Microsoft EFMA Report - Transforming Retail Banking to Reflect the New Ecomonic Environment (1)

A report by the EFMA Banking Advisory Council in partnership with Microsoft

Transforming Retail Banking to Reflect the New Economic Environment The changing face of retail banking in the 21st century

1Transforming Retail Banking to Reflect the New Economic Environment

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Retail Banking Advisory Council: Directors Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Recent Developments in Multi-Channel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Channel Innovation: Online Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Channel Innovation: Branch Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Other Channels and Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Customer Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

The Impact of Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Contents

2Anubrata BiswasHead of UK Retail and Private BankingICICI Bank

Antonio BraghHead of Direct ChannelsIntesa Sanpaolo

Markus BurretHead of Banking Centre InternationalAllianz

Sanjeeb ChaudhuriCEO Consumer and Commercial Banking Central and Eastern EuropeCiti

Enrico ContiHead of Change Management, Retail BankingBNP Paribas

Sven EggefalkHead of Sales and Development SEB

Dominique GarnierDirecteur Coordination CommercialeBPCE (Banque Populaires & Caisses dEpargne)

Carlo GiugovazHead of Multichannel Direct Bank Retail AreaUniCredit Group

Caspar van HaaftenBusiness Development DirectorAviva

Recep HakiRetail Sales Division HeadIsbank

Anne Kyhl HauskouAfdelingschef, PrivatafdelingenNykredit

Benny HigginsChief Executive OfficerTesco Bank

Hans van der HorstManaging Director Retail Branch Banking NetherlandsING

Graeme HughesDivisional Director Branch NetworkNationwide

Rainald KirchbergManaging Director Sales Network ManagementDeutsche Bank

Daniel KnollDirector, Retail and Business BankingBarclays

Bertrand de LachapelleManaging Director, Commercial and Marketing DivisionSocit Gnrale

Graham LindsayManaging Director, Customer ExperienceLloyds Banking Group

Paolo LombardiHead of Infinita Offering LineBanca Monte dei Paschi di Siena

Eric MackorHead of Channel DevelopmentABN Amro

Alexey MareyHead of Retail BusinessAlfa Bank Russia

Jorge Martnez-ArroyoDirector de Canales, rea de Particulares Divisin Banca ComercialSantander

Jaroslaw MastalerzHead of Retail BankingBRE Bank

Gkhan MendiRetail CEOFortis Turkey

Minos MoissisGeneral Manager, Retail Business UnitNational Bank of Greece

Chris MorsonDirector of Distribution Strategy & DevelopmentRBS

Eskil MyrmoSenior Vice President Head of E-Channels and Front SystemsDnB NOR

Joep PaemenBusiness Development Mobile Financial ServicesBNP Paribas Fortis

Narciso Perales DominiqueHead of Business DevelopmentBankinter

Steve ReidDirector, Retail BankingNational Australia Group Europe

Theo-Jan RenkemaSenior Vice President Retail BankingRabobank

Juan Carlos Reyes Garca-AdmezManaging Director Retail MarketingCaja Madrid

Giovanni RossiHead of Branch NetworkCheBanca!

Patrik RylanderHead of Corporate Online BankingSwedbank

Jacques SainctavitHead of Group Strategic AnalysisCrdit Agricole

Pedro de Sousa CardosoHead of Marketing and Electronic BankingBanco Best

Rui Manuel TeixeiraHead of the Marketing DepartmentMillennium bcp

Claes TellMarketing DirectorNordea Bank

Robert WagnerManaging Director, Head Advisory and SalesCredit Suisse

Carlos WanderleyRegional Head of PFS Latin America and Global Head of MultichannelHSBC Bank

Reto WanglerHead of Marketing and DistributionUBS

Efma and Microsoft would like to thank the following Retail Banking Advisory Council members for their participation in this report:

3Efma and Microsoft are pleased to present the fifth edition of the Retail Banking Advisory Council report. Since its formation by Efma and Microsoft in 2005, the Retail Banking Advisory Council has aimed to establish an industry blueprint for the future of retail banking delivery, particularly in the area of channel management. The Council, which consists of senior executives from major banks across Europe, plays a pivotal role in providing guidance and support for European banks.

Each year, the Council has focused on key topics including: the future of multi-channel delivery; the future role of the branch; and the use of customer intelligence in developing a new advisory model. Last year the Council discussions and report focused on innovation in multi-channel management.

