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The Total Disruption of Retail Banking - Part 2

Rapid Acceleration of Technology Adoption makes change easier

The rate of diffusion is the speed at which a new idea spreads from one consumer to the next. Adoption is similar to diffusion except that it also deals with the psychological processes an individual goes through, rather than an aggregate market process. Since the late 1800s the rates of technology adoption and diffusion into society have both been steadily getting faster. While the telephone took approximately 50 years to reach critical mass, television took just half that (around 23–25 years), cell phones and PCs about 12–14 years (half again), the Internet took just seven years (half again), the iPod 3 years (half again) and Facebook was able to reach 200 million users in just over 1 year.

A very real part of the acceleration of technology is the application of Moore’s Law, named after Gordon Moore one of Intel’s founders and the individual credited with inventing the integrated circuit. Since 1967 Moore’s Law has predicted that every 2 years the power of a chip will double in processing capacity/speed. That means that the iPad you get in 2 years time, will be twice as fast as the one you have now. To illustrate Moore’s Law the 1Ghz chips now powering smartphones and tablets are exactly 1 million times the speed and capability of the Apollo 11 guidance computer that took Neil Armstrong and Buzz Aldrin to the moon.

Ultimately, this means that consumers are now adopting new technologies and initiatives such as the iPad and Facebooken massein a period measuring months, not years. As we all become used to this rapid technology improvement, it is taking us less time to adopt these technologies into our lives, and this further increases the magnitude of impact on business. Let me give you an example of how this impacts banks specifically.

Internet versus Mobile Banking

The web launched in 1994, but most banks didn’t understand the significance of the web and lagged in the provision of Internet Banking services, waiting until 2000 or 2001. That’s 7 years from the start of the commercial web to the launch of Internet Banking for most banks. The iPhone launched in July of 2007 and in doing so created the market for “Apps” and increased our expectation of mobile interactions. Within a year more than 1 Billion Apps had been downloaded from iTunes, by 2010 that number had exceeded 10 Billion downloads. As a bank, ask yourself whether you could successfully argue for delaying the deployment of a mobile banking solution until 2014; 7 years after the iPhone’s release? Unimaginable.

Mobile Internet Banking is being adopted 300-500% faster than Internet banking was adopted, mobile payments will be even faster again. Thus, if you’re a bank, by 2015 your #1 channel for day-to-day retail banking will be Mobile, then Web, then the ATM, then Call Centre, and at #5 Branch.

Isn’t it ironic that banks today need to ask Google and Apple for permission to allow customers to access their bank through a mobile App? Today, some 17-year-old developer can develop an iPhone App in 2-3 weeks that would rival what it takes a bank 9 months to deploy. We’re increasingly going to find ourselves playing catch up, especially when it comes to new customer experience on devices like the App Phones, Tablets, etc.

It has long been argued that a face-to-face or human based interaction is vastly superior to that of a technology one. There are two issues that undermine this school of thought. Firstly, regardless of whether a face-to-face interaction might be better for a customer, increasingly we’re opting NOT to go the face-to-face route in favor of the simple convenience and utility afforded by technology. Secondly, with the incredible advance in recent times of customer experience, persuasion and interaction design, and the application of usability sciences, the fact is that technology is now competing head-to-head with traditional approaches to customer engagement, and winning.

So what comes next?

The use of gesture-based interfaces such as Oblong’s TAMPER and as demonstrated by various XBox Kinect hacks show that technology is becoming more natural, more intuitive. Image recognition technologies are now allowing digital signage to recognize whether you are male or female, happy or sad, and respond with a real-time offer accordingly. Avatars and voice recognition technologies are being combined to create customer support response systems that are act like a human agent, but are effectively IVR 2.0s.

Today, PayPal allows us to transfer money using a mobile phone number or email address, as compared with a routing number, ACH number, SWIFT code or account number, and in doing so provides a vastly superior person-to-person transfer process, especially when compared with a unwieldy branch experience. Very soon even cash, plastic and cheques will be succumb to the mobile phone as P2P and NFC become the norm – not because of technology, but because it is simpler and more convenient. Just as Internet Banking is the preferred channel of choice today.

Banking Everyday, but never at a bank

More than improved interaction is happening though. Social media, geo-location services, augmented reality, and predictive analytics, are forcing us to think about the application of banking and other services contextually. Banks are going to have to offer banking when and where you are, not force you to the branch or the bank's website as the sole choice of applying for products or services. Banking will be something you do everyday, but not at a bank. Banks won’t be able to compete unless they can fulfill in real-time, as consumers need the product or service that is 'banking'.

