Retail bank branch closure is a growing trend in several countries as a cost cutting method. The thinking behind this is logical: branch banking is expensive so it makes sense to drive customers to channels such as online and mobile which still provide a wide range of services but are cheaper for the bank to operate. But will this increasing shift towards self-service banking kill off customer relationships?
ANZ’s CTO thinks so. At a recent conference, Patrick Maes spoke about how neglecting face-to-face banking reduces banks’ chances of building meaningful relationships with their customers. And he has a point. While self-service banking channels have experienced significant growth in recent years, customers are becoming increasingly fickle and events such as the financial crisis have meant that more are willing to take their money elsewhere. Statistics show that in the UK for example, 14 million banking customers are willing to jump ship when the seven-day account switching rules, recommended by the Vickers report, take effect in September.
Customers also prefer to meet with bank staff in the branch to discuss complicated or sensitive issues such as mortgage or loan applications. It’s difficult to foresee a time when customers would opt out of meeting with the bank manager to talk through their options.
What’s important is that banks are able to strike the delicate balance between putting in face time with the customer, while encouraging them to use cheaper self-service channels when appropriate. Rewarding the customer for its relationship with the bank and using rewards and offers to cross-sell services is also key to building a meaningful bond and boosting loyalty.
Oscar Sanderson, senior marketing consultant, Welcome Real-time
There are numerous implicit and explicit assumptions made in the post, including:
1) Bank Branches are being closed because they expensive
Bank Branches are being closed because they are an ineffective sales & service channel. This has been highlighted by the wide acceptance of online banking and the growth of mobile as it relates to banking. It is not unusual for business managers to rationalize their investments across channels, and indeed, the vast majority of Bank Branches not only fail to show a positive ROI, but they generate deep operating losses for Banks. As stated before, customers are abandoning the brick&mortar channel, thus the constituency interested in retaining status quo is limited to
– bank staff who need a place to sit,
– property owners who collect rent,
– branch consultants who are desperately trying to sell buggy whips in the age of rocket ships, and
– a handful of Bank executives who still believe that customers who have left the branch will for some unknown reason decide to come back to engage in revenue generating activities.
2) The shift towards self-service banking kill off customer relationships
This presumes two things: 1) Banks have a meaningful relationship with their customers, and 2) Bank:Customer relationship is only possible via direct, face to face interaction.
The reality is that most Banks are fooling themselves in believing that they have earned anything resembling a trusted advisor relationship with the vast majority of their customer base. No doubt there may be a handful of exceptions, but in general, Banks are viewed as a Utility, and the fees they charge for services are paid begrudgingly. Very few Banks, if any, have delivered a clear differentiating value proposition to their customer base, and very few have been able to convince their customers of a win:win Bank:Customer relationship. The fact that so many Bank customers are projected to switch Banks as soon as they can (as the author points out) is a testament to the fact that Customers have little or no loyalty to their Banks, and that Banks have, at best, a weak relationship with their Customers.
I continue to be amazed that some Bankers still believe that the only way to communicate with customers is face to face. The reality is that many businesses have been utilizing tools including the telephone, email, chat, and video conferencing to engage with customers when, where, and how the customer prefers. There is nothing unique about Banking that precludes the use of these technologies to support relationship building and value creation for customers (other than, of course, some Bankers’ insistence that customers have to visit the local branch).
3) Customers prefer to meet with bank staff in the branch to discuss complicated or sensitive issues such as mortgage or loan applications. It’s difficult to foresee a time when customers would opt out of meeting with the bank manager to talk through their options.
This statement presumes that 1) mortgages and loan applications are “complicated”, and 2) Bank staff are qualified to advice customers on “complicated products”, and 3) the only way to engage customers is via a face to face interaction (addressed in response to #2 above).
“Complicated” is a relative term. Certainly in the USA, many people apply and process their loans – mortgages, home equity, auto loans, etc. – without ever stepping foot into a Bank Branch. This is a trend that will certainly continue to grow as competition for loans increases from banks and non-bank entities. On a related note, it is far from truth that many Bank Staff understand loan products better than consumers who are actively seeking mortgages / auto loans / etc..
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Branches vs Online Banking debate is really about identifying the most effective and efficient sales & service channels for the Bank and the Customer. Bank’s challenges are far greater than channel rationalization – Banks are now finally recognizing Customers’ perception which suggests that Banks have a lot of work to do. Successful Banks have recognized the need to differentiate their value proposition to deliver measurable benefit to the Consumer while ensuring their own growth and profitability. Banks are beginning to discover that refreshed logos, and flashy marketing campaigns devoid of value to the consumer will generate only red-ink.
Banks need to differentiate their offering to stand-out, else they will transform into Utilities that are able to charge based on cost-plus basis. Most Banks are in dire need of significant upgrade to their Business Strategies.
By 2016 it is estimated that a majority of Gen Y consumers will not set foot in a bank branch. While it seems inconceivable to Gen X and Baby Boomers that someone would be comfortable getting a mortgage or a student loan over the internet, that is exactly what behavioral research into Gen Y is saying. Banks that are unwilling or unable to adapt to these changing consumer expectations will be putting themselves in an extremely untenable position.