Just how much change is coming to UK branch banking?

Looking at the recent news stories or even just a quick glance at Finextra, a reader would have no doubt that change is coming to branch banking.  What would be perhaps open to debate is the level of change.

Plenty of recent stories have suggested that c conceptually branch banking will remain the same, just with more technology, nicer stores and so on. Very much in this vein was the story that ANZ are to invest AU$1.5bn in a channel overhaul.  The overhaul will include related channels and that means investment in apps for payments and video conferencing for branch so customer s to get advice from remote experts.  The Australian banking market shares some similarities with the UK but in other aspects, such as branch location in relation to population and channel usage, it is very different.  ANZ’s research suggests that “...more than twice as many Australians said they would prefer to apply for a loan (62%) or get mortgage advice (64%) in a bank branch than by using digital technology.”. The Australian banking market is one in which internet has only just overtaken branch by channel preference (according to the most recent report from Roy Morgan Research) and that is somewhat different from what most analysts see in the UK market.

By contrast in the UK Market, research from Forrester had already found that branch usage had dropped below 50% by 2009 (for example, “How UK Banking Customers Use Different Channels” by Benjamin Ensor ) and that it is likely that the decline in branch usage has only accelerated.

I suspect that the UK market will experience even more change and given the higher internet usage penetration, will perhaps ahead be of the trends in the Australian market.  I see three main drivers of change in the UK, (1) branch location, (2) channel service levels and (3) apps. I’ll go through each in turn as I think some of the changes are subtle but are going to have a profound effect.

Branch Location

It may seem obvious, but most UK branches aren’t where the other retailers have moved to. Most branches are open 9 -5, Monday to Friday on a high street, while many UK retailers are now based at out of town locations and are open seven days a week. By comparison, most Australian banks have a presence in out of town locations and many open at least for Saturday morning. In the UK, if branches are not where customers are when customers can use them, then they will continue to decline. This was a point made with some force at the recent Financial Services Club debate “Do Banks Need Branches?” and I would argue that banks need branches more than customers need them.

My view is that for the moment, branches (or some type of physical interaction point) remains an essential part of a channel strategy. There are some things, such as account opening or getting payslips assessed for a mortgage, that are just difficult to do remotely. The challenge for banks is that this need for branches is driven more by regulation (AML, Know Your Customer, etc…) than by customer demand. If banks can manage to make branches convenient then the rewards are huge, especially if they can also deliver the service levels of the other channels.

Channel Service Levels

While bank branches may be inaccessible for many customers, the internet and the contact centre are quite the opposite. Customers can get information 24 hours a day, any day of the week from almost any location. When speaking to the contact centre, expertise can be reached almost instantly and the internet channels provide a hugely flexible way to manage different views of accounts.

The challenge for branches is that these remote channels have set expectations for service levels that the branch is not engineered to meet. For example, I can walk into my local branch and be unknown until I actually get to the teller and do something. The queue can be long or short, but there is little attempt to manage it as intelligently as, say, the telephone channel tries to. By comparison, the contact centre or internet channels would have checked my identity, made intelligent decisions about what needed to be done and provided the opportunity to manage my experience very tightly. The adoption of a conceirge model in branch and technologies like video to reach remote experts will undoubtedly help the experience, but the challenge facing branches is that service expectations are set by other channels and by the retail industry. It’s no surprise that a recent poll by USwitch (a UK comparison website) found that Amazon and John Lewis to be more trusted by custoemrs for service than the banks. Both retailers have clear ideas about how to make it easy for customers to buy while making service effective. Retailers have noticed this alread and Tesco’s has already entered the financial services market with a banking license and Marks & Spencer has launched a current account. For the UK banks the competition is only likely to intensify, as retailers have a vision of how retail stores survive in an internet age and anunderstanding of online only competitors.

Apps

The final area driving change for branch is apps. In one sense the app is just a combination of web and voice capability on a mobile device. Yet this is to underestimate the power of the combination, or the capability it presents. The easy example is to think of a customer outside a branch comparing the web and phone channel prices before going in. Yet the nature of an app (and its location services) presents an opportunity for banks, as if this is done through an app the bank could have some understanding of the context of the request. Furthermore once in the branch, the app could provide a means of understanding the context of the customers visit.

An example of what's currently possible with apps is well illustrated by the Canadian banks. Like Australia, Canada is a market worth looking at for some indications of where UK banking might be headed. When I worked there some years ago, it was with Scotiabank on multi-lingual contact centres (multi-lingual service in Cantonesse, Mandarin & Spanish, not just Quebecois French). The Canadian use of apps is similarly interesting in terms of innovation. CIBC have had a branch locator app since 2011 and launched a banking app earlier this year. There is a good overview of these on the Canadian Bank Nerd website and it is easy to imagine how a branch locator app could be combined with banking app to make something that was very intersting when used in branch.

Despite the opportunities available to branch there is likely to be a reduction in numbers and a re-location. Branches in busy urban areas may well thrive and the entry of new providers such as Metro-bank suggests that the city based branch has a good future. It is more difficult to see how more regional branches will fare. Cash handling for local businesses and video conferencing to draw on the whole bank’s  expertise may reprieve more than some prophets of doom expect, but otherwise the outlook is challenging for those that don’t change. Bank of America expects to close 750 branches over the coming years due to customers moving to digital, as well as 200 this year and 178 last year. I have not seen equivalent figures for the UK but the scale of change should not be underestimated.