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Finextra member:

I presume you have an iPad, iPhone or some other Apple device that works with iTunes. I'm also guessing you have Apps on your device - and I'm positive you didn't need to go to the Apple store to buy those apps.

I might open an account in a branch, but after that I'm going to be all digital unless a really sticky problem comes up. We have to remember that right now 60-70% of the visits to a branch are because we funnel customers into a branch based on compliance process, and not because they love coming into a branch. Banking products and services are much more like Apps than they are the physical products of Apple.

I agree wholeheartedly that there is a service element and positive psychology to having some high street branches, however, the clear economics of customers NOT visiting branches (as data is showing us in droves) surely means the reality is that we'll end up with much less of them.

The argument is not for a branchless world, but a less-branch world. By 2020 when half of the retail banking audience are Y-Gen/Digital Natives who have grown up on access all the services they require digitally, even the old security blanket psychology/argument for the branch may be unsustainable.

I find it ironic that the report that identifies that only 25% of 'young' brits visited a branch in the last 12 months, and yet that is the fact that is slated in the headline as a celebration of branch banking. Clearly branch banking is in dire trouble moving forward as it no longer works to provide the day-to-day banking 'service' that it was intended to.

This is where behavioural research through observation versus survey data is really critical. When you ask consumers how they'd like to solve more complex problems, they'll often refer to the branch as a 'security blanket'. For example, consumers in the US cite that the location of a branch is in their top 5 criteria for selecting a new retail bank. However, the likelihood of them visiting a branch is still increasingly slim.

The problem with this type of research is that the data doesn't stack up when you look at actual branch visitation. Branch visitation per customer is down dramatically in developed economies from 20-30 times a year in the mid-90s, to 2-3 times a year today, and it's in faster decline than ever before.

If you ask customers, they'll say yes they need a branch for sticky problems - this is what the survey shows. If you observe their behavior, that psychology doesn't translate to actual visits. So if you're looking at profitability, the intent doesn't translate to revenue.

I'm afraid this survey methodology is flawed based on the other data readily available as to actual branch visits. The problem I have is that if you keep thinking mobile and web are just transactional channels, and branch is the relationship channel, what you're actually doing is simply cutting off relationship opportunities through the channels that customers are actually using. Digital channels are the first stop for relationships these days, not the branch. We need to change our thinking.

Anon,

It was never my intention to suggest that Facebook replaces ACH and all KYC. It simply supplements the current system, giving many advantages.

BK

What Wonga and Zopa are both doing are serving needs of the consumer. Financial 'services' have become mired in rules around 'banking', risk and the right way to approach process, but that rarely translates to a better customer experience. In fact, it is more likely the case that over time this results in a poorer lending experience.

Traditional players and regulators alike might say that Wonga's lending decisions are predatory, however, customers who can't ordinarily get a short-term loan might say Wonga saved the day! Wonga is offering a service, and there is a substantial cost to that service if you don't respect the rules. While it is unconvential, it is still ultimately providing a service to a segment of customers that it really knows well and serves well. Banks, on the hand, aren't interested in this segment. 

So what's better? We take the hardline traditional approach as an industry and say these are risky customers that need to improve their financial health before we'll consider lending to them, or like Wonga we identify a gap and service it effectively?

I'd say the reality is that we need both, and Wonga's not bad - it's just different. The demand for their services no doubt validates the need for their model. Of course, their success would still not incentivize a traditional player to change their view of risk. Which is the whole point of disruption of traditional industries.

BK

Ketharaman,

It's not the 'paying' with the GPR, it's the application/onboarding process. This is where the friction is. Same is true for Square's success in North America where they went after friction in onboarding merchants. Same for PayPal with P2P. Same for Lending Club and Prosper on loans...

The problem for the existing industry is the hoops I have to jump through to just become a basic customer. This is ultimately the biggest risk and it is just process stupidity. Why do I say that? Because when I have a customer of 15 years that I start putting more and more forms in front of him despite the length of his relationship in the name of 'risk mitigation' and compliance. What it actually means is I'm going to disregard everything I know or have learned about this customer over the last 15 years in favor of a black-box process that reduces risk based on a fixed data set I need at this one point in time. Instead of doing the analysis on the data I already have, I'm collecting all the data anew to assess this customer's risk. 

Or in the case of basic account onboarding - I'm collecting all the data I'll need for not just a basic account opening, but also for basic credit decisioning, when most of the data is redundant unless I grow the relationship. Instead of a gradual approach to data collection, I put it all on the customer at one point in time....

FRICTION due to inertia is the killer here, and banks have a massive proliferation of friction.

BK

BK

Ketharaman,

In qualitative research done around PayPal and Pre-Paid Debit Card, the primary thing that comes to the fore in customers explaining why they utilize these services over traditional financial services are terms like "Simple", "Easy", "Fast", etc.

This is not a pricing decision. This is a friction decision. Traditional players are hopelessly out-gunned on this front and until there is significant reform in the processes around customer engagement, they will lose out to organizations more in touch with customer behavior.

BK

Maybe you should have entitled this blog "When Compliance Officers go Wild!"

Brent,

Understood, but that doesn't restrict non-banks from using the word bank in tradenames or product names. Use of bank in a tradename is perfectly legal, particularly if it is descriptive or defining an action.

The company name is not a big issue - as I mentioned most banks don't have "bank" in their company name either.

BK