Banks' dilemma- Customers happily married to "Digital" Banking..still having an affair with "Branch" Banking : Is virtual banking the answer?

Today, the traditional distribution channels like bank branch network are undergoing massive transition. The banks are moving towards a digital world at a very fast pace. Many banks have launched or are in process of launching 'digital only' banks. With digital tools being introduced to support both transactional and advisory roles, more than 8000 U.S. bank branches have closed over the past decade. The volumes of transactions over smartphones and desktops are increasing at a remarkable speed.

According to the Office for National Statistics UK, in 2018 90% of all adults accessed the internet every day up from 74% in 2014(1). According to Statista, a survey in Dec 2017 suggests that 62% of customers in US use mobile banking (2) for checking their bank balance and figures from the British Bankers' Association have shown that customers transferred £6.4 billion per week using internet banking – a 10% increase from £5.8 billion per week as compared to previous year(3). British Bankers' Association figures also showed a strong demand for banking apps for mobiles and tablets; with 14.7 million downloads(3). Mobile banking usage is set to increase even further with the innovation happening in smart phones and increasing sophistication of mobile applications.

The Happy Marriage...

Banks want to push customers to a digital world. Customers are happy moving to a digital world. This sounds like a perfect recipe for a happy marriage, which surely it is! So, where is the issue? The issue is that while new age bank customers are all willing to go digital, there is still an element within them that does not let them completely off the traditional branch banking.

The Affair...

According to Bankrate, only about 1 in 5 Americans has gone an entire year without visiting a bank branch(4). Bankrate survey suggests that nearly half of Americans, 45%, have been in a bank branch for personal business within the past 30 days. In words of Teri Currie, Group Head of Personal Banking at TD Bank Canada, "Branches are incredibly important and we think they will continue to be. Most customers deal with us across many channels including digital — there are very few who would skew to branch-only or digital-only." And, according to Adrien Kirschfink, Managing Director at Accenture Financial Services, "Consumers continue to see the value of branches for the human factor."

As per McKinsey Retail Banking Multichannel survey 2016(5), while various countries are at different levels of digital maturity, personal touch is still important in most markets. In US, 54% customers preferred branches and ATMs over digital channels. Interestingly, even in the Netherlands, the most advanced country in terms of digitization, this number is 32%.

Is virtual banking the answer?

I think the best midway is 'Virtual Banking'. Virtual banking is making fast inroads into the banking industry, though at a nascent stage currently. It can help banks, hard pressed by ever lower margins, to cut down their operating costs and serve customer 24*7 through 'digital' means while retaining the 'personal touch' to a large extent. Banks like Citibank, ABN AMRO in Netherlands, Commerzbank in Germany, mBank in Poland, ICICI Bank in India, Barclays in the U.K. are the early adapters of virtual banking concept.

What exactly is virtual banking?

Imagine that you don't have to visit your bank branch anymore, whatever you need is available through technologies like live video chats with financial experts, real-time desktop sharing, co-browsing, voice biometrics, on-screen signing, Conversational AI & chatbots, intelligent automation (IA) etc. and all these are available on a highly secured connection.

Virtual branch is a combination of these technologies that help customers perform their transactions, get answers to their queries, seek financial advice and so on, seamlessly. Let's take a closer look at some of the important components of virtual banking:

• Artificial Intelligence: Conversational AI and chatbots are already supporting a large number of transactions and queries. Bot-advisors are getting more and more popular with increase in sophistication of algorithms. AI is surely one of the most critical components of a virtual branch with 24*7*365 access benefits and significant cost savings. Another significant change is the movement to voice-first technology. Banks like Capital One have been pioneers in offering virtual banking by voice through Amazon's Alexa.
• Smart Collaboration Platforms: Modern collaboration platforms provide a plethora of features that can help banks in supporting, verifying and handholding customers. Technologies like video calling, co-browse, desktop sharing etc. enable banks to connect with customers remotely in real time. While this is one option for achieving face-to-face communication, it is rudimentary compared to what future has in store.
• Intelligent Automation: Intelligent automation is critical for the success of a virtual branch. The real value of virtual banking can be delivered to the customers only when their instructions and requirements are processed efficiently and quickly in the bank's back office. If customers can get onboarded and get their personal loan, for example, disbursed in a few minutes using a virtual branch, why would they prefer visiting a physical branch?

What's the future of Virtual Banking?

The real power of virtual banking can be realized when Banks can provide a near real feel of human interaction to customers. In the future, the benefits of face to face interaction could be incorporated into digital banking through use of augmented reality (AR) and virtual reality (VR). When implemented correctly, AR/VR can transform interactions into a visual, engaging experience and can eventually bring the face-to-face experience into a customer's home.

Banks have already started experimenting with these technologies. Some Banks like Royal Bank Of Canada have created AR apps to help customers find the nearby branches and ATMs. While navigating through the city and looking at a smartphone screen, a user can see real-time information on the nearest locations, including the distance and additional details. Citibank has been testing more advanced VR technology to view and analyze data sets. With a headset on, a wealth customer can view multiple data sets all at once, zooming out to see high-level patterns and zooming in for a closer look.

Using VR, a virtual branch and/or virtual banker can be created, who can interact with customers in a way very similar to a real banker in a real branch. Customer onboarding, product origination, account servicing or investment advisory services can be presented with the use of digitized visuals and simulations, personalized with AI to fit the customer's specific needs.

With emerging technologies like AR/VR/AI etc., the customer engagement and experience can soon reach a level when the branch will no longer have any advantage over the use of digital channels like Virtual Banking. What do you think?

References:

(1) https://www.ons.gov.uk/businessindustryandtrade/itandinternetindustry/bulletins/internetusers/2018

(2)  https://www.statista.com/statistics/318758/mobile-payment-usage-usa/

(4) https://www.bankrate.com/finance/consumer-index/branch-banking-still-strong-among-americans.aspx#ixzz4lyIEyKRv

(5) https://www.mckinsey.com/industries/financial-services/our-insights/the-future-of-customer-led-retail-banking-distribution