Regardless of what you think of the service proposition of a branch versus multi-channel technology, the fact is, it’s all going to be about context, relevance and delivery. Branch just won’t be able to compete long-term with such expectations driving the experience. Change will happen because you simply can’t defend traditional approaches that turn out to be inferior to the customer experiences that are emerging through technology.


Comments: (15)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 July, 2011, 19:09Be the first to give this comment the thumbs up 0 likes

eCommerce has been around for over 15 years and supports exemplary usability compared to other industries. Despite that, only 8% of shopping happens online in the USA, according to recent figures for 2010. Eventually everything changes, the same is bound to happen in financial services and we're already seeing a major shift to Internet and mobile banking for account balances, mini statements and the like. However, given that financial products are more complex than books and DVDs and the fact that banking systems are still fraught with a lot of friction, I don't think Internet - let alone mobile - banking is anywhere close to supplanting the branch for sale of financial products. Personally, I'll be happy if banks let me research products online and buy them offline at a branch without forcing me to retrace my online steps offline, which is what happens today. 

Brett King
Brett King - Moven - New York 08 July, 2011, 19:19Be the first to give this comment the thumbs up 0 likes


Unfortunately, you seem to be in a dwindling demographic. In 1985 the average annual visits to a US bank branch was 22 visits a year, today it is 2.3 visits a year. Those stats don't lie. The data is unequivocal. 

So no matter how much you are attached to branches, the data shows we must be fully prepared to write off most of our branches and fully embrace digital support.

In the end it is not about branch versus digital, it is simply about supporting our customers when and where they are. The plain facts are, they are no longer at the branch. So we either get on board with the total customer, or we lose them entirely because we are no longer relevant.


Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 July, 2011, 19:40Be the first to give this comment the thumbs up 0 likes

In 1985, there were no Internet or mobile banking, so a customer probably had no choice but to visit a branch even to find out their account balances, which explains 25 branch visits / year. My comment about the primacy of branch pertained only to sale/purchase of financial products. Given that an average customer is unlikely to buy more than 2 or 3 financial products per year per bank, the 2.3 branch visits / year of the today are probably used exactly for that purpose, which sort of proves my point. Like I mentioned, only 8% of consumer goods are bought online even today, 15 years after eCommerce started. Since figures don't lie, this says something about the preference of 92% of people - hardly a dwindling demographic - to engage in face-to-face interactions while buying something or starting a relationship. I've nothing against banks leveraging mobile and social media as appropriate. But, if they forget that bulk of their sales happen, and will continue to happen for the forseeable future, in their branches, they do so at their own peril.

Brett King
Brett King - Moven - New York 08 July, 2011, 20:01Be the first to give this comment the thumbs up 0 likes


I'm afraid the data doesn't work like that. Banking is not a hard goods retail business. It's a service business, when you look at the data for service businesses online the data is completely different.

The ABA figures alone show that since 2009 online has dominated day-to-day banking channel preference.

In respect to sales of financial products. Think about the average basic product like a credit card, checking account, term deposit, mortgage - what special value does a branch experience add to commodity products like this? Service?? Not if I can more quickly execute via a digital channel.

Convenience and utility are the core behavioral drivers, and unfortunately, the branch is no longer a convenient way to bank and the value add of the in-branch experience is not enough to trump that behavior.

The key is understanding that by optimizing customer experience for core, basic, day-to-day products banks can operate far more profitably than based on their current channel structure. Sure there will be branches left for a while yet, but increasingly they will become highly specialized, high-touch environments for only the most complex financial discussions where the banker still adds some value.

I'm sorry - there's just no wishing branch activity back into existence. Better we prepare for the reality of a new world of banking instead of hiding our head in the sand.


Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 July, 2011, 21:05Be the first to give this comment the thumbs up 0 likes

A couple of more recent reports highlight the primacy of branches when it comes to opening new accounts and buying financial products:

  1. While according equal importance to the branch and Internet, the World Retail Banking Report 2011 from Capgemini, UniCredit and Efma makes it clear that customers view the branch and internet as having different strengths. The internet excels in information gathering, transacting, and looking up account status, whereas the branch is the preferred channel for buying products and solving problems, indicating the value of having a human touch in certain situations. 
  2. According to this TowerGroup report (registration required) sixty-one percent of all US consumers still prefer to open accounts in the branch. 

