Brett King

Posts Tagged ‘decline’

Branch Networks: Where do we go from here – Part 2

In Customer Experience, Retail Banking, Strategy on June 30, 2010 at 09:13

In my recent discussions on branches I got some reader feedback that some have apparently interpreted my positive reporting of the effectiveness of direct channels as evidence that I am ‘against’ branches. This is not the case. However, I do think that branch networks are currently in a precarious situation and bank’s might find themselves saddled with a costly anachronism if they don’t anticipate where the customer behavioral shift will take branch networks in the very near future. There is hope – but it will take a determination to revisit what branch networks really do for us.

The data shows that branch growth in the west is flat. Given that branch networks were already suffering in the 90’s we shouldn’t be surprised that branch networks today, when customers are rapidly adopting new ways of banking, are under even more pressure.

The facts are that branches will survive. However, not in the current form and function. Why? Because as-is, they are too costly and are ill suited to the customer of tomorrow. Here is where I see branches going over the next 5-7 years based on the fact that current branch configurations will become too costly to maintain as behavioral shifts start to bite revenue streams hard.

If you take just the one element of day-to-day banking — cheques (or checks if you live over the pond) — the fact is that a large portion of branch traffic globally continues to be attributed to cheque processing. Now, however, banks such as HSBC are seriously considering phasing out cheques over the next two to three years. When cheques disappear, how will this affect the operability of your branch?

High Counter to Low Counter

The core function of the branch moving forward will be about establishing the relationship with the customer at inception, and extending that relationship through an advisory or predictive sales process and excellent customer support systems. It is conceivable that all of the transactional elements within a branch will be moved to automated banking within electronic banking centres, automated branches, ATMs or the Internet within the next 5-10 years. What then is left? The face-to-face, value-add of a real, live human interaction.

As we’ve seen with stock trading, a transaction “platform” has no value being situated in a physical branch because the human “teller” or “broker” generally offers no value add to that transaction. Indeed, very few traditional brokers have survived the Internet trading onslaught of the boom. If we are honest, the only processes which will truly require a face-to-face interaction in the branch in the future are those that are sales and service related. These are also the only elements that will continue to make branches viable from a cost-margin point of view as the current over-the-counter transactions will simply remain a cost, rather than revenue opportunity.

Many of the traditional high street branches will inevitably close as decreasing traffic and increasing costs will invariably make such high cost properties no longer feasible in the current evolution. Flagship “brand- store” branches may emerge, but will need to change in function away from traditional high-counter, transactional focus to low-counter, sales and service focus. More than that, a “standard” one-type fits all branch is simply no longer going to be possible in the BANK 2.0 paradigm.

Deutsche Bank's Q110 model is an excellent template for 'flagship' branches

Form and Function

Banks need to innovate around form and function to get a better fit with customer needs. This has to be based on needs of the customer in respect of product and service, and not a transaction platform as traditionally held. Traditionalists here might argue that it is the very need to “process a transaction” that brings a customer to the branch and presents a cross-sell opportunity in the first place. The reality is, however, that despite cross-sell and up-sell opportunities the cost of over the counter ‘transactions’ increasingly are simply too high to warrant the long tail of the possible conversion.

This uncertainty around branch function versus cost structure and capability serves to illustrate the key differences in goals between the institution and the customer. The institution sees the branch increasingly as a revenue centre whereas in the past these were more accurately classified as cost centres. Thus, improvement in branch profitability has largely been the focus of the institution over the last 20 years.

Customers, on the other hand, simply expect service from a branch, and they expect this because they “pay for it” with account-keeping fees, over-the- counter fees and other such levies. For an exchange of “value” to occur between the institution and the customer, both parties need to be getting something out of this real estate. As direct channels have begun to dominate the day-to-day interactions for bank customers the convenience factor for the ‘branch’ has been lost. Thus, the remaining value must be about access to a unique “value-add”. Primarily this must be the advisory capability of in-branch staff – it is not a transactional platform.

What has to change?

Apart from a shift completely away from high-counter transaction processing, branches must become either intimate customer engagement havens, or locations of opportunity where the branch can maximize point-of-impact.

In major city High Street locations this means a shift to the flagship, megastore, coffee-enabled, rich engagement model. In smaller locations mini-branches, pop-up branches, bankshops and 1-2 person advisory stations at locations where customers are most likely to be. In shopping malls, at airports, at football stadiums perhaps? One idea I heard recently was to put an advisor in the business class section of a A380 airbus. The trick will be to be where customers will get value out of the mini-branch. But that value won’t be transaction based.

Timing will be critical too. The days of the 9-3 or 9-5 branch hours are dead. We might find some branches that specialize in mortgage products only open at weekends, perhaps in a mobile branch located outside display homes or show flats for major developments. We’ll find shopping mall branches that are open till the wee hours, and we’ll find embedded ‘advisor’ desks in corporations assisting group employees with their problems and issues.

