May, 2006
Retail Banking Is Here To Stay
-- As seen in the April 2006 issue of US Banker --
It is widely believed that the onset of Internet banking and the expanded use of ATMs will result in the gradual demise of the retail banking branch network. However, this belief is in contrast to both the facts of the situation as well as the principles of "best practices" in regards to customer service and organic growth within the banking business.
Without question, the Internet and online banking have undeniably revolutionized the industry by making banking more accessible to more people and by creating a more cost-effective way to perform transactions. Customers can now open accounts, transfer funds and pay bills from their home computer, rather than having to drive to a branch and wait in a teller line to make a simple transaction. Current studies estimate that more than 25% of U.S. households now use the Internet for banking; nevertheless, despite the existence of this technology, it has not stopped customers from making the trip to their neighborhood branch.
Therefore, larger banks are increasing their retail presence rather than vice versa. Citigroup said in late 2005 that it planned to open 70 to 100 new branches in 2006 and will also add as many as 200 new consumer-finance branches. JP Morgan, Washington Mutual and other national and regional financial institutions will also add branches.
Beyond immediate customer demand, there are several business imperatives driving this trend. First, banks see retail banking as offering a relatively stable revenue stream to compliment the cyclicality of wholesale banking and securities trading.
Secondly, effective customer service is always one of the core building blocks of any business, and banks are now focusing on the importance of the branch in building profitable relationships with retail customers. This is necessary because it costs a lot more to get a new customer versus retaining an existing customer and, unfortunately, this is still an issue with some branches reporting customer retention at about 50 percent.
"Today, most bankers are recognizing that, despite the increasing popularity of self-service channels, branches continue to play a critical role in customer acquisition," writes Chris Gill, senior manager, Dove Consulting. "Branch locations are a key component of an institution's brand image, and the location of a branch facility near one’s home or business is a key factor in selecting a bank — even for customers who are self-service oriented and rarely visit a branch. Banks are realizing that customers with a higher degree of branch usage also tend to be among their most profitable customers."
Thirdly, while the Internet allows a more cost-effective way to execute transactions, it is not as effective for selling products. To grow, banks will need to cross-sell products to a bigger customer base and they are quickly realizing the importance of face-to-face interactions in promoting services and products. As Richard Kovacevich, CEO of Wells Fargo, describes the situation, "The products are commodities. The way you distribute them is not."
Therefore, in an effort to provide better customer service as well as effectively cross-sell products to a bigger customer base, banks are not only expanding their reach by building new branches, but they are also investing heavily in modernizing both new and existing branches in an attempt to transform them into centers for financial advice and sales that will allow the banks to sell other services such as insurance and investment products, credit and debit cards, bill payment services and other personal investment services.
This increased effort to cross-sell and provide advisory services will necessarily involve freeing employees from their teller counters so that they can service customer needs. Currently, only about five percent of employee time is spent selling. To free-up tellers, some banks are now implementing teller-assisted self-service kiosks. These solutions enhance branch responsiveness, expand cross-selling opportunities and allow tellers to support more customers, while utilizing equipment designed to reduce risk and improve speed and accuracy.
Banks are also finding non-traditional locations for new branches to reach a more diverse customer base. These small branches are strategically placed in locations convenient to the customer, such as grocery stores. While their small size means they typically do not offer a full array of services, it also makes them dramatically less expensive to open compared to a traditional branch office.
While the Internet and call centers are arguably more convenient options for the customer than going to a branch, for revenue, customer demand, customer service and cross-selling reasons, branch banking will not be going away anytime soon. Online banking will not cause the demise of retail banking. It will simply alter its role as well as expand the role of the teller personnel.
Ron Meinhardt
President, BLM Technologies, Inc.
< BACK > < NEXT >
Retail Banking Is Here To Stay
-- As seen in the April 2006 issue of US Banker --
It is widely believed that the onset of Internet banking and the expanded use of ATMs will result in the gradual demise of the retail banking branch network. However, this belief is in contrast to both the facts of the situation as well as the principles of "best practices" in regards to customer service and organic growth within the banking business.
Without question, the Internet and online banking have undeniably revolutionized the industry by making banking more accessible to more people and by creating a more cost-effective way to perform transactions. Customers can now open accounts, transfer funds and pay bills from their home computer, rather than having to drive to a branch and wait in a teller line to make a simple transaction. Current studies estimate that more than 25% of U.S. households now use the Internet for banking; nevertheless, despite the existence of this technology, it has not stopped customers from making the trip to their neighborhood branch.
Therefore, larger banks are increasing their retail presence rather than vice versa. Citigroup said in late 2005 that it planned to open 70 to 100 new branches in 2006 and will also add as many as 200 new consumer-finance branches. JP Morgan, Washington Mutual and other national and regional financial institutions will also add branches.
Beyond immediate customer demand, there are several business imperatives driving this trend. First, banks see retail banking as offering a relatively stable revenue stream to compliment the cyclicality of wholesale banking and securities trading.
Secondly, effective customer service is always one of the core building blocks of any business, and banks are now focusing on the importance of the branch in building profitable relationships with retail customers. This is necessary because it costs a lot more to get a new customer versus retaining an existing customer and, unfortunately, this is still an issue with some branches reporting customer retention at about 50 percent.
"Today, most bankers are recognizing that, despite the increasing popularity of self-service channels, branches continue to play a critical role in customer acquisition," writes Chris Gill, senior manager, Dove Consulting. "Branch locations are a key component of an institution's brand image, and the location of a branch facility near one’s home or business is a key factor in selecting a bank — even for customers who are self-service oriented and rarely visit a branch. Banks are realizing that customers with a higher degree of branch usage also tend to be among their most profitable customers."
Thirdly, while the Internet allows a more cost-effective way to execute transactions, it is not as effective for selling products. To grow, banks will need to cross-sell products to a bigger customer base and they are quickly realizing the importance of face-to-face interactions in promoting services and products. As Richard Kovacevich, CEO of Wells Fargo, describes the situation, "The products are commodities. The way you distribute them is not."
Therefore, in an effort to provide better customer service as well as effectively cross-sell products to a bigger customer base, banks are not only expanding their reach by building new branches, but they are also investing heavily in modernizing both new and existing branches in an attempt to transform them into centers for financial advice and sales that will allow the banks to sell other services such as insurance and investment products, credit and debit cards, bill payment services and other personal investment services.
This increased effort to cross-sell and provide advisory services will necessarily involve freeing employees from their teller counters so that they can service customer needs. Currently, only about five percent of employee time is spent selling. To free-up tellers, some banks are now implementing teller-assisted self-service kiosks. These solutions enhance branch responsiveness, expand cross-selling opportunities and allow tellers to support more customers, while utilizing equipment designed to reduce risk and improve speed and accuracy.
Banks are also finding non-traditional locations for new branches to reach a more diverse customer base. These small branches are strategically placed in locations convenient to the customer, such as grocery stores. While their small size means they typically do not offer a full array of services, it also makes them dramatically less expensive to open compared to a traditional branch office.
While the Internet and call centers are arguably more convenient options for the customer than going to a branch, for revenue, customer demand, customer service and cross-selling reasons, branch banking will not be going away anytime soon. Online banking will not cause the demise of retail banking. It will simply alter its role as well as expand the role of the teller personnel.
Ron Meinhardt
President, BLM Technologies, Inc.
< BACK > < NEXT >