The Bankwatch

High street retailers are losing ground to online sales, and this is clear now.  It doesn’t matter whether you are looking at clothes or entertainment (movies and music), the picture is the same.

But the key question is whether these initiatives will be enough to stem the decline in their traditional businesses. It will clearly be a struggle. Last week’s trading statement from HMV, which also owns Waterstone’s, showed that sales were down 3.7 per cent over the last 12 months. Others are suffering too: while Next could boast a 15.3 per cent rise in sales of its Directory mail order business – almost half of which now come via the Internet – that was not enough to compensate for the 7.5 per cent decline in sales at its high street stores, some of which were doubtless disappearing online.

Source: The Observer | Business | Internet’s new wave threatens to wash the high street away

However, I think the headline is misrepresentative of both the problem, and the solution.  This is not one of those straight line trends that ends in zero high street shops, and 100% online sales.  No-one in their right mind would suggest that.  Cool people just have too much enjoyment looking cool while shopping and trying things on (music or clothes).

The key is balance. What is the right balance between high street and online.  Now this is the problem that retailers and banks share.  Its not a situation that has an endgame either.  It will be iterative and hard to get right.  Welcome to the new world of shopping!

Relevance to Banking:

The conundrum that faces us in finding the right balance of bank branches alongside our online and call centre offerings, is a problem shared by all retailers.

 Just when we thought things were going well, this story comes along.  Its clear the road of change is rocky, when the change is business model level change.

Emile Sanchez, MD, BT Global Services finance industry solutions, says the future for retail bank branches clearly lies in turning employees from tellers into profitable sellers, but technology needs to be at the heart of this strategy.

“For employees to provide the level of expertise and customer support needed to make high value services sales, the best technology is going to be vital for both interacting with customers and providing an efficient way to re-train staff,” says Sanchez.

Source: Finextra: UK banks look to expand branch networks

This is such a vendor view of the world.  I hate to pick on this one, but if you are willing to go live with a press release, expect the debate.

The issue is not as simple as transforming employees.  That would assume each employee has a brain switch on their back, that we can simply flick and transform the person from a transactional employee into a sales employee.

Anyhow the other element in this press release is the move to increase numbers of branches.

EIU says between 1995 and 2003, banks in the UK closed nearly one quarter (22%) of their branches. But now nearly half of the 190 banking executives interviewed for the survey say their firms intend to increase the number of branches in the next three years, with one in five saying investment will increase in this area by more than 20%.

Relevance to Bankwatch:

Banks have to understand that technology change will not change employee behaviour.  Its fundamental first understand the business process(es) that you require, and that will then drive appropriate change in people, process and technology.  Change must be driven along all axes.

This is pretty far out stuff.  IBM have built a $250 million Bank of the future in Singapore to illustrate the technological future for Banks. 

The facility includes a surveillance system that monitors how much time customers spend in different sections of the branch and to what extent they are viewing product displays, biometric authentication devices that recognize users through the veins in their fingers, and automated teller machines that take deposits and recycle the cash for dispensing.

Source: BankNet 360 – Big Blue Creates ‘Bank of the Future

No pictures yet, and I am really curious to see the details.  I located some more on the announcement, but no real details yet.

http://www.antara.co.id/en/seenws/?id=20537

Also some additional reading on the topic that showed up in my search.

http://www-03.ibm.com/industries/financialservices…

http://rbd.doingbusiness.ro/ibm_sept06.htm

http://news.webindia123.com/news/articles/Business…

http://whitepaper.banktech.com/cmpbanktech/search/…

Technorati tags: bank+of+the+future, banking+strategy

I am intrigued by the differences in consumer acceptance on each side of the Atlantic.  To what extent are those differences grounded in culture, or security methods or some other factor?

# 7 September 2006

Online banking is gaining in popularity in both the US and the UK, although visiting a branch is still the preferred option for many, the latest research suggests.

According to a survey carried out by UK-based Lloyds TSB, over half (54 per cent) of British banking customers prefer banking online to visiting a branch, with the desire for privacy and discretion concerning banking issues cited as the most important reason. In the US, however, the picture is slightly different, with research from the American Bankers Association showing that only 26 per cent of customers banked online as their first choice, Associated Press reports.

Despite this being an increase on previous figures, visiting a branch was found to be still the most popular way to bank in the US, with nearly a third (32 per cent) ranking it as their preferred banking method. The increasing use of online banking services looks set to continue, however, with the research showing that younger generations are happier with Internet banking than older people.

Source: Bobsguide – Increase in online banking popularity

tags: online+banking, security, branch

 More on WaMu, specifically Chicago.  They expanded in Chicago only 3 years ago.

Washington Mutual Inc., which moved aggressively into the Chicago market in recent years, is now closing branches in the area. The Seattle-based bank plans to close 28 of its 172 Chicago-area branches, mainly in Lake and McHenry Counties as well as in other outlying suburbs. An estimated 168 jobs could be affected by the closures.

WaMu’s deposit market share in the Chicago area is 0.3 percent, the same as Rockford-based Amcore Bank, which has only about two dozen Chicago-area branches, and Elgin-based EFS Bank, which has about 10.

The retrenchment in the Chicago area is part of a broader consolidation under way by the company, which is in the process of closing 80 poor-performing stores nationwide.

Source: Washington Mutual steps back | Chicago Tribune

tags: wamu

More on the ABA research, with a slide summarising the results.

Thirty-five percent of the survey’s respondents between the ages of 18 and 34 said they prefer to use the online channel while 33 percent said they prefer the ATM. Respondents between the ages of 35 and 54 ranked branch banking, 32 percent, and online banking, 29 percent, as their top choices, with 27 percent saying they preferred the ATM. And respondents who fell into the 55 and over category said they strongly prefer the branch, 47 percent. ATM use came in second among that group, 20 percent; only 13 percent said they prefer online banking.

