosks), with limited cash availability at counters given dramatic recent usage declines.

The proportion of basic banking needs handled in-branch could be as low as 5%
This will have significant implications for the required mix of branch staff, with much more flexible job configurations.Interestingly, given many banks have successfully redirected front-line staff into urgently needed support roles – often working from the same location – this may change the equation on branch closures, enabling banks to keep more marginal branches open than previously considered, assuming advisors can be productively deployed on critical customer-related tasks.

Banks in different countries entered the Covid-19 crisis from varying branch and digital starting points; naturally, not all will proceed to the next normal at the same pace.

For instance, while banks in Spain, Italy and the US face greater shifts in digital servicing, those in Sweden are already more digitally advanced and can focus on digital sales tool development.

The key question
The Covid-19 health crisis has reshaped the global economy and society.Retail banks, like most companies, face an urgent imperative to reimagine themselves, with Covid-19 accelerating consumer behaviour shifts and causing significant earnings challenges given the tough macroeconomic context and extensive risk of financial distress for both consumers and businesses.

In this context, Western European and US retail banking leaders can reflect on this important question: Is your distribution strategy configured for up to three years of digital preference acceleration?