Brett King

Posts Tagged ‘apps’

Lessons from Apple – Great Branches don’t bring customers back

In Branch Strategy, Customer Experience, Retail Banking on March 8, 2012 at 13:22

The new iPad just launched to the usual hype, anticipation and fanfare. Every time a new Apple product comes off the assembly line, it gets put under the biggest magnifying glass imaginable as crowds of onlookers parse the announcement with scholarly intensity, hoping to piece together a picture of what might emerge and what the implications for the world at large will be.

Apple calls their latest release “Resolutionary” in reference to the retina display capabilities of the screen embedded in the new iPad. The New iPad’s “Retina Display” has 1,000,000 More Pixels than a HDTV, and its resolution is so dense that it is beyond the capability of the human eye to recognize individual pixels. We’re reaching the theoretical limit of display resolution – higher resolutions won’t matter if we can’t see the detail.

But that’s not the interesting observance. Apple is the most valued company in the world right now, and it is in that position because it inherently understands consumer behavior in respect to product, brand interaction and purchasing behavior. There’s a lot of banks that would like to think if we turn all our branches into “Apple Stores” that customers will flock back to the branch. But that’s not what the Apple story is telling us.

Will “Apple Store” Branches Save us?

On the eve of 16th December, 2010, Citi opened a glamorous, high-tech branch in New York City’s Union Square. The 9,700 square foot branch was designed by Eight, Inc., the same firm of architects responsible for the unique design of the iconic Apple store. Although Citi actually launched their store concept in Singapore first, the New York store was almost positioned as the saviour of branch banking itself and the “Apple store” moniker was applied repeatedly to indicate it’s revolutionary nature. If you read some of the reports and commentary on Citi’s branch it was clear that many bankers believed that if you just got the branch format right, made the space more attractive for customers, that they’d storm the branch and all would be made right with the world.

But that’s not what happened. While Citi’s “store” was certainly innovative, there’s no evidence that there’s been any net gain in retail activity because of the evolution in branch design. However, some brands like Umpqua, Jyske (Danish) and Che Banca (Italy), playing on the same premise, have claimed some increased branch activity as a result of their evolved spaces. So what is the reality? Are innovative new branch layouts going to change behavior when it comes to banking?

You only need to look at Apple to answer that question.

Store First?

For many Apple newbies their first interaction with Apple products is through an Apple Store or a Apple retailer, but not always. The new iPad that was released yesterday is not yet available in-store, but already there are tens of thousands stacking up to buy the product through their online store. Pre-order activity for the iPad has already had an effect on the online store for Apple.

Checks by Computerworld through 4:15 p.m. ET from multiple locations in the U.S. found the Apple e-store either still sporting a “We’ll be back soon” banner, or if it did load in a browser, becoming unresponsive during the purchase process – Computerworld Article March 7th, 2012


What we know of Apple is that they don’t insist on you coming into a store to make a purchase, or start your relationship with their brand dependent on some process that requires a face-to-face registration for their first product. For the release of the iPad Apple had to actually restrict online customers to buying only two of the devices, due to overwhelming demand through the online store.

The argument often heard by bankers is that regulation forces physical face-to-face compliance processes on us, but even regulations don’t force chartered banks to insist on a face-to-face interaction to onboard or identify a customer. Like Apple, today’s behavior of consumers means we should be ambivalent to the channel a customer chooses.

For the sake of the argument though, let’s assume that the first interaction is in an Apple Store or in-branch. How do customers behave in their interactions with the Apple brand once they have purchased their first iPad, iPhone or Mac computer? Does the most excellent ‘store’ experience drive them back to the store repeatedly over time? No

Great "Stores" don't bring customers back

Let’s look at the revenue story.

Show me the Money!

The average Apple Store makes approximately $34m in revenue annually, with $8.3m in operating income. However, if you examine the 10-K filing for Apple, revenue is split almost 50/50 between online (& device-based store) sales and their retail presence.

Since the Apple “App store” opened on July 10, 2008 Apple has booked close to $6 billion in revenue just on “Apps”. CyberMonday is used as the benchmark for US online and mobile retail sales, and figures show that iPhones and iPads account for a staggering 7-10% of all US online sales activity on those days.