With the current turmoil in the global economy, this report explores the issue of transforming retail banking to reflect the changing economic environment. There are three general areas on which the Council has focused this year, although many other related issues have been raised. Creating a new operating model. Most banks are involved in major initiatives to try and drive costs down. There are different approaches to this, which vary both within and between countries. In many instances, technology will

play an important role in reducing costs whilst maintaining efficiency and productivity

Creating a better online experience. Banks across Europe are trying to increase their ability to sell more products online. Many have made progress in driving online transactions but banks generally have been less successful than other industries

Transforming the retail network. A number of large banks already have major branch transformation programmes in place. However, some are increasing the number of branches in the network whilst others are closing branches. The Council therefore spent a significant amount of time debating the future role of the branch and the optimal level of coverage in a geography.

During the course of the year, the Council has met in closed session and identified many challenges facing European retail banks. These challenges and issues included: The pressing need for banks to regain customer trust and increase customer satisfaction levels

Banks that are seeking to develop their multi-channel capability want to know the most effective way of achieving this

Although there is concern about potential competition from new market entrants, this isnt seen as the main threat. Banks are more

Transforming Retail Banking to Reflect the New Economic Environment

Preface

4concerned about the pace at which they can change their own distribution approach with a view to maximising cost and sales efficiencies

A third of Council members believed they would have more branches (or physical points of presence) within the next few years

It isnt yet clear whether branches in the future will differ radically in size and format from the branches that exist today

There is a need to develop customers use of the online channel, and to provide them with more value from this channel

The different channels that are now available need to be integrated more effectively

Banks need to look at new ways of reducing the cost of serving customers; new migration strategies; and the possibility of lower cost channels.

The key issues covered in this report therefore include: The development of strong multi-channel strategies

The current strengths and weaknesses involved in online banking

The use of online marketing The future role, size and format of branches The role of technology in a changing environment.

It is with great pleasure that we publish this edition of the Retail Banking Advisory Council report. We trust its findings will help answer key questions and stimulate debate. Most of all, we want to provide a viewpoint that helps retail banks deal with the difficult operational and strategic issues they face in the post-crisis period.

Patrick Desmars Secretary GeneralEuropean financial marketing association

Tony Emerson EMEA Banking Industry Director Microsoft Corp.

5It has been my privilege to be involved as the Director and facilitator of the Efma Retail Banking Advisory Council since its inception five years ago. It has been interesting to see how the importance of multi-channel banking has evolved as financial services customers across Europe seek to use an increasing variety of channels to meet their banking needs.

Recent changesThe vision of most members of our Council is to provide their customers with a seamless, fully integrated and uniform experience across all channels. Many banks are still years away from achieving this. Of course, the severe impact of the economic crisis has hindered progress in this area.

Our recent Council discussions have shown that many banks have re-focused on the branch as the main method of controlling and maintaining customer relationships. This isnt easy when fewer customers are visiting branches, so there has also been a considerable emphasis on improving the online banking experience.

Banks now need to take much more care in ensuring that they sell the right products to their customers. Needs-based selling is having a radical effect on how banks operate. It requires better systems and processes not only for a clearer understanding of customer needs but also for implementing the appropriate solutions.

Along with continuing European legislation designed to ensure that customers get a better deal, we are likely to see the potential emergence of many new, customer-centric banks. These factors put banks under considerable pressure to provide higher levels of customer service and to ensure that there is more dialogue with customers through all channels.

Our Council members fully recognise the importance of getting the multi-channel

proposition right: continuing to run channels in silos is no longer an option. However, the key issues that weve debated in recent Council meetings have highlighted some difficult decisions that need to be taken in the next few years. These include:

Future customer relationships Banks must decide the extent to which these will be managed remotely rather than face-to-face. Some Council members have already demonstrated that its possible to develop excellent customer relationships with few (if any) face-to-face meetings. Unrelenting cost pressures will undoubtedly force more banks to develop relationships remotely, with only the most profitable customers being sure of having their own relationship manager. Banks will increasingly focus on matching the level of service provided with the profitability of the individual customer.

The future role of the branch Weve seen the re-emergence of the branch, largely because most banks have been unsuccessful in selling or building relationships through remote channels. In the short term, branches will continue to play an important role in customer acquisition and the sale of more complex products. However, with further technology developments, why should banks need large branch networks in the future?

