Survival of the fittest: can the role of the branch survive the digital revolution?
The past decade or so has seen some of themost disruptive changes to the UK's retail banking scene than, arguably, had been experienced in the entire century prior. Alongside reputational and confidence issues brought on by the global economic crisis, some of themost established retail banking units went from being trusted partners in UK households – guiding consumers through a variety of life-changing events – to transactional utilities where accessibility became the main attribute by which quality was measured, writes Simon Rose
The past decade or so has seen some of themost disruptive changes to the UK’s retail banking scene than, arguably, had been experienced in the entire century prior. Alongside reputational and confidence issues brought on by the global economic crisis, some of themost established retail banking units went from being trusted partners in UK households – guiding consumers through a variety of life-changing events – to transactional utilities where accessibility became the main attribute by which quality was measured, writes Simon Rose
Over the past few years, the ubiquity of digital channels and rapid adoption of the tools and gadgets which facilitate life online, caught many financial institutions off-guard and opened up the market to new players – the ‘challenger banks’. In the early 2000’s, the idea of a market for digitally-led banks – where life-changing transactions are carried out over a handheld device in a matter of clicks, rather than in face-to-face institutions with a bank advisor who might have known them since childhood – would have been an alienconcept to most consumers and indeed, many financial institutions.
Now, with increased publicity and confidence in challenger banks, along with further advances in technology, traditional branch banking models are under real threat. The difficulties in managing the economics of a network of bricks-and-mortar outlets have manifested themselves in a number of high profile branch closures and write-offs of investments in- and subsequent failures of- new technologies which never truly caught on.
However, a number of High St. banks are evolving with the times, transforming their traditional branch models to integrate functions which better suit today’s digital consumer: multi-function ATMs and self-service terminals, along with a more user-friendly and secure online platform. The question is: do these actions go far enough in securing a future for the more traditional players and the challenger banks? After all, do either have the right approach and ambition to move from evolution to revolution, to meet the challenge of a seismic behavioural change head-on, in the way consumers demand?
Challenger banks have in the main embarked on very different models. As face-to-face banking is an expensive model to roll out and grow, most have focused their efforts on digital and online platforms; offering not only the cost efficiencies to challenge established players, but also the convenience and quality needed to attract their customers.
Despite some nascent forays into a bricks-and-mortar presence by some of the larger supermarket chains, their serious investment and focus has largely been on extending and improving their digital presence and trying to catch up ground lost to the established High St. banks; most of whom haverecognised the shift in consumer behaviours and their banking requirements and are investing heavily in their digital capabilities.
So how should banks progress? Two broad models being considered are as follows:
- Traditional Model (Digital Evolution):with staff teller positions, utilising smart ATMs (encouraging their use to speed up service), educating their consumers on new technologies, products and services offered, and reacting to transactional consumers. The branches that remain will be focussed sales centres, seeking opportunities for deepening relationships and securing new ones.
- Non-Traditional Model (Digital Revolution): This model will have a more friendly community feel (e.g.a coffee shop orientation) and no teller positions. Staff are multi-skilled, assisting with any tasks and are service orientated, seeking to resolve the cause of issues, not the symptom. It’s a specialist guidance centre for their consumer base. This model will also spawn a new “hub and spoke” where a large city branch serves the sales needs of their community consumers through exploiting technological advances and video-conferencing solutions.
Currently, the majority of players have embarked on a ‘me too’ strategy of evolution. Consequently there’s very little differentiation between competitors and none have fully realised the potential of digital banking – both for the customer, and their own bottom-lines.
In order to thrive, rather than simply survive, a more radical approach is required which reflects the leaps in consumer transacting and buying behaviours enabled by advances in smartphone and tablet adoption. Now is the time to turn things on their head and become truly digital banks, supported by a tangible face-to-face and telephony presence. The opportunity, not only for a larger share of consumers’ digital wallets, but also their long-term loyalty, is there for progressively minded institutions to take the lead in revolutionising UK retail banking services.