The tectonic plates underlying retail banking are shifting. In 2012 we have already seen various versions of the “Branch of the Future,” the increasing sophistication demanded by mobile and tablet customers, experimentation with new revenue streams, refocusing efforts on higher-profit customer segments such as the mass affluent and banking platforms on Facebook. All these trends are fundamentally changing the role of the bank and transforming retail delivery.
Over the next year, we will see dramatic changes in both how customers interact with banks and how this impacts revenue streams in retail banking. Here are the five top trends retail banking executives should keep their eye on in 2013:
Multi-Channel Impact of Mobile/Online. It is clear that mobile and online banking is continuing to grow. But what does that mean for the customer’s relationship with the bank across different channels? Most banks do not yet know how usage of mobile and online services impacts retention, cross sell and overall customer value. We have seen that the impact on these metrics varies significantly across services and features and it is important for banks to know which to focus on. Branch staffing levels and operating hours also need to evolve with increased non-branch banking. Online and mobile can help reduce cost in the physical channel but banks need to be careful not to hurt the customer experience.
Making Money from Mobile. Most banks are not yet charging for mobile or online banking services but this is starting to change. BB&T and U.S. Bank now both charge 50 cents per check for mobile check deposit. Charging fees for mobile and online service could be an important source of fee revenue for banks. The risk is that it could cause significant backlash and customer attrition. It will be easier for banks to charge fees for entirely new services than to add fees to services customers are used to receiving for free. Banks will also need to test different fee levels to determine which work best. Finally, it is critical to identify which customers should be exempt from these fees to avoid losing the most valuable customers.
Smaller Branches with Innovative Approaches to Staffing. Though branches will not go away completely, they will likely get smaller. Customers will continue to visit the branch to open accounts or discuss more complex products such as investments or mortgages. An extensive branch network provides the convenience many customers demand. However, many routine transactions are moving to other channels and branch cost is higher than it needs to be.
Branches will get smaller in the future with more in-store branches or “café” style branches. The key will be to know where to put these smaller branches and which locations warrant a full-scale branch. The Economist recently dedicated a special report to the intricacies of this new shift and its adoption on a worldwide scale. Banks will need to understand how demographics, the competitive environment, and the adoption of mobile/online banking in different geographies influence the optimal number of branches and the optimal mix of branch types.
Similarly as customers continue moving more routine transactions to the online and mobile channels, the role of the branch staff will be even more focused on building relationships, growing sales and helping customers resolve more difficult problems. It does not make sense in this model to have branch staff focus exclusively on particular tasks, such as the traditional teller role. Branch staff will, if anything, shrink over time, so banks will need to do more with less. This will require hiring people who have a broader variety of skills and offering more training to help existing staff learn new skills. Banks should also work to develop new technology platforms to help branch staff have these broader and more complex discussions with customers. Bank of America has been one of the leaders in this area, with a new flagship concept that features advisers walking around the branch and having conversations with clients in more open spaces rather than in the traditional layout.
Demanding ROI from Online/Social Media. Ad dollars will continue to shift to online and social media, and these channels will continue to grow in importance for banks. For instance, Chase and Bank of America now offer support services through Twitter, and other banks increasingly leverage Facebook as an engagement tool. At the same time, companies will look to better understand the return on investment (ROI) of these investments and will choose carefully how they invest going forward. With many online and social media vehicles such as Google and Facebook, advertisements can be turned on in a subset of markets allowing a comparison to “control” markets that do not receive the ads. We have found that the ROI varies significantly across different vehicles, products featured, and messages or keywords. Banks that know the ROI of different investments will be able to significantly improve the profitability of social and online advertising by focusing spend where it is most effective.
Selective Investments in Branch Technology. Banks have made substantial investments in branch technology, such as adding remote check imaging at ATMs. These types of investments will continue, and the latest example is video ATMs. BBVA recently began launching its ABIL concept that features a touch-friendly interface and a ‘virtual teller.’ Too often though, we find that banks make uniform investments across all branches. This is a waste of precious resources; most new technologies will work well in some branches but provide little benefit in others. Any major investment should be tested in a subset of branches first, to determine what types of branches would actually benefit.
As these trends drive transformations in retail banking it becomes increasingly necessary to innovate while minimizing the risk involved in innovation. We have seen leaders such as TD, PNC, SunTrust, and others respond to these emerging trends by rapidly testing new ideas with a small set of customers, branches or employees. Such scientific tests have helped them respond to these changes effectively and build a competitive advantage in offering cutting-edge products and services. Banks that are able to rapidly and robustly predict what customers want will have a successful 2013.
Mr. Weidman is vice president at Washington, D.C.-based Applied Predictive Technologies, a data analytics firm that helps retail banks test how various business changes alter customer behavior. He can be reached at firstname.lastname@example.org.
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