23 October 2014

Brett King

Brett King - Moven

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.
A post relating to this item from Finextra:

Banca Popolare di Bari envisions 'branch of the future' with NCR

30 June 2014  |  1376 views  |  1
NCR Corporation (NCR), the global leader in consumer transaction technologies, and Banca Popolare di Bari, one of Italy's largest banks, announced today that NCR has been selected as the partner of ch...

Can we stop talking 'Branch of the Future'?

05 August 2014  |  4064 views  |  1

Whether it is Bank of Queensland with their Hipster Branch launch, Citi's famed Apple-Store Branches, NAB's Crowd concept, Unicredit "Branch of the Future" in Italy and Bulgaria, PNC's Tellerless Branches, smaller regional players like South Shore Bank and Conestoga BankWerx, or the launch of Video-Interactive Teller's  for TEB, Ion Bank, Banca Popolare and others, we seem to be hearing about new 'Branches of the Future' constantly. However, with declining branch activity across the board in developed markets, is the very term branch of the future part of the problem?

There was an excellent recent talk by Jon Blakeney from i-AM Associates discussing how bank branches should be about todays customer, not the bank branch of the future. "No one has ever asked us to design the restaurant of the future" said Blakeney in his recent Next Bank keynote, and in that statement alone we identify one of the key hangups that banks have over changing distribution models.

With branches having been so central to the distribution model of banking in the past, it's obvious that many banks will struggle to let go of this mode of revenue delivery, at least until such time that branches become clear loss leaders. Thus, for now there appears an inordinant amount of effort being put into 'saving' the old distribution models with a rethink, reboot or refresh - a future iteration that might restore the old behaviors of customers. 

The problem is that the economics of branching is struggling as footfall declines (see Going, Going, Gone!), and while in some emerging markets branch traffic is still increasing on a net basis as the middle-class grows and large numbers of unbanked are becoming "banked", the overall outlook for branch networks is still trending negative. Just as it has been on a net basis for most storefront retail of other easily digitized products such as books, music, movies, etc.

The problem here for banks though, is one of focus. Branch activity largely is not declining because the branch is simply designed poorly, has too many tellers or teller stations, or doesn't have enough technology embedded - it is declining because customers just don't need to visit branches like they used to. Banks should be cognizant of the fact that while refreshing branches will help with some segments of existing customers, and might reduce overall network cost, it's not going to reverse consumer behavior trending away from branches.  

The looming issue is new revenue. According to Javelin Strategy and Research, by 2015 Gen Y income will already exceed that of Baby Boomers. By 2020, their income is projected to exceed that of both Baby Boomers and Gen X. That’s just six years away. 78% of these Gen Yers cite Mobile Banking as the single most important factor for choosing a bank. But the problem for banks is simple - mobile doesn't produce revenue. For leading banks they might generate 10-15% of their revenue via online today, but the bulk of revenue is still recognized in the branch (often incorrectly so).

How do we transition?

We've got all this real-estate, what do we do with it?

There are three key questions or issues on the changes impacting distribution methodology that continually come up:

  1. How do we get customers back in the branch?,
  2. What do we do with all this real-estate we've got, and
  3. We've got 5 year contracts with all these landlords, we just can't unwind our presence that quickly

The first two questions often obfuscate strategy because the primary problem is not fit of the branch to the business, but how to fix under performing branch networks. The last becomes a business case issue - is it worth closing or downsizing a branch. Granted when most of those real estate contracts were signed there was a great deal more skepticism over the risk to branches.

However, the core metrics of branches need to be honestly assessed against the potential for future revenue. Those core metrics need to start with the simple measure of average number of annual visits per individual customer per year. This is the core measure of engagement that we often miss when looking at future branch potential on revenue.

Show me the money baby, not the friction!

The real trick, though, is providing a viable alternative revenue stream through mobile, tablet and web. For that we need a compliance leap - we need compliance on board with digital onboarding of customers, or at a minimum a reduced application/documentation workload for both new and existing customers. 

A single view of the customer, and a progressive or tiered KYC approach. In a report issued in June of 2011, the Financial Action Task Force (the global AML standards body) suggested banks and FIs look at this as a solution for better AML compliance, lower costs  and for improved financial inclusion. However, the tiered KYC approach also allows for better revenue delivery in real-time and via mobile. 

Remember, one of the core reasons we still prefer the branch as banks, is the preference by compliance teams for unique, signed application forms for each product application - this model must die. It simply does not fit with the future of revenue delivery. 

Revenue delivery via mobile is inversely correlated with compliance friction. The more unnecessary friction I put in the process, the more unlikely it is that I will ever realistically compete with the branch in respect to revenue delivery. 

Building the Bank of the Future

The Bank of the future is all about engagement and relevance. A branch of the future strategy is an effort to retain relevance, but it misses the key point that engagement in-branch is in decline for other reasons. Beyond a spike when a new branch layout is launched, I've not seen any data that shows signifcant improved engagement over time - you can bet if we were seeing this trend then the branch of the future enthusiasts would be yelling it from the rooftops. 

Here's the thing - I know we need new branch layouts that remove tellers. I know we need service points, and that they'll likely be much smaller footprints, but replacing older larger branches so there's no perceived drop in service. I know complex product revenue will still come through the branch. But we should be talking about building the bank of the future, and not the branch of the future. 

Within just a year the branch will be the least visited and least engaged channel in the channel mix for retail banks in the US, UK, Germany, France, Australia, etc. If your primary distribution or revenue strategy is improving the efficiency of your lowest performing, least engaged channel - then you're doing it wrong.

I know many of you will argue that it's still about revenue - that most of the revenue comes through the branch. How can we change that without investment in engagement outside of the branch? That's the key problem with focusing on a branch of the future strategy - we avoid the real work that needs to be done. In doing so, we might just jeopardize the entire future of the bank.

 

Offering coffee to entice prospects? Think again TagsRetail bankingInnovation

Comments: (1)

Richard newland - Customer Expertise Ltd - London | 13 August, 2014, 15:02

Another great post by Brett.

I had the privilege of working for the HSBC Group (one of the worlds largest banks) for seven amazing years, leading the retail centre of excellence, which included how the c8500 retail branches looked and felt, including a dozen or so different formats and brands.

One of the expressions that always puzzled me when dealing with my colleagues both internally and externally at conferences etc was "The Branch of the future". It seemed to be an all encompassing expression that more often than not, meant spending a lot of their banks money on a flashy new design, which in some cases looked suspiciously formulaic and remarkably like some other bank's branches but in their own banks brand colours or indeed adding some fabulous coffee shop implant or print your own T shirt centre, OK so I made that last one up, but it wouldnt surprise me! This was often done without considering what the overall customer experience you were trying to create was or what the primary business objectives were.

Personally, my golden rule at HSBC was to invest time in getting the brief just right, I'd often spend a few months working on the brief, understanding what the business objectives were now and researching the market as to what they may well look like in the future.

So when it comes to creating your own "Branch of the future" my advice is simple, research your brief thoroughly, your design agencies will thank you for it and will deliver something better aligned to your business's commercial requirements. Focus on what the role of the branch is within the overall business and how it needs to remain relevant over the coming years, don't be dazzled by the design, be single minded about how you can ensure you future proof your branches in a changing omni-channel world, not creating yet again another branch of the future with a T shirt printing centre!

 

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