The future role of the contact centre During our Council meetings, there has been relatively little discussion about contact centres. These seem to be the forgotten channel, yet they play a vital role in customer communication. Much needs to be done in terms of re-inventing their role. Some Council members are already leading the way by using this channel to maintain dialogue, build customer relationships and sell more complex products. Its difficult to do this in isolation from other channels. My vision is that we will see many more developments such as Bankinters Videocall service, where the telephone and Internet are

Retail Banking Advisory Council:Directors SummaryJohn Kirkbright, Director, Efma Retail Banking Advisory Council


6linked in a more integrated way. Why should I go to a branch if I can do everything through other channels? is the question that senior banking executives need to address in the next few years.

In conclusion, our Council members are already doing much to build a better multi-channel experience. Many customers are already seeing the impact of this in terms of more flexible and innovative developments in mobile banking and Internet offerings, which are linked more effectively to other channels.

So, what are likely to be the main developments over the next few years? Here are a few thoughts:

Channel changes Significant improvements in the online buying experience for all financial service products will make it much easier for customers to buy more complex products online

Branch formats are likely to change significantly, with many variations aimed at different types of customers in increasingly diverse locations. (One bank in South America already has a branch on a boat!) Overall, branch numbers will fall.

Technology Many banks have under-invested in the technology required for effective channel integration. However, many Council members agree on the need to focus on the more effective use of existing technology. This will be achieved through better staff training and greater customer education on the use of self-help technology

Banking services will become more personalised, through low-cost technology that can be used with all channels. This is already happening with ATMs, but the greatest scope is probably online

Technology will be used to provide a quicker and better service through all channels (e.g. to boost the speed of account opening).

Culture The many new entrants to banking will have a major impact on customer expectations of the service and products that financial services companies should be delivering. This will force many traditional banks to respond more rapidly than they would like

There will be significant changes in bank personnel and the training and skills required for each channel. This will involve major investment, but above all an attitude and culture change: for banks to become customer-centric, all staff will need to be fully engaged.

The customer experience Dialogue with customers will improve through the increasing use of social media channels, rather than the one-way communication methods of the past

Differences are likely to arise in the capability of different banks to provide an integrated customer experience, which customers and bank analysts/commentators will notice

Some large pan-European banks will establish a core set of customer values, delivered in a consistent way across different countries

There will be more effective ways of tracking and understanding customer needs and then implementing appropriate process and channel changes to meet changes in consumer behaviour in a cost-effective way. One example will be major improvements in customer complaint procedures and in the speed of resolution of complaints

The delivery of an integrated customer experience will meet the needs of increasingly different types of customers at the right cost. This will be the strategic battleground in the new economic environment.

This final point will be the main subject of our next round of Council meetings, which I am eagerly anticipating.

Retail Banking Advisory Council:Directors SummaryJohn Kirkbright, Director, Efma Retail Banking Advisory Council

7The difficult economic climate of the past two years has posed many challenges to the banking community. However, members of the Retail Banking Advisory Council continue to believe that a strong channel management capability and strategy is critical to the future success of retail banking.

Two of the main obstacles that need to be overcome are regulation and cost. Many Council members still find it difficult to create a viable business case for some of the investments needed to make a significant difference in channel management performance. These include changes in people, technology and processes.

There has been a continuing focus on enhancing the connectivity between channels and on increasing the effectiveness of multi-channel modes of operation. The highest priority for many members seems to lie in improving the connectivity between the physical branch and online channels. However, strengthening the links between branches and contact centres is also seen as important.

Full channel integration will still take a long time (perhaps five to ten years) for most banks to fully implement. However, large differences will emerge in the progress that each bank is making which will become increasingly noticeable to customers and the general public.

Improving the efficiency of different channels ultimately comes down to servicing demand and supply, and meeting the needs of the customer within a particular segment. Some customers are happy to go online to buy a particular product which services the demand raised by that particular customer.

However, the level of servicing in relation to the supply of online products has fallen. It may take another generation to build all the right kinds of systems and propositions needed. At the same time, customers needs are also changing.

Non-branch channels versus the branchFinancial institutions in Scandinavia originally led the way in terms of getting people to use non-branch channels. However, it appears that some of them now want to get people back into branches because they arent selling so successfully through online channels.