What we know from all the data is this. Customer’s might start their relationship with Apple in-store, but they don’t have to, increasingly they’re choosing not to. Even if they do, 70-75% of the lifetime revenue from the average customer comes from sales online and that is increasing over time.

Customers simple won’t ever go back to the store to buy an App after they’ve bought an iPad or iPhone in-store.

There’s a lot about banking that are like Apps in our financial relationship. Credit limit upgrades, wire transfers, bill payment, CDs/Fixed Deposits, etc. In fact, once we’ve started our relationship with a bank as a customer, pretty much every product we engage with could be purchased just like an App through a better ‘store’ interface online.

Banks don’t sell well online because unlike Apple, we think that the primary store customers want to shop at is our ‘branch’ and when they come to internet banking, we often don’t even integrate sales into that ‘transactional’ platform. But the behavior of Apple customers shows that even with the best benchmark retail presence in the world, customers don’t come back time and time again to your store or even chose the store first. Once they are connected with your brand, they buy your product and utility wherever is most convenient, and that isn’t at the store or branch.

The big question is, how many branches can you afford to support if customers only visit them the first time out and do the rest online?

Beyond the Branch – New Distribution Mechanisms

In Bank Innovation, Engagement Banking, Future of Banking on February 1, 2012 at 15:40

There’s a great deal of discussion and debate around what will ultimately happen to banking as a result of the massive changes in connectivity, utility, mobility and customer experience taking place right now. One thing is for sure, the world is changing.

We see PayPal owning online payments, with others like Stripe hot on their tails.

Square is attempting to disrupt the POS and circumvent the existing payments rails by going cardless.

Simple and Movenbank are vying for the new definition of the ‘bank account’.

Telcos like Rogers applying for banking licenses, and ISYS pitching head-to-head with banks for mobile wallet dominance in North America.

We also see Facebook and Twitter becoming increasingly dominant channels for customer dialog.

New Disruptors Abound!

Intermediate or Disintermediate?

So will banks get disintermediated in all this? Well, yes and no. In economics,disintermediation is generally defined as the removal of intermediaries in a supply chain: “cutting out the middleman”. So there’s not too many middlemen in the typical retail banking distribution chain. To some extent in financial services this is already happening with the decline in stock brokers, insurance agents, etc in favor of direct. However, conversely, a bunch of newer aggregators and intermediaries are popping up as the interface to the bank or payments providers.

New intermediary plays in the last couple of years include Square, iTunes, Simple, Mint, and others. Probably the most interesting new intermediary to emerge in the last year or so is Google Wallet (or Google, or THE Google wallet – not like THE facebook though…) If you doubt the veracity of my statement, here’s proof – after just over 18 months of operation, Square supports 1/8th of all US merchants. They didn’t exist 2 years ago.

So we’re likely to see more variations on a theme in banking and payments, where new players are coming into the ecosystem and offering value beyond the traditional methods of distribution. In its purest form, this will be simply a challenge to the branch-led distribution model. How so? Ultimately, with mobile banking and payments, the branch and resultant paperwork processes becomes a convenience “penalty” for transactional and basic onboarding. This friction is a target for disruptors.

Disruption and Disenfranchising

The disruption that is occuring in the customer experience is all about removing friction in outmoded or outdated processes for customers. Whenever you tell a customer he needs to fill out manual paperwork, or visit a physical location today, you’re going to increasingly get kickback from a segment of the market. While many will argue passionately for the role of a face-to-face interaction and the “richness” of the branch experience, the reality is that there are two reasons why most customers will balk at that.

Firstly, they don’t have the time or they perceive it is faster to go an alternative route – convenience was always a key driver for disruptors like Amazon and iTunes. Secondly, we’re being trained that you can open pretty much any non-bank relationship completely digitally today – so KYC (Know-Your-Customer) issues aside, the push is for rapid digital onboarding of customers. In usability terms we call the later a design pattern and it ends up driving consumer’s expectations becuase it is a entrenced behavioral expectation.

Digital natives won’t be able to figure out why you can sign up for Facebook, iTunes, PayPal and other relationships completely electronically, but your bank still requires a signature. It defies logic for the modern consumer, and no amount of arguing regulation will overcome that basic expectation.

