The launch of the Payment Council’s Current Account Switching Service last year failed to bring about any significant shift in the number of customers changing banks. This is because customers still see banks’ offerings as being largely similar. Cash incentives
and headline interest rates offer limited incentive, meaning banks have to find other ways to differentiate their services.
As transaction volumes shift from branches towards emerging digital channels, the nature of competition in banking has also fundamentally changed. Digital innovation has risen to the top of the agenda, with both new and traditional players seeking different
and more effective ways to service customers. However, innovation moves rapidly and competitors are quick to catch up.
Repositioning the branch
In the UK, a number of banks have recently announced branch closures, including Barclays, Clydesdale, Lloyds Bank and RBS. This is reflecting the stark reality that many customers simply no longer require high levels of in-person interaction. The clear driver
of these closures is cost and, with branches carrying such a significant overhead, it is proving increasingly hard to justify their existence. However, it’s interesting that these closures have led to a backlash from consumer groups, suggesting there is still
a competitive role for branches in the new landscape.
Some customers still demand more personalised approaches so high street banks have an important piece of ammunition, in the form of the branch, which they can use to the best advantage. So while the role of the branch is reduced, it has not entirely disappeared.
This is clearly evidenced by the ongoing investment in branches: Barclays, RBS and NatWest have all introduced free in-branch Wi-Fi – and while it could be argued that this is becoming a commodity, it is part of the broader aim to encourage customers into
the physical bank. Barclays is also opening branches in Asda to extend opening hours and capture greater footfall. Similarly, Metro Bank has extended its opening hours to make branches more accessible while RBS is introducing mobile branches to replace some
of the more remote locations.
But how do banks truly differentiate themselves in this new market and is there still a place for the old models?
To address the cost issue, and take advantage of investments in digital platforms, banks have increasingly been moving to a self-service model for branches with multi-functional ATMs taking the place of cashiers. However, success is not as simple as moving
the people out and computers in. Instead, banks are now finding that it is important to achieve the right balance to meet customer needs and to recognise that some transactions, such as mortgage applications, do require human contact.
Nationwide, for example, is finding great success in merging traditional services with digital by rolling out remote mortgage advisors via video conference booths in over 60 branches. Barclays have taken a different approach to bringing digital capability
into branches by equipping customer service staff with iPads. This allows them to interact with customers on devices that the customers are already comfortable with using in their day-to-day lives.
In the digital world, banks need to reposition their branches and, crucially, ensure they are delivering maximum value. It is important that the branch can co-exist with other digital channels in a way that they augment each other. Unfortunately this can
mean re-architecting legacy systems and re-training staff – both expensive exercises – but without which, branches risk ending up as simply very expensive real-estate.
Competing in a digital world
Repositioning the branch to operate alongside digital capabilities is, however, just a small part of the new competitive landscape. The real game-changer is innovation in the digital space. This is where newer players are competing and where traditional
banks are focussing their product development. Digital-only banks are also emerging without the financial constraints of running branches. By leading with a digital proposition, they are able to segment out and focus on customers with a much lower cost-to-serve.
However, one challenge for all the players in competing in this new digital world is that much of the online and mobile offerings are no longer new and interesting. On the one hand, this means those that fail to deliver on these basics will be left behind.
On the other hand, it points to a number of key opportunities for differentiation.
First off, you need to do it well – it’s counterproductive to have a mobile banking app if it is poorly thought-out and receives negative consumer reviews. You need to deliver an experience that is slick, enjoyable, frictionless and always available.
Another differentiator is integration of the omni-channel experience. For example, when a customer starts an ISA application online, if they can speak to the call centre and have them seamlessly pick up the interaction, it is going to significantly enhance
the customer experience and make the whole process far more efficient. While this has been talked about a lot, the reality is that it is fiendishly difficult to achieve. Integrating the technology behind it is the Holy Grail and those that achieve this will
gain a major advantage.
Finally, banks have a real opportunity to differentiate themselves by equipping staff to better manage this end-to-end customer experience. In a world where the branch and digital channels must be intrinsically linked, it follows that staff need a different
skill set. They must not only understand the products they are selling but also the different context in which they are being used.
Defining the next wave of innovation
It used to be that customers had to go to a bank to do banking. In the digital age, consumers no longer have to
go anywhere to consume the services and information they need or to interact with their social networks. These are increasingly embedded in every aspect of their daily life and kept, in the most part, in their pocket on their mobile device. Banking is
clearly moving in the same direction, with mobile and online banking making it possible for banks to be available at any location and around the clock.
There is, therefore, a real opportunity for banks to consider further how they might really ‘bring banking to the customer’. This might involve integrating banking-related services into their smart TV, smart home or even their self-driving car of the future.
There are some early examples of progress in this area, such as Barclays Cloud It, which offers account holders free cloud storage space. This opens up opportunities to integrate the bank into broader aspects of the customer ecosystem. It might be that when
a customer is applying for a mortgage, they could link it to verified ID documents held on the account – or provide access to financial statements when discussing pension requirements with their IFA. Similarly, in the case of Nationwide’s remote advisor video
booths, the next logical step might be to take this into the customer’s home.
Payments also hold a huge amount of potential. The emergence of the mobile wallet concept has created an opportunity for integrating the payment options and payment history in that wallet into various day-to-day scenarios. ZAPP, the mobile payment service,
is just one example of where banks have the opportunity to become more present in those every day transactions, with the app linking to customers’ bank accounts. However, more innovation is required before this concept of daily integration is truly a reality.
Exactly what this will look like remains unclear but at the moment it’s all to play for.
Collaborating for competitive advantage
Given that banks need to reach the customer through various aspects of their day-to-day lives, success in this area might have to come through much closer collaboration with providers that ‘own’ those aspects. This might include ties with personal media
companies such as Netflix and Apple or those providing smart home operation systems such as Google. Others could include utilities providers, vehicle manufacturers and manufacturers of consumer technology such as Samsung and its smart TVs.
While the specifics remain to be seen, the concept and ultimate goal are clear. Banks must become an integral part of the customers’ own ecosystem and that is going to involve a combination of the branch, online and mobile channels – as well as an abundance
of further innovations. Working out how to achieve this is the key to maintaining control of the customer relationship and avoiding relegation of the bank into a background utility.