‘Trust’ and ‘Transparency’ have always been the cornerstones of stakeholder expectations in the banking industry. Since 2008, there has been a constant deficit on both fronts, resulting in heavy regulatory penalties, right sizing of banks and several other long-term implications on the economy. Since then, banks have taken up the responsibility of rebuilding customer trust while bringing transparency to business models. However, we are still far from expected goals. Over the last five to six years we have witnessed a tsunami of digital initiatives, customer experience, and Fintechs taking hold (thus seeing a lifetime business opportunity to bridge the gap).
Over several decades, banks have followed a traditional model of having local branches enable customers to transact in person while continuing to build trust in the banking system. A key reason for branch presence being in close customer proximity has been to build customer trust. In the last 10 years, there has been a growing discussion regarding the future of local branches, posing the following question: Is branch-less banking a reality in the near future?
Globally, banks are going through tough times and banking leadership faces a duality mandate, where they have to increase their revenue (top line) and, at the same time, improve margins (cut costs). Customer experience is another explicit goal banks are working towards and technology has become the major enabler for banks to meet these challenges.
Banks face a mounting threat from falling profits and rising costs, which can result in reduced dividends and branch closures in coming years, according to a recent report by KPMG. Because of this, banks need to “fundamentally change their operating models” to better improve customer service and reduce overall costs in the future. This would mean boosting online services at the cost of branches.
A lot has been written about the future of “brick and mortar” bank branches and their role in the current age of digital disruption and changing customer behaviors. Across the globe, banks from different regions have seen different levels of branch transformation or re-sizing initiatives, including the closure of branches, the modernizing of existing branches with digital technology, and adopting new, innovative ways of pre-engaging with customers.
Why customers are slow to adopt alternate channels when it comes to such key transactions as paying in money? The answer is that customers are still concerned about security. They simply do not trust these digital channels completely yet. Some of the key reasons for this include:
- Fraud concerns
- Constant news about data breaches
- Customer experiences across digital channels
- Emotional connects or Inherent needs to speak to someone in person
Given this inherent challenge, one of the important things banks need to work on to promote the adoption of digital channels is to build systems, approaches and relationships with customers to enhance personal attention and build trust. There are number of initiatives currently being undertaken by banks to address these. Some of these include tokenization, contact less payments, location-based fraud prevention, and proactive communication on data breach events. When it comes to establishing an emotional connect, an innovation like video conference through a mobile channel is a step in the right direction. Solutions like Robo Advisors, which are accessible 24/7 to an end customer, would also play a big role in the future in terms of establishing personal trust and looking after a customer’s interest.
As per information gleaned from the annual reports of leading banks in USA, notable trends include:
- 94% increase in automated STP transactions
- In Branch Transaction volumes are declining ~ (20-25 %).
- Number of branches is slowly getting reduced (23% reduced branches since 2009 for a leading bank in America)
- Internet / Mobile banking volumes are increasing
- Transactional solutions (Ability to pay, open accounts) are being simplified through digital channels
Key digital transformation initiatives being adopted by banks for branch transformation include:
- Integrated digital experience across all channels (education till sales fulfillment)
- Concierge role in branches to optimize customer flows and service levels, also enabling video conferencing to provide access to bank specialists
- Rollout of smart self-service deposit taking ATMs
- In branch customer segmentation and provide personalized services to customers
- Increased leverage of biometrics to validate customer identify, reduce friction and improved customer experience
In the not-too-distant future, digitally enabled branches will help customers serve themselves and provide assistance on an as-needed basis. In these branches, customers will be able to experience products (by leveraging augmented reality and AI) and relate them to their respective financial requirements. As a result, branch staff will move up the value chain and play the role of customer advocate, helping customers make important decisions relevant to their needs.
To address the total cost of ownership pressures, banks would have to venture into system process simplification initiatives, leveraging robotics process automation technologies to reduce the required number of full-time employees while improving straight through processing (STP) to ensure better customer experiences.
Digital advancements, meanwhile, will enable branches to support the ease of doing business, build customer relationships, educate customers about digital usage, and build comfort and trust, which will ultimately facilitate the increased adoption of self-service channels. Eventually it may even be possible that customers lack reasons to visit physical bank branches.
Hence, the near-to-medium term outlook reflects that bank branches would continue to stick around, but in a new digital avatar focusing on delivering personalized and satisfying customer experiences.
The article was originally published on TransactionBanker on November 10, 2016 and is re-posted here by permission.