In contrast, one member whose bank has been developing its non-branch channels questioned the use of branches. Usage varies greatly: some customers never go to a branch, whereas others go every year, every month, every week or even every day. In Finland, the average bank customer only visits the branch once in every seven years!

So, for banks that have a direct online banking operation, what is the relevance of branches? Customers search for travel online, they search for tickets online and they search for banking online. As they are already so busy online, are banks taking advantage of that by opening branches? One bank no longer calls them branches: it regards them more as investment centres which are there primarily for branding purposes as they evolve from providing service to investment advice.

At last years meetings, the Council concluded that banks find it far easier to sell to people face-to-face: its much more difficult to do this online. If someone visits a doctor for the first time, he usually spends more time with that person than on subsequent visits because he wants to build the persons confidence in him. Similarly, the first visit to a branch sometimes helps to build confidence, so that in future the client might contact the bank through the direct channels.

It may be possible to achieve a similar experience online or via the telephone, but this depends upon the profile of the client. Many potential clients feel comfortable with just a phone call but that doesnt apply to everybody. The bank needs to understand which clients should be given the chance to communicate online or via the phone. However, cross-selling is always easier at the


Recent Developments in Multi-Channel Management

8branch and the vast majority of people would rather go to the branch for the first time rather than talk on the phone.

More affluent customers tend to be different. For instance, they could be served by financial advisers who effectively act as a mobile sales force and are independent from the branches. There needs to be a physical presence for those customers who are looking for private advice. They want to talk to someone and sometimes they dont want to do it over the phone or Internet; they want someone to visit them.

Each bank therefore needs to choose the kind of customer it wants to acquire and decide how to acquire them. This may involve having a whole range of models which can be adapted to different customers and markets.

There seemed to be a large consensus that for daily banking, the channel doesnt really matter. Most banks are now pushing a range of different channels, such as mobile banking, ATM and online banking. For help with this, they also need to focus on pre-sales and after-sales counselling.

WHAT THE COUNCIL SAID:

Weneedtostepbackandthinkwhatwearegoingtodowitheachchannelandhowtheyaregoingtocomplementeachother.

Youneedacleardefinitionbetweenthechannels.

Myissuesrelatetomulti-channelmanagement:settingupanewMBOsystemthatismuchmoreintegratedformanagingdifferentoperatorsbetweendifferentchannels.

Deliveringsomethingthatappearssimpletothecustomerisactuallyquitecomplicated!

Changing strategiesPerhaps the key to an effective approach is not the point of presence that is used, but how the bank strategically positions itself. Is it a selling machine from a service point of view, or does it focus more on the customer relationship? And if a bank focuses on customer relationships, does this mean that the customer has to be assigned to a relationship manager or portfolio manager? This could be someone who is in a physical location or it could be a remote advisor.

However, a remote relationship isnt always a popular approach. So, what is the limiting factor that stops people from buying more products and dealing with their bank more remotely? Is it that the whole process needs to be made easier, or is it more a matter of trust? People may need to see advisors face-to-face because unless there is a physical presence, they dont feel comfortable.

9Although its possible to have a relationship without having a branch for certain types of customers, this depends on the life cycle. For example, for first-time house buyers, the mortgage is a strategic product for the branch network. However, for mortgages based on transaction payments by mutual funds, the customer might be more likely to use the Internet although this depends partly on the age and maturity of the customer.

One Council member felt that there is an issue of trust: in the end, its good for a bank to have a presence somewhere within the local community. However, even this is likely to change over time, which will cause more people to move towards conducting their banking business online.

Although there has recently been an increased emphasis on the personal relationship in banking, there has also been an increasing focus on digital channels and sales outside branches. However, its difficult to track the value of sales from the different channels accurately and the influence of non-branch channels is therefore probably being underestimated.

Some banks acknowledge that they have too many branches and could probably serve their customers equally well with fewer. However, banks are in a position to help the customer to change their mind and to make things more cost-effective for them (from the customers point of view rather than the banks). Some Council members felt that overall, there has perhaps been a move away from a branch-based model to a multi-channel based model, although the situation varies considerably.

In the current climate, it may be much easier for new banks to adapt themselves to the changing economic situation than for those that already have a huge, established customer base. For these established banks, transformation isnt something that can happen in a year: it takes time.