Source: Younger consumers prefer online banking, ATM | ATM Marketplace News

tags: online+banking, branch, aba

 In this US study from the American Bankers Association generational differences start to display clues about the future.

Online banking is the clear winner, and this flies in the face of the current push to build branches.

When consumers were asked what banking method they use most often, branches topped the poll with 32% of the vote, followed by online and ATM channels, each with 26%, and telephone and postal methods bringing up the rear at five per cent apiece.

However, generational differences had a strong influence on how respondents answered. For example, banking at a local branch was the clear favorite of nearly half of those over the age of 55, but only 175 of those under 34 said they use branches most often. In fact, younger customers ranked branches behind online banking (35%) and ATM’s (33%). Older customers said the opposite with 47% preferring to bank by branch, followed by ATM’s (20%) and online (13%).

Source: Finextra: Generation gap widens in banking channel mix

tags: online+banking, branch

 Came across this article from June this year, talking about the extreme shifts we have seen away from the branch in the late 90′s, and back to the branch in this decade.

“The real lesson for the banks has been that customers value human interaction when making financial decisions that could have important consequences in their lives. Of all the additional channels, the call centre is the only one that can provide this human touch. “

Source: “Putting people back – Mozilla Firefox”

I would argue the shift to Internet and branchless was right, just 30 years early.  But there are some nice touches in this piece:

“You could even think of the call centre as a branch, except you dial it. It really isn’t all that different. There are some  supporting technologies.”

I firmly believe in the concept of the entire bank as a call centre.  This point gets lost in the back to branches tidal wave.  The majority of time spent on relationship building in the branch is actually over the phone.  Consider the typical mortgage application. 

1. Customer will phone (or visit) for an appointment. 
2. Customer visits for appointment
3. Follow up information – phone, fax and email
4. Confirm logistics such as appraiser, lawyer, documentation – all phone
5. Appointment with lawyer – phone

The line between the branch and the call centre can then  become blurred.  Gardner says that banks are likely to take more immediate advantage of this by making more use of  expensive personnel, such as financial advisers.

Relevance to Bankwatch:

We are in the midst of a demographic and technology shift.  The answer isn’t about one thing or another.  Its about transition, and being ready for periodic sudden shifts, because the transition isn’t smooth.  A recent example was broadband which transformed internet use, promoting video.

tags: demographics, branch, call+centre

The title of this piece (pdf) from the New York Federal Reserve interested me, but now that I am reading it, the conclusions worry me in a different way! (my emphasis)

Relevance to Bankwatch: Mid sized banks will suffer profit pressure, unless they make some changes to their model.

These results hold for the most recent data and also back through the mid-1990s, when the number of branches in the U.S. banking system began to increase. Thus, recent technological developments such as Internet banking seem not to have altered the basic relationship between branch network size and performance. The one exception to this finding involves deposit interest costs, which appear to be systematically lower for banking organizations with larger branch networks during the mid to late-1990s.

“The impact of Internet banking has not altered the relationship between branches and …. performance”. This implies that Internet services have been added as an incremental cost, with no consideration to re-designing the overall channel mix.

Having grasped that, it makes perfect sense to me. Internet banking was generally treated as an annoying new expense and while most have overcome that now, the implication are that no-one is re-engineering the bank to leverage the potential from Internet banking.

Mid sized Banks with 100 – 500 branches have reduced their network size in the 9 years to 2003, whereas the rest, smaller and larger have increased their branches.

The report then by page 24 starts to get at my interests.

The goal is to see whether the results discussed thus far – which suggest that mid-sized branch networks may be at a competitive disadvantage
relative to both larger and smaller networks – are stable over time

In general, the implications of the historical results are quite consistent with those from the results
based on the 2003 sample.

As compared to banks with the very largest branch networks, banks with midsized branch networks had lower deposits per branch, roughly equal volumes of small business loans per branch, but have historically had higher net deposit costs.

Banks with smaller branch networks (100 or fewer branches) had higher deposits and small business loans per branch than institutions with mid-sized branch networks, but faced higher net deposit costs.

The implication of these results is that mid-sized branch networks appear to be at somewhat of a competitive disadvantage, especially relative to the very largest branch networks, throughout this period. This disadvantage may have weakened somewhat in recent years, however, given the reduction in the difference in net deposit costs between institutions with mid-sized and larger branch networks

Their conclusions:

• Technological change has not altered the impact of branches on profitability
• Mid-sized branch networks have lower deposits per
  branch than organizations with both larger and smaller branch networks.
• Branches are on average, increasingly centralised in large firms
• institutions with mid-sized branch networks have no deposit expense advantage relative to institutions
  with larger branch networks

Taken together, these findings suggest that banks with mid-sized branch networks may face profit pressure in their branch network operations since their per-branch performance appears to lag that of both smaller and larger institutions

Good piece of research that comes at it from a customer perspective, instead of the usual channel view in research.  Here is the executive summary, and its recommended for subscribers.

As a teaser, lets just say there is compelling evidence for the web channel within the customer buying experience.

Forrester Research: The Banking Channel Popularity Contest

EXECUTIVE SUMMARY Length: 18 pages We examined the channels that consumers prefer to use when they interact with banks, looking specifically at eight different banking activities.

Some key findings:

• The branch and the Web are the most popular channels for buying, the Web is the most popular for banking, and the branch is most popular for service interactions.
• When we looked closer at the preferences by generation, we also found that consumers under the age of 50 prefer to research a product on the Web, consumers of all ages prefer to open a new account in the branch, and consumers older than 40 prefer to view their account statements in the mail.
• Our analysis also uncovered differences across genders, such as the fact that males prefer using the Internet more than females do, and females prefer using the phone more than males do.