We’ll see technology interactions move into the branch with media walls, iPad carrying advisors, integration of sales experience from the RM to direct channels seamlessly (engage in the branch, but execute at home online) and we’ll see RFID technology that recognizes who you are when you walk in the door so we have a few more valuable seconds to prepare our sales script. We’ll see mobile and internet channels hand you off to a branch much more competently and vis versa. We won’t see channels compete for the customer – we’ll see them cooperate (nice theory I know).

The one thing we won’t see a great deal of is branches as they look today. The other thing we’ll see is smaller branch networks, unless banks recognize the shift in consumer behavior that is going to drive bank/brand experience from this day forth and start to think out of the box.


Branch Networks: Where do we go from here?

In Customer Experience, Retail Banking, Strategy on June 28, 2010 at 08:59

I’ve spent the better part of the last three months meeting and talking to some of the best and brightest bankers in Australia, Asia, UK and the USA and what I’ve learned is fairly predictable, and just a little disappointing. Direct banking (mostly Internet and Mobile) is going off everywhere I go, but most banks are still saddled with an unhealthy attachment to their branch networks. I decided to try and figure out where Branch banking is really going and surmise the strategic options for Retail banks.

Branch Networks under pressure

In the US last year branch growth was non-existent, well to be technically correct branch growth was 0.39%, but that is the lowest it has been in 14 years and the trends are clear – there will be no more branch growth in the USA. In the UK branch growth has declined on average 24% in the last 5 years. In Australia, after fits and starts, branch decline has definitely set in, with 2010 being the 4th year running that branches have declined in numbers. In Sweden last year,88% of Swedes didn’t even visit a branch. In the annual American Banker’s Association survey on channel preferences, the branch continues to suffer (41% decline in just 3 years) as Internet Banking has become the dominant day-to-day channel of choice.

So does this spell doom and gloom for banking? No. There is some good news, in fact some may say excellent news on the horizon.

What UBank and ING Direct tell us

In Australia, UBank, an exercise in direct banking for NAB has rapidly paid dividends. Within just 3 years UBank has become the 8th largest bank by deposits in Australia. But where can UBank go from here after such a strong start?

While UBank has faced some leadership challenges in recent times, I spoke to Sam Plowman, Executive GM of Direct Banking at NAB, last week and I was delighted to hear that UBank is a big part of their forward-looking strategy, with a host of new products planned over the next few months.  This must be the only sensible move for NAB given their current market share and the unbridled success of UBank. In fact, UBank would probably have to be considered the single most successful initiative NAB has launched in the last 5 years, wouldn’t it? Sam’s colleague Simon Terry is currently working on the launch of the Oracle-powered NextGen platform that will power future innovation in customer experience. Between Sam and Simon, they hold the future of the bank in their hands.

If UBank continues to perform so well though, what happens to NAB itself? The key lesson from UBank’s success must be that direct banking is at the very core of NAB’s business moving forward – if NAB falls into the trap of thinking it’s a one-hit deposit taking wonder, they would be missing the point; Customer Behaviour has already shifted. How do you deal with the runaway success of a new direct banking brand when you run a $100m branch network? Tough question…

Is UBank an isolated case? ING Direct recorded profits of US $101m profit (EUR 75m) last year up 70.5% year-on-year, this in the tail of the global financial crisis. Rabo Bank, Jibun, Shinshei and PayPal have all had similar results as either Internet-only or mobile-based models of banking and payments. But it’s not just profitability.

Branch networks are contracting as customer behavior shifts

In their annual customer satisfaction survey, UK-based consumer sentiment research group Which? polled over 15,000 UK members to see what they thought about the relative performance of the various high street and direct banks. First Direct and Smile were top of the ranking this year, with scores of 89% and 87% respectively.

Mobile increases the threat to Branch

Mobile is now a huge area of investment. Bank of America has more than 4 million customers actively using their mobile banking platform currently, making it the most successful mobile bank in the USA. BofA say they’ve added more than 150,000 new customers just because of their mobile platform. But mobile is more than a transactional channel for BofA as this excerpt from a recent Bloomberg article shows:

Bank of America Corp. went from buying an occasional mobile campaign to paying Phonevalley, the agency run by Publicis’ Mars, a $1 million annual retainer, said Kathryn Condon, a vice president of digital marketing at the bank. Google’s AdMob is among the ad-placement companies used by Bank of America, the largest U.S. bank by assets.

With Direct and Internet banking at all time highs in terms of adoption rates, with the breakout success of mobile Internet banking in recent times, and customer channel preferences clearly shifting for the bulk of retail segments, where can we go from here?

Where to from here?

There are three scenarios for Branch Networks:

  1. All the trending data is wrong and the branch is about to face a resurgence in popularity because people seek a return to high quality, face-to-face engagement
  2. Nothing will happen – branch population will neither grow nor decline in the next few years
  3. All the trending data is right and we are seeing a shift in customer behaviour that will increasingly see branch-based banking at risk

When retail distribution specialists are looking at the positioning of branch real-estate there are a number of considerations, but the foremost consideration is where physically to put a branch to enable the most visits – essentially, how convenient it is to get to a branch. But these days, the branch simply isn’t the most convenient channel to use – Internet, Mobile and ATMs are far more ‘convenient’.

