I know there's been considerable debate about the Santander press coverage today where they 'intend to use old-school branches, plus a more aggressive IT budget to beat off competition' from tech start-ups, platforms and pure-plays. Here's the thing - the
attackers are attacking the distribution model, so a plan that articulates doubling down on a model that is already showing itself to be inefficient or that is being challenged is problematic. Herein lies the problem.
When confronted with massive behavioral shift, the industry reacts like every other incumbent industry before it - rather than change it's primary mode of distribution, they rush to defend a model that has worked successfully for decades, but is no longer
Banks like Santander need to understand that the ECONOMICS of banking are fundamentally changing, and doubling down on branches is investing in indefensible modality. Listen to this sage advice from Alibaba's founder Jack Ma at the World Economic Forum (see
the video here)
The message is a simple one. If WalMart wants to get 10,000 new customers they have to build a new warehouse, a number of new storefronts, etc. What does
Alibaba do? It adds two servers to its technology stack.
Jack Ma already understands this for banking. His Yu'e Bao Mobile Money Market Fund took in US$93Bn in deposits in just 8 months. No branch network in the world has ever come close to that performance in deposit taking. In fact, if you take the top 20 banks
in the world with their branch networks collectively, they've never come close to that performance. Ergo - there's no branch network in the world that could compete with AliPay when it comes to deposit taking today.
This is fundamentally a distribution problem. Very soon it will become clear that the economics of branches for acquiring, servicing and onboarding customers is obsolete and expensive. When that happens the market and customers will punish brands that don't
offer their best foot via digital-first. The stock market analysts will put a sell rating on these brands so fast it will make your hair stand on end, and this is why:
Branches are inefficient and expensive at acquisition
What Jack Ma knows and what companies like Moven, Square and Apple know is that acquiring a checking or current account customer through a branch network is hellishly expensive compared with digital acquisition. Banks like Santander, Chase, BofA, Wells typically
pay somewhere between USD$180-350 CAC (Customer Acqusition Cost) on a core account. They have to offer incentives like free toasters or $50-150 opening deposits to get you into a branch.
At Moven we've got our CAC down to $10-12 per customer and believe we can improve on that significantly. Additionally, our conversion rate on downloads is as high as 77%. I bet no branch network in the world can come within shouting distance of those metrics.
You could argue that there are still some customers who would prefer to come into a branch to open an account, but you'd be crazy because based on those numbers it's just bad business.
The largest banks in the world are all downsizing branch networks both in number, and in footprint. The reason given is that digital is changing consumer behavior at a rate never before seen and it means branches simply aren't being visited.
So let's invest more in branches? In what multiverse reality does that make sense?
The reason branch networks are failing is because they are inefficient at converting capital into revenue. That doesn't change with redesign of the branch, because it is the underlying processes that hinder the effectiveness of the branch. When you optimize
the acquisition process around digital it becomes clear that branches are not sustainable in the long-term. Sure the transition will take years and branches will never totally disappear, but if you are dependent on your branch network for revenue it is only
because you haven't optimized your business to deliver revenue anytime, anywhere and you still have to force customers into your space.
Humans are bad at advice
Bankers often argue that humans are better at giving advice and that's why branches need to remain, because bank products are so complex that you need a human to translate those complexities so you can make the right product choice. But
here's the rub. Humans are bad at giving advice. We make mistakes, no matter the amount of training we have, and we're inconsistent from one human to another - especially when it comes to advice on asset classes, investments and the like. Our personal belief
sets influence our advice, and if it doesn't you get product pushing which isn't advice at all.
The next phase of disruption of businesses is coming through experience design and the incorporation of
artificial intelligence or algorithms which can understand you and advise you contextually on what you best need.
A great example of experience design optimization is Uber. Uber took the problem of getting from A to B and changed not the car, nor the driver, but the experience of the entire journey. From ordering a car where you can see exactly when your taxi will arrive,
to removing the need to pull out your wallet or card at the completion of the journey. The best journey experience in the world was designed in an App. For incumbent Taxi companies protesting the growth of Uber, why haven't they responded in kind? Because
their process of dispatching drivers, ordering a taxi, paying drivers, getting paid by customers has all been disrupted and it's too hard to change quickly.
The next bank won't be a network it will be an experience
I know that there are many executives aggressively pushing Santander to change and there are some very bright people over there in the Innovation side of the business. So why a press release would double down on branches when the overall message from the
bank is anything but a focus on branch business I can't understand. I think it must be purely theatrics for the market, but that is a mistake.
In Spain, Santander's home market between 2009-2013 almost 11,000 branches were closed, making the decline in branches 24% (and 52% of the Euro's total branch closures). This doesn't sound like an economy or a brand that is actually aggressively seeking
to support the ongoing viability of branches. It sounds like a brand trying to tell the market it is business as usual while they scramble for a more effective approach to the problem of retail revenue and relationship.
Ask yourself this question. What was the last major bank brand to launch with branches as their strategy? Metro in the UK. In late 2014 and early 2015 what have the new banks used as their platform for launching a competitive model. Think Atom, Starling,
BankMobile, Bankwerx, Fidor, and others - they're all launching on a platform of digital. Why? If you're looking for growth or investment you won't get it launching a branch network today.
That tells you everything you need to know. Investors won't invest in branch-led banking anymore, so if you're a bank - you shouldn't either.