Brett King

Posts Tagged ‘ATM’

The Total Disruption of Bank Distribution – Part 4

In Branch Strategy, Engagement Banking, Future of Banking, Mobile Banking, Retail Banking on July 26, 2011 at 06:48

The Widening Gap between Behavior and Capability

In 1980 the average bank in the developed world would receive a visit from a customer once or twice a month, making an average of 20-25 times a year. As ATM machines started to emerge, by the end of the 80s average branch visits per customer were already starting to level off as the primary reason for visiting the branch – to get cash – was moving to the ATM.

In the early 90s to combat this decline in visitation trend banks started to create specialist branches around High-Net-Worth-Individuals, and seek to attract the most affluent and profitable customers back to the branch. This strategy was successful in attracting new and highly profitable customer segments stimulated by loyalty programs, specialist branches and better service, but could it last?

Internet Banking Disrupts Banking Behavior

The reality was that it wasn’t until around 2006 that Internet Banking fully reached its potential as a disruptor. By 2006 the trend for Internet Banking adoption had become very clear, it was ready to overtake the branch as the preferred method of day-to-day banking. Between 2005 and 2009 Internet Banking usage doubled, and across the United States, UK and throughout most of the EU, Internet banking emerged as the leading channel for day-to-day access to banking services.

The perception reinforced by some within the retail banking set was that this emerging behavior around Internet Banking was isolated to newer generations of customers only, and that older, more established customers were still keen to have the personal experience of a face-to-face interaction, or that customers seeking to start a relationship would always opt for the richer experience of the branch. However, the data did not bear this out. The earliest adopters of Internet Banking turned out to be the time-poor, affluent HNWI segments who valued their time over the upside of a branch visit. They could afford computers, the fastest Internet connections and had a strong incentive to use iBanking – they sought convenience and time saving.

In 1985 70% of transactions occurred through physical artifacts and networks, namely Branches, Cash and Cheques. By 2010, however, 75-90% of retail banking transactions were processed through Internet, Call Centres, Mobile Devices and ATM machines. Today branches make up at best around 5-13% of total transactional traffic, and that is on a good day. As a result, branch staff are poorly motivated and in many markets staff turnover is toping 40% annually. The average customer is now visiting a branch in the United States less than 5 times a year, in some EU markets the average is less than half this number. This is resulting in massive closures of bank branches. That number doesn’t get better if you look at it another way – it’s just bad news for branch focused brands.

RBS is closing 55 branches this year, this is the behavioral effect

In 1990 11 million cheques a day were written in the UK, by 2003 that figure had ballooned to 36 million cheques a day. By 2010, however, Internet Banking had caused that figure to crash dramatically to less than 1 million cheques per day. Why? Behavior has irreversibly changed. What used to be second nature to many is now a dwindling holdover for an ever shrinking demographic; those who hark back to the days of good old fashion banking.

What happens in the next 5 years?

Today we’re seeing mobile banking take off as the fastest ever growing channel for retail banking services. Today some banks are reporting a 300-500% faster adoption of Mobile Internet Banking than what they saw with Internet Banking. Rather than take traffic away from Internet Banking, the trend is for mobile banking users to actually increase their use of Internet Banking.

So what’s more likely in the next 5 years? Is it more likely that customers will suddenly, spontaneously buck all these trends and spontaneously start using branches more, or will Internet and Mobile simply increase their march of dominance for day-to-day banking? The answer is obvious (to most).

Why, then, do branch networks still command the massive bias in funding that they have today within retail banking P&L, and why do leaders in the digital space struggle for board-level attention and legitimacy?

It’s not about Internet vs Branch, it’s about behavior

We’re not going back to vinyl records, the telegraph, or steam powered transport – we’re just as likely to go back to a banking system dominated by branches and cheques. This is an undeniable, statistical truth. The majority of us now (over 50% in developed economies) are simply too busy to drive down the branch, find a parking spot, stand in line for 15-20 minutes, to hand over the counter a cheque that will take 3 days to clear for a nominal processing fee. But it’s not just transactional behavior that takes the hit.

