The Total Disruption of Retail Banking - Part 2

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. 

Ketharam,

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.

BK

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.

Ketharaman,

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. 

http://thefinancialbrand.com/14005/aba-ipsos-banking-delivery-channel-survey/

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.

Brett

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.

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

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).

Ketharaman,

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?

BK

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.

https://www.finextra.com/blogs/fullblog.aspx?blogid=5134

Ketharaman,

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.

BK

Ketharaman

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).

Bestest

VK

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.

Bo,

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?

BK

Brett,

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

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.