Changing the channel mixPromotions can change the balance between channels. A promotion tends to work well on the Internet and increases interest in this channel. In contrast, for banks that prefer to use their branches

for customer acquisition, eliminating promotions can give an added advantage to the branch.

However, the balance also depends on the marketing mix, the pricing and the type of products being offered. All of these things can change the distribution mix.

Overall, a multi-channel approach can be a source of significant competitive advantage. If the rest of the variables stay the same, an integrated multi-channel approach is often the best strategy for a retail bank. Despite this, one member commented that although most banks are giving priority to multi-channels as the incremental returns are good, this doesnt necessarily mean that this approach is the best investment.

Banks must invest in the future environment, and portfolio management is an important aspect of this, with a need to assign all customers to portfolios not just the affluent ones. They also need to explore the optimum mix of the present service model in terms of the use of a relationship manager and the multi-channel approach. They particularly need to consider the optimum mix for their customers.

Customer choice and channel migrationThe Council felt that, in principle, customers should be given the choice of the type of channel and the type of communication they prefer. The information that can be gained from the various channels can then be used to formulate decisions about the type of campaigns that should be launched.

For instance, campaigns might be promoted via the branch, account office, tellers, call centres, SMS or e-mail. The channels used will also vary from country to country: one member said that his bank wasnt allowed to make any sales from Internet banking as everything has to be signed at the branch for legal purposes.

Ultimately, if a bank can measure the effectiveness of different channels, they can invest in those channels that are more successful in terms of acquisitions. But there is a need to better understand the relative strengths of each channel, and better track campaigns in those channels, before investing too heavily in any of them.


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One member questioned whether banks feel that they are really giving the customer freedom of choice across the different channels or are they actually directing them towards those channels that are most beneficial to the bank? In previous meetings, members had also talked about giving the customer more choice or more flexibility but in practice, most dont really have the means of providing this at the moment.

On the one hand, retail banks want to give their customers more choice; on the other hand, they have to balance this with their pricing models. For example, if a branch offers a physical transfer via the telephone, this will cost it money, whereas if this is carried out via the Internet, it is effectively free. So from a pricing point of view, a bank wants to direct its customers to use the channels that it regards as most cost-effective.

So should customers be allowed to use whatever channel they want to use? One bank differentiates according to the level of service required. If the customer needs a premium service, they have to go the branch.

Indeed, some customers still prefer to carry out all of their main activities through the branch. This can be very costly for the bank, so customers can often be enticed to use other channels (such as ATMs and the Internet) by offering discounts or loyalty points. The relative cost of a loyalty scheme can be kept very low.

For most banks, the level of individual customer profitability will determine the type of service each customer will receive. It is therefore important to have a deeper understanding of the relative profitability of different customers.

Channel migration is still considered very important by most Council members, particularly those with large branch networks. The main focus centres on getting mass market customers to migrate to less costly channels. Many member banks are using an increasing range of techniques to achieve this aim.

Some banks have been trying to define the tipping point, beyond which customers will

decide to use other channels. Ultimately, however, its a matter of willingness and culture at the moment, many people dont believe in the potential of new channels sufficiently to migrate.

Overall, therefore, the multi-channel approach is likely to stay but it will probably develop more in certain areas in relation to specific products or to different customer segments.


Weareseeinghowthecustomeracts:moreandmorethroughtheInternetandcallcentresandlesstrafficactivityinbranches.

Westartedtomeasurethejourneyofcustomers.Afteroneandahalfyears,wewereabletomovethemtootherchannelswithoutcausinganychurn.

Wehavecreatedsomenewrolesinthebranchesthathelpthecustomertolearnhowtousethechannelssoyoucanhelpthecustomertochangetheirmind.

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The Council recognises that investment in this channel over recent years has been relatively low compared to other sectors even when it is effectively the banks largest branch. However, Council members reported that they are now increasing investment in the online buying experience in a drive to accelerate sales and at the same time reduce the costs involved.

Online salesMost Council members feel strongly that banks need to carry out more sales online. The Internet provides a great way of acquiring new customers. While some Council members have been more successful with the online channel than others, there was general agreement that the online buying process needs to become less complex and easier to use. A number of financial institutions are therefore involved in major projects that focus on how to create a better online purchasing experience. However, the changes needed are very expensive and this is likely to slow down progress.