The complexion of branches has changed significantly over the last decade in tune with shift in consumer preference to online channels for account balance, statements, and other transactional activities. They'd probably undergo further change as credit cards and other transactional products can be increasingly sold online. However, when it comes to opening accounts and other relationship-based products, the aforementioned reports are clear that the majority still prefers the branch. Given the amount of documentation required, branch versus online is a moot point for products like mortgage. I haven't come across a single bank which can or does sell such products through any non-branch channel.  

If enough banks still stay invested in branches and, per contra, not enough of them have started investing in online identity and address verification systems, mobile and social media, it's probably because they have their feet planted firmly on the ground and their heads on their shoulders and cater to what their customers really want. It's certainly not because they have their heads buried in the sand.

Brett King
Brett King - Moven - New York 08 July, 2011, 21:42Be the first to give this comment the thumbs up 0 likes Ketharaman, There are a plethora of banks who sell mortgages via online or call centre only. BofA/Countrywide sold more than 500,000 mortgage policies online on 2008 alone. UBank in Australia, FirstDirect in the UK, Rabobank, etc, etc. A 2010 research paper by Google showed that 88% of Australians select their mortgage products online today. They spend between 6-11 hours researching online before applying. 27% of those surveyed said they switched banks because they could not fulfill without going to a branch. The paper requirements you cite are just more proof that the current processes are out of date. I simply should not have to visit a branch unless I have absolutely no other choice - that's not great banking... The fact is, behavior has already changed. There's no amount of wishing it isn't so that is going to get people to revert and go back to branch banking. BK
Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 July, 2011, 12:54Be the first to give this comment the thumbs up 0 likes

I think we can agree that 2008 - let alone Countrywide - is not exactly representative of the procedures adopted by banks for giving out mortgages in the USA. Stories abound of unsolicited calls from banks and mortgage brokers offering pre-approved mortgages to NINJA (No Income No Job or Asset) category of people. My personal favorite is the one in Michael Lewis's book "The Big Short" where he describes his shock at learning that his housemaid got a mortgage for some 300K USD with no downpayment and no application (whether online or at the branch!). 

If we fast forward to today, the fact is, BofA only does mortgage pre-qualification online. Ditto for Wells Fargo (its website clearly states "Most lenders will take your application by phone or in person.") and Citi. Pre-qualification to pre-approval to disbursement cycle is done partly  online and partly offline, and certainly not in realtime. 

Talking about Australia, in 2008, NAB had declared its plans to make its account opening process 100% online and realtime the following year. Today, three years later, its website says, "Not an existing NAB   customer? You'll need to visit your nearest NAB branch to complete the standard ID checks". Has NAB lost customers? Doubtful - it's particularly well-known for attracting the GenY crowd. 

For whatever reason - internal bank-related, regulatory or change in consumer preference - face-to-face interactions for account opening, mortgage and other relationship based products are back in vogue today (assuming that they'd ever gone out of fashion in the past).

Brett King
Brett King - Moven - New York 09 July, 2011, 20:39Be the first to give this comment the thumbs up 0 likes


It's behavior like this that is Killing our industry:

Banks exploit rules to refuse paperless applications

You could hardly call that positive progress...

Let me ask you a simple question to get at the heart of it.

What is it about a face-to-face discussion with a mortgage advisor that makes it absolutely critical to do it at a branch rather than online? Sell it to me... why is the experience better?

You see, I don't think that a face-to-face interaction offers any value at all for a mortgage product. I can get all the details I need, information I need to make a decision on a mortgage product faster and easier online than through a person.

Help me understand?


Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 July, 2011, 20:10Be the first to give this comment the thumbs up 0 likes

A Google Search reveals that homebuyers' top considerations about a mortgage provider center around: 

  1. Interest rate
  2. Best time to buy a house
  3. How big a downpayment
  4. Fixed or variable rate
  5. Reputation of the homebuilder

I found no mention of channel (branch v. online) as an evaluation criteria. 

Agreed that some people might get their answers to these questions by reading them online but there are others who might prefer to speak in person to the mortgage provider. This is purely a subjective thing. If a bank scored well on the big ticket criteria but insisted upon a branch visit for a mortgage, I'm not sure how many people would switch to another bank that did everything online (this is a hypothetical point since I don't know any such bank doing that today) since it's hardly 2-3 times in a lifetime that one buys a mortgage, if that.

