Consumers across the globe require greater convenience, ease, and engagement in the way they interact with service providers and already expect access to “anything, anytime, anywhere” banking via a combination of digital and physical assets.
However, retail banks have failed to keep up with changing customer expectations, leaving them vulnerable to disruption from “nimble, low-cost, digital-only entrants that are grabbing market share in profitable niches,” according to research by Bain & Co.
The group’s report, Building the Retail Bank of the Future, is based on benchmarking 78 global banks and surveying 77,000 account holders about their needs.
Though banks are keenly aware of the need to transform their services, with almost nine out of ten of the participating institutions rating it “extremely important”, little progress has been made on implementation. Just 60% have a migration plan with clear budgets in place.
The ability to apply for a product or service via a single-stage process was a priority for customers surveyed. However, more than half of the banks in the study said that just 40% of their retail banking processes met this requirement.
Seventy per cent of the benchmarked banks treat digital as a stand-alone department, a factor that the report cites as a significant obstacle to omnichannel integration.
The challenge of meeting these expectations is one that banks must tackle urgently. “For traditional banks, the choice is clear: Invest in change or die with your older customers. Customers in their 20s, which is a prime age for choosing or switching banks, increasingly consider digital capabilities when they pick a bank,” Mike Baxter, a partner in Bain’s Financial Services Practice, said in a news release. The report’s authors estimate that by 2020, 95% of customer interactions with their banks will involve a digitally assisted mechanism.
The study showed clear benefits for those institutions that rise to the digital challenge. Those account holders that conduct the most digital transactions have the greatest level of satisfaction with their banks and do the most business with them, according to Bain. Customer loyalty scores were also significantly higher among customers that used digital services.
The new model for retail banks
Within an optimised digital framework, branches will still have a role to play, but dependence on them as a means of providing services is greatly reduced. Three-quarters of the participating institutions in Europe and the Americas plan to reconfigure their networks or close up to 30% of branches in the near future. Bain estimates that closures on that scale would cost a US bank with 1,000 leased branches up to $120 million.
The most innovative banks have used data modelling techniques, geo-demographic data, and geo-mapping software to guide decisions about their network. The surviving branches will feature differentiated formats for different regions and customer segments. The study found that many banks are organising their networks around flagship branches that serve as showrooms for complex product sales and venues for providing expert advice. They are staffed by specialists and relationship advisers rather than clerks and assistant managers.
These are surrounded by smaller spoke branches, which provide a more limited range of services but offer video technology to connect visitors to experts in call centres.
The report recommends that banks target their investment to technology that enables customers to conduct their business faster. Some of the banks studied have invested in technological innovations designed to promote a more seamless customer experience across channels, including in-branch tablets, video service machines, and smart cash points.
Examples highlighted in the survey include cash machines in Singapore where users can pay parking fines or purchase airline tickets. Elsewhere, the Commonwealth Bank of Australia’s home-finder app enables customers to search and view properties for sale, calculate mortgage repayments, and contact the agent.
“Banking customers can now dictate the experience they want, when they want it, and where they want it,” wrote Dirk Vater, global head of retail banking for Bain and a co-author of the report.
—Samantha White (email@example.com) is a CGMA Magazine senior editor.