Today if I’m looking to start a new relationship with a bank, the first place I go is to my search engine, and possibly my social networks. Admittedly there are still some who will seek to visit a branch to kick off a new relationship, but after that initial visit my day-to-day banking becomes pure utility and convenience. In 2007 when I worked on a global survey for Standard Chartered, 75% of customers in 42 countries said that Internet Banking capability was their primary criteria for deciding on a new banking provider. Regardless of whether I might come into the branch to get started, the fact is you aren’t going to be seeing a lot of me. That’s not the way I behave anymore.

By continuing to favor branch from a channel investment perspective or organizationally from a strategy perspective, and by insisting on multi-year business cases before making real investments in mobile, social media and web, we are opening up a gap. This gap is a behavioral gap between how our customers behave everyday, how they want to bank, and how prepared “the bank” is to facilitate their needs. This gap can easily be exploited.

The more banks insist on me conforming to their behavior and processes, the more I will feel the bank is irrelevant, out-of-date and a poor match with my needs. I’ll start to find workarounds like PayPal for transfers, or Prepaid Debit cards for day-to-day billing and payments. I’ll start to move my cash to other banks that have a mobile banking and iPad App.

There are many who will argue that this is not enough to kill the branch – I say you won’t be able to afford not to kill them off yourself very soon.

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The Best–Practice Engagement Bank

In Bank Innovation, Customer Experience, Engagement Banking, Future of Banking, Retail Banking, Social Networking, Strategy, Twitter on April 27, 2011 at 13:09

Recently when I posted on reforming customer journeys in the banking space I got some push-back for using Apple as an example of best practice. Surely there are banks I could have used as an example of best practice??? Well… not really. There’s no bank, and believe me I’m looking everyday, that has the whole multi-channel customer experience locked down across the board. So I thought if we could Frankenstein a bank together from banks that are there and are getting certain aspects of the engagement right, it might actually be possible to construct a sort of best-practice bank. Even then, the reality is that there are gaps in what is best-practice because by looking at other industries we find better examples of specific channels than in the banking space.

I realize this is arbitrary and there are probably some other great examples out there. If so, feel free to add those in the comments and if I agree with you I’ll make the appropriate amendments or additions and attribute them to your Twitter ID. Here we go…

Best Branch Experience

What identifies a best-in-class branch experience? Well a key here is not how sexy the branch looks but whether a branch redesign resulted in a net improvement in customer engagement and in resultant metrics – namely increase in acquisitions and in cross-sell or up-sell. Recently Citi relaunched their “Apple Store” concept branches in both Shanghai and New York, but there is no evidence that plastering tech around your square footage is an immediate guarantee of success. Creating retail spaces that are hi-tech meccas works for Apple because they sell tech, not banking products and services. So what is the goal of the banking space?

Currently there are two goals for branches, the first is to effectively serve transaction or task-focused customers as rapidly and cost-effectively as possible, and the second is to engage the customer around their needs in a friendly and revenue-conducive manner. In respect to the first, it’s my belief that transactions in-branch are fast becoming problematic for most retail banks and the trend is toward strong sales and service over costly transaction handling. This is part of the reason for SNS in Utrect, Netherlands deciding in 2009 to remove cash from their branches, and why others are focusing on strong service centres.

Metro Bank in the UK unquestionably has a very high quality ‘store’ experience (they don’t call their retail points of presence branches), as evidenced by their Net Promoter Score which is higher than any other retail bank in the UK.

We use Net Promoter and currently we have a Net Promoter score of 87% which I believe is among the highest anywhere in the UK — and eight out of 10 of our new customers come as recommendations from existing customers — 97% of our customers rate our service as being exceptional.
Anthony Thompson, Chairman and co-founder Metro Bank

Deutsche Bank with their Q110 branch in Berlin and Jyske Bank in Denmark, have taken the retail concept to its ultimate with advisors strolling the store and products bundled in packaging you take off the shelf. The point is that the best branches remove the barriers to engagement with customers, and are not transaction points, but conversation hubs. Some other notable designs are North Shore Credit Union in Vancouver and Che Banca in Italy.

The key here is that the retail space is opened up, barriers to conversations are removed, and a warm space is more inviting, more engaging. Transactions which are a cost to the bank, and are redundant for most customers, are relegated to automated cash and check deposit machines or to digital channels.