The FTAdviser article quotes a couple of banks saying that lack of customer demand for paperless applications and regulations are two major drivers for face-to-face interactions in mortgage applications. Lest we think that only banks are making such statements, even PayPal demands paper version of all documents before it verifies an account, as I'd pointed this out in this response to another Finextra post a few months ago.

Brett King
Brett King - Moven - New York 11 July, 2011, 00:37Be the first to give this comment the thumbs up 0 likes


KYC checks on paper versus "The Branch is always the best place to do banking" are very, very different things. The branch just doesn't add significant enough value to differentiate itself these days.

In respect to demand, look at the take up of mobile banking currently. BofA reported they acquired 250,000 new customers when they launched their mobile App because of the mobile app. JP Morgan Chase and USAA acquired between them more than 400,000 new customers when they launched remote check deposit capture.

ANZ recently launched their Go Money App with Pay Anyone and P2P capability. This App is being used on average 7-10 times per WEEK! How often do your best customers come into a branch? Not nearly that often.

HSBC's Premier customer base has very high internet banking penetration and their average customers use internet banking 10 times per month. On comparison, their best customers don't visit a branch even 10 times a year.

The facts are from a behavioral perspective fighting to argue for the continued support of the branch, is like fighting to argue to bring back the telegraph because you prefer to use it yourself. We must be channel agnostic and embrace any channel the customer WANTS to use. The data is absolutely unequivocal on branch - customers don't want to use it as much as they use other channels. So you can try to force them to use it, but is that really what is best for customers or is that just because we are attached to our old, traditional methodologies of working with customers. The branch has a minor role to play for some time to come, but if you sacrifice investment and mindshare in other channels to prop-up the branch, you're going to be in trouble.

If we are focused on a progressive bank that stays relevant to customers we must embrace a channel agnostic approach to banking. It is as simple as that. Arguing anything else is simply ignoring the most obvious trends because we don't want to change.


Victor Kupcis
Victor Kupcis - Google Cloud - Prague 11 July, 2011, 12:05Be the first to give this comment the thumbs up 0 likes


In the past branches used to be one of the most reliable ways for financial institutions to grow new banking relationships. Not anymore.

I maintain active accounts in six banks across five countries. But I visit a branch only if I am forced by the bank to do so. Four out of six cases I have visited branch only once. In one case I managed to entirely escape branches using online banking+call centre only.

For myself I would select the best financial deal only from the list of banks with an adequate online banking and good reputation (guess where would I look for the info).



Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 12 July, 2011, 11:35Be the first to give this comment the thumbs up 0 likes

Having launched e-banking back in 1982 I am naturally all in favour of offering everything possible on line (all the way to signing loan agreements with your log-in code). At Nordea in Finland now only 1pct of customers use branches for bill payments, cheques have not in practise been used since -83 and most more complicated transactions have moved to the web. As a result cost of banking in Finland has been cut in half - and this is big money - every cent paid by the customer.

Still branches are used - for advice on non-routine mortgages, SME-financing, non-life insurance, pension schemes and asset management etc. Partly because customers prefer it this way - but partly because banks have not made these "products" easy enough. There is still a belief (partly justified) that a personal banker is affordable as it adds stickiness to the relationsship. All considered I believe that the trend towards less reasons to use branches will continue - also here where there are 5,2m e-banking contracts in a population of 5,5m.


Brett King
Brett King - Moven - New York 12 July, 2011, 11:47Be the first to give this comment the thumbs up 0 likes


Was very interested in a previous stat from Tieto about 80% of Swedes who didn't visit a branch in 2010? Am I remembering correctly?


Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 12 July, 2011, 11:54Be the first to give this comment the thumbs up 0 likes


I remember having seen it - and my reaction was - still 20%.. Finland is still a bit ahead - for example with e-signing of all sorts of loans. Br Bo

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 July, 2011, 15:20Be the first to give this comment the thumbs up 0 likes

This just in from McKinsey Quarterly: "How Europe’s retail banks handle channel strategy".

While I'm still unable to download and read the full report, just the following takeaways from the introduction shed a lot of light on the channel preferences of customers and contain solid guidance for how banks should respond regionwise.  

  1. Consumers ... want both electronic and physical contact points.
  2. ... customers increasingly use face-to-face channels for sales and advice, and remote ones (the Internet and ATMs) for most transactions.
  3. Density of branches will fall considerably in overbanked areas of Southern Europe but remain stable or even rise in parts of Central and Northern Europe.

Brett King

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