Key segments like Mass Affluent, and key product areas like mortgages, wealth management and loans are just too easy to position and service through direct channels. Branches better start figuring out how they’re going to make money over the next 5 years, and they better do it fast.

The first thing banks need to do is reorganize their organization structure to be channel agnostic. The days of ‘alternative’ channels are gone – Internet, mobile, direct are mainstream. Thus, the organization structure should reflect the same – Head of Branches, Head of Internet, Head of Mobile, Head of Social Media should be equals in the retail team- why? Because that’s how customers think.

The second thing is banks need to get better at measuring where the money comes from. A customer might end up at the branch, but how does he get there? Does he get there because of a compliance procedure (“Can you come into the branch to sign this?”) or does he end up there because he wants a face to face discussion? By better understanding the behavioral drivers, we can determine those branches which will remain profitable and those that no longer cut the mustard, as they say.

Banking’s biggest challenge – Marketing 2.0 (HuffPost Blog)

In Blogs, Media, Retail Banking, Social Networking, Strategy, Technology Innovation, Twitter on February 11, 2010 at 13:09

See the original entry on Huffington Post

Point-of-impact MMS offer

A location-based offer at the retail point-of-sale is 550% more effective than Direct Mail 3 weeks before

There are some massive changes occurring in the banking space today, but none so dramatic as what is happening in marketing and advertising.

Direct mail offerings have been declining rapidly since 2006. In 2009, less direct mail was sent by banks than in the year 2000. Direct mail has declined 32 per cent since 2007 alone.

In 2008 the Internet surpassed all media except television as the primary source for national and international news; this has taken its toll. In March 2009, the Seattle Post-Intelligencier or the “PI” as it was known, a 146-year old newspaper, closed down, citing rising costs, falling revenues and declining circulation. Since just January 2008, at last count, 55 regional newspapers in Britain have folded. Of the top 25 newspapers in the U.S. in 1990 (the year newspaper employment peaked), 20 of those newspapers have seen declines (on average reporting circulation down by more than 30per cent), and two have been closed down or declared bankrupt. New York Times reported a 30 per cent fall in advertising revenue, resulting in a $35.6 million loss for the 2009 third quarter alone.

In 2009 TV advertising revenues in Australia fell by more than 12.6 per cent in the first half of the year. In the first quarter of 2009, the U.S. recorded losses of more than 14 per cent in TV ad revenues in normally stable locations such as the Bay Area and New York, and is expected to suffer a total decline of 22 per cent for the year. Declines of 27 per cent and more were recorded in radio ad spend for the U.S. for the first half, even worse than the decline in TVCs. Yet, in a recent report commissioned by UK’s OFCOM forecast the value of TV ads in the U.K. could fall from £3.16bn in 2007 to just £520m in 12 years’ time. That’s an 83 per cent decline.

Bank’s are finding their brands are no longer able to just get by with brand marketing, after all BofA and Citibank have great brand marketing, but are being hammered by customers on Twitter, YouTube and elsewhere. Thus I find it amusing that ‘digital’ or interactive marketing still makes up only a fraction of marketing budgets for banks in 2010. The very fact that banks separate ‘digital’ in respect to budget or spend, signifies the challenges of changing a culture that is so dependent on direct mail, print, radio and TV – all broadcast mechanisms.

Let’s play Devil’s advocate for a moment. What will the advertising space look like in 5-10 years? It’s more than likely that TVCs will be gone – with declines in revenue we’ll have to find another way to pay for TV either through subscription or download, but there is no business model that indicates Free-to-air TV can survive with out Ad revenue. Direct Mail will be relegated to very specific segments, and then only for loyalty promotions. Newspapers will be on iThingys with paywalls – we’ll subscribe to newspapers and virtually every newspaper will be digital. Billboards will be all digital, but not based on TVCs – they have to be even more efficient. Physical magazines will be a luxury item, most magazines will be digital. In this space nearly ALL advertising will be digital within 10 years..

TiVo already strips out TVCs. SPAM filters on our phones and email ensure the eDM ain’t going to work. We need something more. In my book BANK 2.0 I call this “Point-of-Impact” marketing. Banks need to insert their ‘value’ message into the transaction where it will have an effect, not send out millions of messages hoping for ‘brand recall’. Brand marketing will still exist, but campaign marketing needs to shift to point-of-impact. To illustrate, when you are on, or and I’m booking a flight, that is where you need to sell me travel insurance. When I’m on a real-estate website, that is where you can target me with mortgage deals. When I walk into Bloomingdales, Marks and Spencer, or Armani Exchange send me a location-based MMS coupon on my mobile offering me a discount using a specific card. Get me when I’m interested, when I need it.

But this requires a complete rethink of the structure of the marketing department, and a complete new set of tools. This is the biggest fundamental change to the marketing department of the bank…well ever. I’m not surprised that quite a few of the banks I’m talking to are not sure how to make this transition, but that doesn’t make it any less likely.