Best Online Banking Experience

This is a little tough. Firstly, I don’t believe that public websites and personal internet banking sites should be two separate entities, but the fact is that is the reality for most banks today is that their basic online banking experience hasn’t significantly changed in the last 10 years since the dot com. Awards given by EuroMoney, FT and others for the ‘Best Internet Bank’ or similar, are frankly laughable. Compared with the best online experience in other industries, banks are years behind.

Banks have to start thinking about the online channel as a dialog, as an engagement platform – not a transactional or functional platform. The most basic logic dictates that your secure Internet banking portal should be as much about engagement, service and sales, as it is about transactions. However, the level of complexity of selling and engagement behind the login as an industry is appalling.

So who’s the best? At the moment there’s only one bank I would put even close to living up to the promise of User Experience on this channel, which is Fidor in Germany, but even Fidor doesn’t have the sales experience and recommendation engine capability. Mint, Geezeo, Meniga and others are taking on the PFM battle, to transform the advisory space behind the login. Geezeo has recently launched a referral engine that will enable banks and credit unions to engage customers with smart engagement strategies within the secure internet banking space, but also extending this out to platforms like Facebook and Twitter.

In terms of banks…

It’s very quiet. There’s lots of talk about reinvigorating this space, but the only action on the horizon is our friends at BankSimple.

BankSimple doesn't look like a traditional Internet Bank, because they understand context.

If you want best practice in online banking, there is not one bank that has this sorted. There is best practice in functionality, there’s some best practice in transactional platforms, bill payment and the like – but there is no bank that provides a model that represents best practice of where banking should be online today from an engagement perspective. Not one.

Mobile and ATM on Page 2…

Pages: 1 2 3

Pervasive Banking or Irrelevance? You choose… (Huff Post)

In Mobile Banking, Retail Banking, Strategy, Technology Innovation on March 15, 2010 at 22:16

Why do we use cash? Why do we use banks? The basic premise is that banks are necessary to create a flow of cash and enable commerce, with built in protections. Secondly, they can hang on to our money securely, and although we don’t get much interest these days, we do generally have the protection of the FDIC or some other mechanism to ensure we never lose our deposit. However, these days when we deposit money it just generally sits on some computer as ones and zeros, we don’t physically (or vary rarely) go down the the bank and actually deposit cash over the counter. In fact, I can’t remember the last time I ever deposited or withdrew cash from a bank branch. I know I go to the ATM to get cash out, but all my deposits these days are generally electronic.

Banking is just not in your face anymore, it’s simply a utility we make use of day to day. The banks are the wires, the FED is the generator, and while the banks have traditionally owned the ‘meter’ (e.g. the branch, ATM) we’re seeing a rapid disintermediation of banks from the retail coal face. We are about to see the end of

Today I downloaded the new Bump enabled PayPal application for my iPhone. The app was launched at the SXSW event (South by Southwest) and on the iTunes platform yesterday, and it is a retail banking killer! We knew this was in the pipeline, but the launch of the app is something that we’ll look back on as one of those defining moments of this decade.

When PayPal launched none of the banks really took it seriously. In fact, most banks to this day don’t really interface with PayPal at all. Yet, for sites like eBay and Amazon approximately half of the payments made are done through PayPal today. Banks totally missed out on the opportunity to capture the online payments space, as did Visa, Mastercard and Amex largely – they took their time worrying about security, fraud prevention, and such things and in the meantime PayPal took truckloads of market share off them.

The same thing is happening in the mobile payments space right now. PayPal, POPMoney, Square, Verifone and others are making a play for the mobile payments space in earnest. Apple has a patent for integration of NFC (Near-Field Contactless or Near-Field Communications) payments into their next generation or 4G iPhone. Bankers are sitting back wondering what all the fuss is about…

Bump your phone to pay with PayPal

When PayPal came along bankers I knew said “no one would trust these guys enough to use them for online payments…” – they were so wrong. Now with mobile payments being discussed I’m hearing “no one will abandon cash for mobile payments, that’s not realistic…”. I’m not saying it will happen in the space of a few months, but over the next 5-7 years in developed economies I expect this to have a huge impact on the viability of ATM networks.

The problem with pervasive mobile payments is that the value proposition for my bank just got cut in half. In a very short period of time, I may never even have to use my bank’s ATM at all. I certainly won’t be using checks. In fact, the last check I wrote was more than a year ago – so I won’t miss them.

