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Bank branches - going, going, gone

In 1995 the average UK customer of HSBC visited the branch just over twice a month; in 2012 they only popped in just over three times a year.  This illuminating statistic came from Brett King in an entertaining presentation today, where he drew parallels with the destruction of high-street book shops, HMV, Blockbuster and the like.

In traditional retail environments, customers walked into physical stores to buy physical goods.  The first wave of e-commerce meant that the same customers could sit at home in their pyjamas whilst ordering their books and CDs. This is digital shopping for physical goods; still a lot of value in the business model.  The big, destructive change came when the goods turned digital too: iPods and Kindles mean that shoppers now shop digitally for digital goods.  Cue the collapse of some traditional retailers.

Can this happen with financial services?  King certainly thinks so, and I agree.  The compliance barrier means that at the moment online banking is largely a digital replication of a clunky, difficult branch process, meaning that you have to overcome a lot of friction to get things done.  The best innovation removes friction, as I keep finding out every time I use the Amazon iPhone app to buy half a dozen CDs of 80’s soft rock classics with a few ill-advised keystrokes.

The danger for the established banks is that new entrants (such as Moven) will provide a frictionless service that also adds value through loyalty rewards, discount codes, budgeting tools and a host of other things that ensure the consumer interacts with that brand far more than they interact with their account-holding bank.  All the good stuff – relationship building, brand loyalty, upselling opportunities and so on will be taken by the upstarts and the current account will just be the place that your salary gets paid and your direct debits get collected.

Since customers in the UK no longer visit their bank branches, and can go to any bank ATM to withdraw their cash, then the last bastion of bank brand contact is the logo on their debit card and the logo on their online financial services.  The banks need to raise their game significantly if they want to avoid becoming just the back office for the new kids on the block.


Comments: (4)

A Finextra member
A Finextra member 10 April, 2013, 21:23Be the first to give this comment the thumbs up 0 likes

Whilst I agree with the comments to a certain extent, the largest amount of friction comes from moving banks or transfering money from your main bank account into a sperate 'mobile wallet'.  That is the issue new players will need to work around.


P.S And I know account switching enhancements are coming.

A Finextra member
A Finextra member 10 April, 2013, 22:09Be the first to give this comment the thumbs up 0 likes

You're absolutely right about the friction in moving value from a current account to a wallet - this is where the banks have a great opportunity.  Seamless, immediate account-to-account transfer, if executed well, would go a large way towards neutralising the threat from new entrants.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 April, 2013, 12:34Be the first to give this comment the thumbs up 0 likes

Let's take a new entrant like GoBank. Its website makes it very clear that it's a "brand of Green Dot Bank, Member FDIC". It's somewhat similar with Simple also. So, they're agents of traditional banks. Even if they become very successful, they won't pose any existential threats to traditional banks. In fact, they'd only advance their cause.

The Amazon versus highstreet bookstore analogy is not valid since Amazon is neither owned by nor is a reseller of any highstreet bookstore. A more appropriate analogy in this context is the principle-reseller relationship that exists in IT, FMCG, telecom and many other industries viz. Just because I buy a Lenovo laptop from an Amazon or a Flipkart or a BestBuy than from Lenovo directly doesn't mean Lenovo will be dead. Ditto for a Dove soap or Crest toothpaste bought at Target or Asda or via Ocado - Unilever and P&G are very much alive and kicking, thank you. 

Looking beneath the hood, instead of positioning GoBank and Simple as the mobile banking apps they are, their respective owner banks have done a very smart thing by elevating the "branch is dead" hype to the "bank is dead" positioning and using the "mobile-only" approach. It will resonate well with the GenY and any others who purportedly hate banks and love mobile, eventually enticing them back to, ahem, the same old traditional banks, except via mobile and not branch. If it were not for this, traditional banks might have lost this segment to prepaid cards, many of which are not owned by them. So, whether the new crop of am-I-a-bank-or-am-I-not-a-bank upstarts succeed or fail, it will be banks who'll eventually go laughing all the way to the, er, bank. Won't be the first time this happened.

A Finextra member
A Finextra member 17 April, 2013, 08:46Be the first to give this comment the thumbs up 0 likes

Hi Chris

Good blog, and always good to quote Brett King! I was with the deputy CEO of one of the UK's biggest banks recently and spotted Bank3.0 sitting on his desk - so it's not a lack of vision that's holding banks back.

Our view endorses yours - that there are some fundamental paradoxes which risk undermining the growth of banks in the digital domain. Our recent breakfast briefing highlighted 4:

Paradox 1: Assets which once protected Bank’s position now risk destroying them (or put more succinctly, banks branch, tech and brand legacy don't prepare them for the future)

Paradox 2: Digitally default ways of working directly challenge the existing operating model (consumers will always vote for improved customer experience & MVP over bank 'never fail' mindset)

Paradox 3
The regulator wants banks to treat all customers the same, yet be profitable at the same time (I wonder if the new Post Office offering will give the big banks license to exit the cash-card market once and for all)

Paradox 4
The best way to drive out cost in the future is to spend today (if banks don't use data to optimise channels, they'll just end up layering cost)

Finally, it's worth saying that all is not lost! There are individuals in most of the big banks (and to some extent schemes) with a real determination to drag their organisations into the next generation.

It's in all our interests that they succeed. 



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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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