The end result of this is that banks being the slow, calculated and risk adverse organizations that they are, will likely allow disruptors the opportunity to come into the space between the bank and the consumer as a ‘friction’ eliminator.

Secondly, geo-location and contextuality of banking products and services, will mean a marketing and engagement layer that is built on either event or location triggers to recognize the need for a financial services product and the capability to stimulate an engagement or journey in real-time.

The mobile, wallet and tablet are all key components in this shift, as is social media and the cloud to some extent.

The outcome?

In the end banks will, for basic products, no longer exclusively own the end consumer. They’ll simply be the underpinning bank manufacturer that supplies the product to a new distribution channel or channel partner.

So will banks be disintermediated? Not really, but they will be disenfranchised, losing direct relationships with customers as banks adapt to becoming pervasive providers of bank products and services, when and where you need them. A split between the distribution and manufacturing of retail FI products will be the core outcome.

Banks can not possibly own the telcos, mobile operating systems, marketing companies, retailers, locations and other elements that will drive the delivery of banking products and services in the near future. This is where the customer will live – this is where they’ll engage. I won’t come to your branch, download your “App” or even visit your website to directly engage the bank if someone else can deliver me that product as I need it

Customers will never use Facebook to login to their bank!

In Engagement Banking, Future of Banking, Groundswell, Mobile Payments, Social Networking, Twitter on December 7, 2011 at 07:16

We’re experiencing a massive shift in consumer behavior right now with the explosion of Facebook, Twitter, YouTube, and other community collaboration and social media platforms. A world where Facebook has 800 million inhabitants and a President who is a college dropout (albeit Harvard).

We’re seeing the global domination of mobile across the entire world, where before long every person on the planet will have a mobile phone – and soon that phone will be a wallet. Smartphone owners will be the majority in just a few years as smartphones are virtually free on contract, and unlimited data is bundled free. Already the average smartphone user spends more time using Apps than they do using an Internet browser on their computer.

The traditional players amongst us say that such things don’t really change the fundamentals, that “it will take time for people to trust these new mechanisms”.

I’ll never login with Facebook to my bank.

I won’t pay with my mobile phone unless I understand how secure it is. This NFC technology is too new and there’s no common standard.

Huh?

The same people who said this probably said…

I’ll never use email, there’s nothing like calling someone or a face-to-face discussion to solve a problem

I’ll never use an ATM machine, I don’t trust a machine to give me money.

I’ll never get a cell phone – I don’t want people to be able to call me whenever and wherever I am.

I will never put my credit card details on a website online – are you crazy?

I’ll never bank online. Not in my lifetime…

I’ll never need a Facebook account – it’s a waste of time, it’s just for college students.

Really?

If you are saying you won’t do something that millions of other people are already doing, that’s a sure sign that it’s going to disrupt the hell out of your business and you’re in trouble.

If you’re not planning to work differently, if you’re not thinking differently, then you’re just out of touch, you’re just one step away from irrelevance. You’re fighting the flow upstream and getting pushed towards disaster.

The one constant of the internet-enabled world is that you have to be ready to change constantly. Resistence is not only futile, it’s stupid and very costly in the long run. It’s cheap and easy to be social right now, same for mobile – it won’t be in the future.

Right now you have two choices.

Start experimenting with how to adapt to these new methods

Start figuring out what people want to talk about on social media. When they’re using their phones at a store, for searching on products, when they check-in, tweet or update their facebook status.

Start talking to them. Start sharing content that isn’t marketing messages pushed down their throat, but helps them.

Start trusting consumers to talk to you about your brand, your products and about what they want from their bank or services provider. Understand you can’t control the conversation, but you can and should participate in it.

Open up new products and services based on social media. Get consumers to give voice to their needs and help you form those ideas. OCBC, DBS, First Direct, ASB, Comm Bank are all trying different types of crowdsourcing to develop better relationships with their customer base.

OR… Ignore the obvious, get ready to be displaced

Our customers don’t feel safe using Facebook for login!

But some of them might… how long before most of them will? How do you meet your KYC requirements and keep customers safe when allowing them to do this? Are you going to wait till everyone else is doing it, or are you going to learn how to do it properly and securely now. Are you asking your compliance teams to find ways of figuring out how to do this stuff safely?