My phone becomes my debit and credit card. I can pay the plumber who comes to my house by just bumping phones with him. I can pay at McDonalds, Bloombingdales, Sears, Wall Mart or Marks and Spencer by swiping my phone across the top of a point-of-sale unit. When exactly would I need cash? Taxi cabs maybe? Nope, I can already pay for those with my contactless debit card – so my phone will work with that too. Buses and trains? Nope, in cities like Hong Kong, London and elsewhere I just use a contactless card (in HK it’s the Octopus, and London the Oyster). I’m guessing my NFC will work with those conventions too.

So where is the value of my bank in this equation? Remember the electricity network analogy? It’s not in the meter because banks aren’t pervasive enough. Banks have let card issuers (Visa, Mastercard, Amex, etc) become pervasive at the point-of-sale, and they’ve relied on branches and ATMs to be pervasive. But branches and ATMs are based on our need to physically deal in cash or checks. Those days are quickly disappearing.

The only solution for banks is to become more pervasive with their solutions and services. I won’t be going down to the branch to apply for a personal loan or a mortgage, you need to be ready as a bank to provide me that product when and where I need it. Point-of-impact is what I call this concept. When I’m online booking my next holiday, offer me a great personal travel loan built into the online experience. When I am walking into my favorite retailer offer me a cheap line of credit instead of me using my credit card, or offer me a discount for using your bank’s debit card – you could use location based messaging or point-of-sale technology to deliver the message. Put bankers out on the road at property shows with the ability to sign me up for a mortgage there on the spot, instant approval.

Go where I need you – don’t wait for me to come to you. Chances are, I’ll bump you off…

The Three Phases of Customer Behaviour-led Disruption

In Book Excerpt on November 1, 2009 at 15:55

Excerpt from Chapter 1 – What the Internet and ‘crackberry’ have taught customers

There are three stages or phases to the disruption occurring within retail financial services. Each stage is disruptive enough to be a ‘game changer’. However, by the time the third phase impacts retail banking around 2015 (or perhaps earlier) the changes will be complete and irreversible.

The first phase occurred with the arrival of the internet. While many banks denied it at the time of the dot com bubble, the internet changed forever the way customers accessed their bank and their money. As we discussed in the psychology of customer behaviour, this gave them control and choice that was not available previously. Suddenly, customers were thrust into an environment where they could access their money as they wished, when they wished. As internet banking capability improved, the drive to visit the branch started to diminish and customers began to rely on the new channel as their primary access point with the bank for day-to-day transactions. Within just 10 short years, we’d gone from 50-60% of transactions either over-the-counter at the branch, through ATM or cash and cheques, to 90% of transactions through Internet, Call Centre and ATM. Game changing…

Embedded into this initial phase of disruption was also the emergence of social media and collective curation. As users started to participate in social networks, customers realized that these platforms had huge potential for empowering groups with common interests, or causes. No longer were brands protected by the corporation’s branding and controlled marketing communications, brands could be built up or obliterated at warp speed as a result of very public community opinion expressed through social media networks. While being a massive opportunity for banks, to-date very few have monetized social media because it is in conflict with the long-held philosophy that “if we want customers to have an opinion about our bank, we’ll give it to them”. That horse has already bolted.

The second phase is occurring right now. The emergence of the smart device such as the iPhone and Google Android enabled phones, is a driver for portable or mobile banking. While many banks may argue about security and the limitations of the screen or device itself, the fact is we heard exactly the same arguments about internet banking from those resistant to change within the bank. Already many banks are deploying what amounts to a cashless ATM on a mobile application platform – yes, you can do everything on a mobile phone you can do on an ATM except withdraw or deposit cash.

Here are a few statistics that support the second phase disruptive model:

  • 93% of U.S. population owns a mobile phone, and 27% of U.S. households are now mobile only
  • New mobile banking customers at Bank of America (BofA) during July-Sep 09: 150,000 (Sep); 210,000 (Aug); 220,000 (July) (Doug Brown, BofA)
  • 99% of mobile users view balances, 90% view transaction detail, about $10 billion of funds have been moved via mobile transfers/bill pay; 15 million location-based searches being performed (annual run rate)
  • More than 50% of iPhone users have used mobile banking in past 30 days (Javelin Strategy)
  • 33% of mobile banking users monitor accounts daily, 80% weekly (Javelin Strategy)

