Part 1: The Future of Retail Banking is Nigh
When was the last time you had go to into a bank branch? For many of us over a certain age, the pervading memory of spending a lost lunch hour standing in line to see a teller is one that, thankfully, will continue to fade. Nowadays, the most rudimentary of banking tasks can be taken care of with a quick swipe and tap of the smartphone. Even most local or rural community banks have mobile apps today.
The influence of digital technology in shaping consumer behavior in banking is clearly reflected in the data. Since 2010, branch transactions declined at an annual rate of 4-5 percent1, directly offset by an increase in online transactions of 4 percent. Mobile experienced a staggering 28 percent increase over the same three-year period.
It is under this backdrop that the recent annual American Bankers Association (ABA) Marketing and Retail Conference took place, with the majority of sessions and conversations dedicated to the topic of the bank of the future.
While opinions differ on exactly what that future will look like, few disagree with the notion that the current trends will reap disruption and lead to one of the most fundamental shifts that the retail-banking sector has ever seen.
Embrace the Future
Although this may sound like a catchy slogan for a financial institution (it isn’t), it represents a view that retail banks have a unique opportunity to break out from the mold. The challenge that many financial institution executives face involve knowing when and how to make changes. Uncertainty about the future and volatility equates to potential risk and exposure, especially when retail operations already consume approximately half of all operating expenditures.
Some will inevitably adopt a wait and see mentality. But, with the rise of a new wave of internet banks like Simple joining established brands like Ally in aggressively marketing to 20-35 year-olds and offering a differentiated experience, the world of banking may look very different in twenty years time. Moreover, with some traditional banks already driving bank transformation initiatives, doing nothing is a risky strategy. Three key learnings gleaned from the conference can help bank marketers guide their institutions into the future with more certainty:
1. Branch Evolution, Not Revolution
While the number of U.S. branch closures is likely to continue to outpace the number of openings, fears of the complete demise of the branch are misplaced. In a recent study among U.S. adult consumers, 21 percent said that the branch was their most preferred method of banking. This makes the branch the second most important touchpoint, behind internet, which had a 31 percent preference. The role of the bank branch will change, and their numbers may reduce, but its role will become increasingly strategic.
2. Seamless Integration of Experience
As consumers, we demand that brands offer a multitude of ways for us to connect with them. Today, 65 percent3 of customers already interact with their banks through multiple channels. Consumers can take care of their basic banking needs online or by using an app, but may still need to go to a branch to discuss a more complex challenge. This omnichannel approach to service delivery, although novel for banks, mirrors many of the changes that have already been adopted broadly and in other service retail categories, such as telecommunications; where intense competition has already driven multiple rounds of retail innovation from the major players. But when it comes to having the right capabilities, most banks are still in the red: a recent study highlighted that whereas 74 percent of banking executives said that creating a consistent, cross-channel customer experience was highly critical, while only 23 percent stated that they felt their organizations could confidently deliver.
3. From Transactions to Service and Experience
Most banking executives we spoke to have begun to look at how they can transform their branch orientation, from reactive and transactional, to a more consultative advisory model. Delivering on an experience will require a huge shift in mindset to address critical questions in at least three areas.
- People: do we have the culture and leaders to arm our people with the necessary skills and motivation to act?
- Process: what happens when a teller is no longer behind a window?
- Environment: how do we create a warm and inviting atmosphere, with the right technology and build flexibility into our footprint?
In Part 2 we will demonstrate how some banks are leading these transformational efforts using a brand-centered approach and provide a framework for how it could work for your team.
This article is part of a series on #OldBanking. It symbolizes the paradigm shift in the banking industry from the traditional transactional model of retail delivery to a customer-centric model focused on creating experiences and fostering relationships. Join the conversation by using #OldBanking on Twitter.
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1CEB Tower Group
2CEB 2013 Retail Banking Agenda Poll