It will take years for the mobile wallet and NFC to take off!

Right now Google and Apple are eating your lunch and you don’t even know it. You are getting ready to write off the one device that is most critical for connections and context with your customers in the later part of this decade. Someone else is going to own your customers, and as banks we’re going to be paying the likes of Google to include our branded card in their wallet, or our products and services and messages on their platform.

We already have to ask permission from Google and Apple to give our customers our App.

Don’t want to change! You will…

The fact is most of the last two decades we’ve been facing constant change, and no one organization has been able to resist the shift because customers decide how and when you’ll engage with them.

Customers have already decided they want their mobile device to be their bank. They’ve already decided that they want to discuss your brand and your service capability in the open community of social media.

Now it’s time for you to decide that you want to stay relevant to your customers. Or ignore the obvious and go away.

If your bank is opening branches – get worried

In Branch Strategy, Customer Experience, Retail Banking on March 8, 2011 at 17:37

In my recent book Bank 2.0 I posited that I wasn’t against branches and that rather than advocating the wholesale closure or departure from branch networks, that I was interested in seeing branch focus/form change. The reality is though, the more and more I look at what is wrong with the whole retail banking business in respect to innovation and change, the more that branch-led distribution thinking is killing the ability to innovate because of bloated legacy cost structures.

Branch networks have to shrink
Let me put this out there on the table right now. The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I’m not talking 10 years out here… I’m talking in the next 2-3 years. Which is why I was bemused by the following piece of news a couple of weeks ago in the WSJ:

The New York bank, No. 3 in U.S. deposits as measured by the Federal Deposit Insurance Corp., wants to expand the Chase name. Some expected an acquisition. Instead, Charlie Scharf, the head of retail operations, said J.P. Morgan would build 1,500 to 2,000 new branches over the next five years–an expansion equivalent to the entire branch network of a large regional bank.
Wall Street Journal: JP Morgan Sees Long-Term Payoff In Huge Branch Expansion, David Benoit (Dow Jones Newswires), Feb 16, 2011

JP Morgan is hoping to add $2Bn dollars in pre-tax earnings by 2025 off the back of this move. Are they serious??

Let’s just look at a few of the facts:

The action is all in channels, not in branches.

Bank visitation and utilization is in decline, cross-sell effectiveness has leveled off, and there is massive debate over what the branch should look like? Bank’s aren’t build deeper, richer customer relationships through branches – despite what they might wish. Branch usage is in decline, costs of branch distribution infrastructure is increasing and ROI is decreasing, the skill mix of staff required is changing and the new resources required to differentiate are expensive and difficult to find and train. The future of branch looks pretty bleak.

Citi's new "Apple Store" - A better branch won't solve your problems...


Why are big banks slow to change?

The bigger the bank brand, the more they already have invested in physical real-estate. The most powerful individual in the retail bank, besides potentially the Head of Retail, is going to be the guy with the biggest bucket – the Head of Branch Distribution. In this environment, strategy is led by those with the most power and leverage internally and much of that is still down to P&L. In this environment, the instinct of the banker is to fall back on old established habits and to lead with a branch distribution strategy when there is spare cash for growth, rather than experiment on something new like Mobile or Social Media. It’s why a bank like JP Morgan Chase, HSBC or Bank of America will spend 90-95% of their “channels” budget on branches still today, flying in the face of all logic to diversify channel expenditure in a major way. It’s why very few of the bigger banks still are yet to appoint a head of mobile or a head of social media.

Sure digital channels are cheaper to run, and you can’t just close half your branch network overnight, but the mix of investment is simply wrong. If you don’t start by reinventing the engagement of customers across every channel, then one day you are going to be stuck with an irrelevant business.

One positive example of adaptation is the recent appointment by TD Bank of Brian Haier to the role of Head of Direct Channels and Distribution Strategy. Brian’s background was leading the Retail Distribution business for TD Canada Trust with a salesforce of 25,000 frontline staff. I guess TD figured out the best way to solve the budget problems was to take one of the Branch guys with the biggest buckets and simply put him in charge of Direct Channels so there would no longer be any argument about where the future of the bank lies.

For JP Morgan Chase, on the other hand – if I was a shareholder, I’d be offloading stock, quickly…