So if you didn’t need physical cash, what would happen then? This is the third phase― when we move to mobile payments on a broad scale – NFC-based (Near-Field Contactless) mobile wallets and stored value card micropayments are already here, but more is to come. The third phase also involves the convergence of your mobile phone and your credit/debit card, which is a logical technical step in the next five years. When these changes occur, our need for cash will reduce rapidly, then the disruption will be far-reaching…

Now, I can hear the proponents of cash already saying that cash will never die and that such an evolution in customer experience will just add to the complexity. To some extent I agree. However, the key to this is not whether cash will survive, but to what extent it will survive. If the majority of micropayments are all done via an electronic wallet or debit card based on a mobile device (or separate for that matter) and if larger transactions are all done electronically through internet banking or through mobile banking – what’s left?

In the UK 43 per cent of payments are done by Debit Card, and 23 per cent by Credit Card. Cash still makes up 32 per cent of payments, but as a percentage of the whole, it continues to reduce. Cheques make up just over 2 per cent of payments these days, so it is not hard to see these disappear entirely. If the growth of Debit card transactions accelerates further (not hard to imagine if contactless payment capability is built into your mobile) and other mobile payments like person-to-person (P2P) are enabled on your phone, this will further reduce legacy payment methods. It is not unimaginable to see a split of 85 per cent of UK payments done by mobile/card, and 15 per cent by cash in the next five years. In markets such as Japan, Korea, and Hong Kong the requirement for cash may be even less compared with mobile payments.

Changes expected in UK Retail Payments 2006-2015

There are the great unbanked who don’t yet have a bank account who currently rely heavily on cash, but as we will see with M-PESA and G-Money (Chapter 6) this is hardly a hurdle for mobile cash and payments. Success of the Octopus card in Hong Kong, T-Money in Korea and other such locations already proves the concept. We are only talking about the need for ubiquity to make it mainstream. What would quickly kill cash is a technical standard for mobile money that could be widely adopted globally by network operators and device manufacturers.

Even if only 50 per cent of cash transactions are replaced by electronic stored value cards, debit cards and mobile wallets in the next five to ten years, the current ATM and Branch infrastructure that supports cash becomes almost untenable from a cost burden perspective. If you no longer need to go to the ATM to withdraw physical cash or currency, then everything you do on the ATM today can be done on your mobile App phone. If branches no longer need to deal with cash, then a large part of the reason for their existence disappears. HSBC in the United Kingdom has recently announced its intention to stop support cheques, because usage has declined and there is no ongoing business case to support them. The Payments Council Board in the UK has agreed to set a target date of 31st October 2018 to close the central cheque clearing system. If cheques decline to the point where banks can no longer afford to support them and regulators no longer require the banks to provide support for them…

“There will be a critical review in 2016 when the Payments Council will decide whether sufficient change has occurred against agreed published criteria, to press ahead to do away with the cheque in 2018. There are many more efficient ways of making payments than by paper in the 21st century, and the time is ripe for the economy as a whole to reap the benefits of its replacement.[1]
– Paul Smee, Chief Executive of the UK Payments Council

Just like internet and mobile device disruption, this are not the inane ramblings of a technovangelist – this is an inevitable conclusion based on technologies already in place that are on their way to becoming the dominant channel of choice or mechanism of engagement. The behavioural adaption of consumers to the Internet and smart devices already indicates that this will likely take hold within the next three to five years.

Adoption rates are speeding up. Technology innovation is speeding up. Customers are adapting to these new changes quicker and quicker. Banks need to too.

Let’s just say by the time Phase Three hits – if the retail banks have not adapted, they will be clinically dead. Banks can either own the transaction and payment platform, integrate the technology, OR protest with their last dying gasp of breath that things are not really going to change. “The Branch is Back”, “Cash is King”, “Cheques will bounce back” – yeah, ok. You just keep telling yourself that and see how that works out for you.


[1] Source: Payments Council Press Release – www.paymentscouncil.org.uk

An organization structure that doesn’t match customer behavior

In Retail Banking, Strategy on October 26, 2009 at 13:11

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.

Figure - Partial Retail Banking Org Chart as it relates to channel priorities

Figure - Partial Retail Banking Org Chart as it relates to channel priorities

“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.