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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.

I just came across a Daily Mail article today. The title of this article says it all: "... Cheques will not be scrapped in 2018 because there are no better alternatives".

Talking about costs, quite frankly I don't see why the man / woman on the street should care if banks incur higher costs for processing cheques: All costs of banks - including fat bonuses to its executives - are going to be passed on to him / her in one form or the other anyway. Why single out only the cost of cheque processing? However, my personal experience with Phone Banking and Internet Banking with two Indian and two European banks in the last 24 hours permits me the luxury of sticking to the topic of cheque processing costs. 

I'm willing to pay a bank some X amount for every cheque I write provided the bank pays me some Y amount for every ePayment that I'm unable to put through their telephone or website for no fault of mine viz. field length is too short to support the true size of the data element (e.g. beneficiary name); maintenance shutdown; inaccurate information, etc. Assuming X and Y are close to the respective costs incurred by each party, I'm very sure that I'll earn enough money from just one month of the latter to fund a lifetime of the former! 

Yeah, right. That's probably what WebVan thought of conventional grocery stores, INGDirect USA thought of conventional banks having branches, and digital pundits thought of conventional cheques. The first one crashed and burned after $$M in VC funding; the second one is just another channel of a conventional bank; as ilustrated by banks' recent decision on the third in the UK, I'm confident that banks know to place consumer preference and customer experience - cheque trumps ePayments on both - ahead of anything else while deciding the right mix of products / instruments / channels.

Google Wallet and the like are mere wallets and not payment methods. They store information of products issued by, well, banks - no bank issued credit card, no use of Google Wallet for the consumer. The question of regulators entering the picture doesn't arise. Banks don't have to seek the permission of Apple / Google to access their own customers. They can always opt for SMS or mobile web applications instead of native apps as many of them have already done. In India, the regulator has already created a framework that excludes a solo mobile money play by PayPal. When the non-bank financial services providers start learning banking and feeling the compliance pressures that banks have been subjected to for ages, I for one strongly believe - based on my experience with PayPal and a couple of others - that their customer experience will fare far worse than banks'.

While giving due credit to nonbank players for their innovations, it's too far-fetched to believe that they can make a significant dent on banks in the foreseeable future. If and when they do, banks can use their deep pockets to mitigate the impact by buying them out, as they've already done with Revolution Money and in the other cases I've pointed out. 

Core banking vendors who go that far would surely provide an unbeatable value proposition. But, given my personal experience with a few of them, I'm not sure how many of them would want to go that far. There are midway approaches that could use (say) maintenance cost arbitrage between legacy and modern systems. These alternatives are equally effective in bringing down customer objections while being far more palatable to vendor executives.

I agree with Colin H's views that much of what we're seeing from the new startups is really fringe activity that has very low chances of threatening traditional banks. Besides, traditional banks have deep pockets, made deeper by government bailouts that unfortunately don't rain down on the Blippys and WeSabes of the world. With their huge resources, they (i.e. traditional banks) have the luxury of waiting and watching and letting the startups do all the evangelizing and then cherry-picking the promising ones. Citi-eCount (prepaid card), AmEx-Revolution Money (alternative payment), and, most recently, CapitalOne-INGDirect (digital channel), are cases in point. The recent actions of Reserve Bank of India and Dodd-Frank-Durbin in the context of bringing PayPal under some level of regulation in India and the USA respectively prove that regulators might start overseeing non-bank financial services providers well before a catastrophe strikes thousands or millions of their customers. 

This is a great win for supporters of customer experience, especially that of the man on the street. When it comes to making a donation, there's nothing more convenient than writing a cheque, putting it into an envelope and mailing it.

This also highlights the critical success factors for bringing about changes in consumer behavior.

Rapid adoption of mobile RDC proves that consumers will change their behavior if they stand to gain something from the change. On the other hand, they'll resist change that results in worse customer experience just for the sake of going digital. Instead of cheque, let's see what the customer has to go through to make an ePayment: Navigate through layers of username/passwords; maybe carry an authentication device; enter long account numbers and sort codes; adapt the real name of the beneficiary and narration of transaction to the restricted field lengths of the banks' application; hope that the Internet connection and the Internet Banking application don't fail during the transaction; and, last but not the least, suffer the risk of sending the payment into a state of suspended animation in the ether with even a slight mismatch in the data.

There's a lot that banks and technology vendors need to do to improve customer experience of the digital channel before they can hope to change the behavior of the man on the street. Hopefully, this episode serves as a siren call. 

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

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).

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.