Excerpt from Chapter 2 – Measuring the Customer Experience
By examining the behaviour of customers, the glaring realization is that institutions are essentially assuming that customers only ever use one channel at a time to interact with them. Hence, it is not unusual to find a web team that believes that it can take 30-40% of branch traffic and service it online. Likewise it is not unusual to hear proponents of Branch banking telling us “the branch is back” and that the winning strategy is to be investing in more real estate and variations of branch to retain customers. It’s also not unusual for customers to receive dozens of direct mail offers, email marketing offers or sms promotions from different ‘revenue centres’ within the bank independent of each other.
In 2008 90-95% of daily transactions are done electronically and in most cases the majority of transaction volume comes through direct channels namely ATM, Call Centre and Internet. By February of 2007, HSBC in Hong Kong reported in the South China Morning Post that 90% of their daily transactions were through phone, Internet or ATM, leaving the rest to branch. RaboBank, FirstDirect, INGDirect, and others have been able to successfully operate without any reliance on branch structures. This is not a criticism of branches, because we believe that branches will remain an essential part of the future of banking. However, look at the organization structure of most banks today and you’ll see a complete and total lack of understanding of customer behaviour inherit within the organization chart. It’s really quite appalling that the organization structure of many banks have not caught up with this reality.
When you examine the organization structure of most retail banks, the Head of Branch networks is second only to the Head of Retail, and in many cases is a direct report to the CEO. In comparison the manager responsible for Internet often sits under the IT or Marketing departments three or four levels below the organizational equivalent of the branch business unit lead. So let’s get this straight. 90% of the transactions go through channels that are managed by managers who have only a modicum of influence within the organization structure, while the head of Branches has the ear of the CEO and looks after just 5-10% of the daily traffic within the bank.
“Ah, but the branch generates all the revenue…” we’ve heard it argued. This is a really good justification for keeping traditional structures in place. Well let us really examine if that is the case.
Let us take credit card acquisitions as an example. How do we market credit cards? Currently we might use direct mail, newspaper advertisements, web and possibly promotional marketing offering a ‘free gift’ if clients sign up for a new Visa card or Mastercard. Customers are then faced with probably two or three choices of how to apply. The first option is that they can call the call centre, but the call centre refers them to the branch because they need to present proof of income and proof of identity to an officer of the bank. The same might be the case for the internet, where the application can be filled online, but we then call them and ask them to come into the branch to complete the application.
Who gets to record the revenue for the credit card application? Not the call centre, or the internet channel. Often it is the physical branch that executes the final signature on the application form and the KYC compliance check on the proof of income – so it happily records the revenue of the sale. But the branch has actually had practically zero involvement in the sale, and simply is just a ‘step’ in a required adherence to an outmoded compliance process. So does the branch actually generate the revenue, or is it merely an accounting treatment?
The attitude of many retail banking senior executives seems to be that the branch is a serious banking channel, whereas the remainder of “alternative” channels are just that – alternatives to the ‘real thing’. The problem is that customers simply don’t think like this. They don’t assign a higher value or priority to the branch; they just see it as one of the many channels they can choose to do their banking. In fact, many customers these days choose not to go the branch because they don’t want to stand in line, or they find it troublesome to get to the branch at times when they are open. Admittedly the branch is the premium service channel, but it is not the ONLY channel. So why don’t the banks think the way customers do?
The longer banks choose to reinforce a belief that the branch is superior within the organization structure, the longer it will take them to match the performance of the bank to the changing behaviour of retail customers.