Oliver Botti, Head of Development &; Innovation, Fincons Group, and Giuliano Altamura, Financial Services Business Unit Manager, Fincons Group
Branch transformation in retail banking now has real momentum across Europe. And, as with any sector undergoing transition, all players are closely watching the innovation introduced by their competitors. Up to now, the popular perception has been that innovation is mainly the province of large banks, usually those with national branch networks. In the UK, this equates to the majority of high street banking across the nation. In Germany, France, Italy and Spain, the picture is more mixed between national and regional (or even local) institutions.
Positive news is that the much-predicted fallout from putting investment banking and retail banking at arms-length from one another has failed to materialise. In fact, the Economist recently reported on one Swedish bank that has focused on its retail banking business, radically reformed its service delivery through technological transformation of its branches and online presence, and is now achieving a cost-to- income ratio of 43% – over sixteen percentage points higher than the EU average.
In technological terms, we have now reached a stage where the larger pioneers of digital platforms, branch transformation and omni-channel banking, have effectively done the initial heavy lifting for everyone. Worries over (software) risk have been allayed from the observation of operational reliability in practice. And the cost of entry has been dramatically reduced as competing platforms and applications have come to market. Reliable, high-capability technology is now available and affordable for smaller financial institutions. This is starting to mean that innovation in branch transformation is no longer solely a trickle-down process – nimble developments also starting to come out of smaller banking organisations (of which, more later).
It is important to emphasize that the new face of the branch is not simply that of a dying physical high-street presence that is inexorably being superseded by remote, online alternatives. The most successful transformations take a truly omni-channel view of interaction with the customer. Research organisation Celent summarises the omni-channel imperatives for successful branch transformation: “Deliver a high quality, hassle-free customer experience…. lower the cost-to-serve….. drive more personalized marketing sales, advice and service….. leverage a single view of customer data….. empower more differentiated segment service propositions…” Another study from McKinsey notes that 65% of customers habitually use multiple channels for their banking needs, with only 15% exclusively using the branch and, more importantly in today’s emerging digital world, only 10% exclusively using online. In other words, the experience with your bank needs to be unified, and consistent, whichever channel you use. Systems need to be completely in ‘sync’ so that any action in one channel is immediately reflected in any others you may wish to use.
Digital applications in-branch are as important as effective online banking services. As the branch has become less of a transaction location and more of an advisory centre, technological capabilities need to be combined with intelligent content strategies. Since one of the great advantages of online commerce is that the user can pick and choose their own particular preferences and requirements, there is an equal expectation of choice when someone walks into a physical branch. Much initial advisory does not need to be delivered by a live human being. A wealth of well-crafted content – video, documents, infographics, interactive, etc. – allows the customer to choose the background descriptive content to watch, well before they get to the stage of talking to a live advisor. However, in technological terms, all this content needs to be consistently accessible in-branch, online, through mobile… possibly a combination to research a single subject.
So, innovation in transforming the branch network is no longer just the province of the larger retail banks. As branch transformation has moved into the mainstream – accessible to banks of all sizes – the level of software innovation (much of it still coming out of the USA) has accelerated to meet that growing demand. Yet, this in itself creates a problem for banks; the sheer volume of software innovation coming available means that it is difficult to see the wood for the trees.
Accordingly, the kind of innovation that banks need has transformed. A new breed of digital systems integrator (many of them home-grown European companies) is offering innovation in the way component parts are woven together to make a competitive service solution. Banks need an expert and intelligent route through the plethora of available software and platform options. Using an intimate knowledge of the bank’s customer processes, the available technology options, and what really works in practice, these integrators select the best components for a banking organisation, and then craft the technology components into a high-functioning solution. Rarely do software options offer what is required ‘out of the box’; they require bespoke development for each bank to guarantee the proper level of service differentiation.
Take the example of one regional bank in Europe. From its essentially local roots and local customer intimacy, it has arguably a better knowledge of its customer-base than national rivals. This has given it a keen understanding of how crucial its need for solution flexibility is – the flexibility to rapidly add or change capabilities as its customer requirements develop. A huge repository of advisory digital content (especially normal and interactive video) has been developed, with versions that focus on different age groups. Through a ‘mybank’ facility, each customer can choose their preferences, save content links, manage their communications by category and channel, and generally create an individualised customer experience. All is executed consistently across physical branch, online, mobile, phone and post. While catering for all customer types and age groups, the bank has strategically identified a key emphasis on capturing young new customers. It remains a fact that switch rates in European retail banking remain very low (2-5%), so initial recruitment and on-boarding is critical. By offering a seamless digital new customer process, which radically reduces the time to open an account, and is exactly mirrored whether online or in-branch, recruitment rates have risen and number of products activated in the first year has grown. At the same time, a better, more personalised, customer experience is being delivered to all customers.
In short, the predominance that big national (or international) retail banks previously held in driving service innovation looks to be over. Smaller players now have access to a wide variety of affordable solutions for branch transformation. A new breed of systems integrator has arisen to help players of all sizes find their way through the plethora of exciting innovative software (still largely coming out of the USA) and tailoring specific solutions. In some cases, because of their smaller networks, regional players may find it possible bring innovations to market quicker, and react to market change more nimbly, than their larger counterparts. The result of this more level playing field should be good for all players, for the market and for customers. The race to be truly customer-centric and truly omni-channel is on, and every player can now compete – large or small.