At the moment, there is often a restriction in the number of products that can be sold online. For those that cant be sold easily over the Internet, banks still need to use branches, call centres and branch advisors to complete the sale (although some Council members are more optimistic than others about the future for online sales).

For instance, members in some countries felt that selling a mortgage online is almost impossible due to legal constraints and the amount of paperwork involved. However, those in other countries found it easier and pointed out that even if the full sales process cant be completed online, mortgages can be promoted and initial application stages executed online, before being completed in person.

Products that can usually be sold successfully online include deposit accounts, credit accounts, mutual funds and stocks. One member commented that consumer credit is more difficult to sell online because internal processes are often designed to

be driven face-to-face via the branch (yet in Turkey they are able to accomplish this often through ATMs). However, the problem with deposit accounts and savings accounts is that there are no real margins more profitable products are needed.

Overall, Council members felt that, potentially, anything can be sold online but redesigning the processes to make this possible is very costly. Some products can easily be pulled, whereas others are designed to be pushed.

Banks also need to distinguish between online sales to existing customers and online sales to new customers. Some of the services available online today are more sophisticated than the customer could get in a branch two years ago. They will soon be able to obtain items online that they cant get in a branch. The reason that customers go online is often not cost, but control. They feel more in control because if they dont like something, they can just log out.

Its important to distinguish between the public (or open) side of a banks online presence and its secure (or closed) side. These are effectively two different channels. On the public side, banks are mainly dealing with new prospects. As mentioned previously, selling to a new customer is more difficult than selling to an existing customer.

One member said that any talk of selling a product should involve some level of advice. He thought that online sales are more like transactions than actual sales. Often people dont buy because they want a face-to-face experience. They want to see who is selling and what they are selling.

Its all a question of degree. Five years ago, people were saying that savings accounts could never be sold online. Theyve now changed their minds and have realised that its an evolutionary process. One bank has developed a programme to increase its online sales of simple products (including personal loans, accounts and insurance) to 50 per cent of its


Channel Innovation: Online Banking

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total sales by 2012. The bank doesnt include more complex products, such as mortgages, which are dealt with at the branches. Ultimately, this strategy of increasing online sales is likely to lead to an eventual reduction in the number of branches.

The investment side of banking is a much more difficult proposition online. Banks need to know more about the client before they can provide strong investment advice and there are certain levels of regulation that cant be circumvented.

The Council concluded that, ultimately, the issue is not about whether to use an online or an offline approach the key lies in how to mix them effectively. They also agreed that while there is a great future for online sales, at the moment things are moving slowly.


ManymorepeopleaccesstheInternetthaneverbeforeathomeandworkandyetwestillhaveproblemsinsellingandgettingpeoplehappywiththechannel.

Oneofthehardestthingsintermsoftheonlinebuyingexperienceismakingtheprocesseslesscomplex.

Takeitstepbystep:firstly,improvetheprocessesaroundtheproductsthatclientscansubscribetoeasily,puttingthepriorityonwhatthecustomerneeds.

Wehave25categoriesofneedsandfor15ofthese,itspossibletosellonline.Weneedtosimplifytheprocess,though.

EvencustomerswhocomefromthebranchusetheInternetalotofthetime.

Youneedtobuildtheinternalcapabilitiestosupporttheonlinebankingorganisation.

Online marketingApproximately half of consumers in Western Europe now bank online, and this figure is continuing to increase. In some banks, it has reached 60 per cent or even 80 per cent. Its not just that there are more Internet users: those that are there are also using it more often once they become familiar with it. If they make a purchase on the Internet, they can give a rating that helps other customers to make a decision, which will influence the future purchase of financial products.

In tandem with this, there are now new tools and concepts for developing and managing online marketing. One example is social influence marketing, which measures the effect of various actions by a business and also the consumer perception of its brand. Another important influence is how often the brand is mentioned whether the comments are positive, negative or neutral.

Another increasingly important area is the use of social networks. There is little doubt that banks need to develop a better understanding of social and other online media and a presence on these sites. This can be a risky strategy at first, but it's a matter of timing: they need to know when to start exploring a specific method and how to develop a positive presence there.

There was a discussion about whether financial institutions should take the trouble to track what is happening in terms of their brand on social websites. Most of those who do so carry out manual searches rather than using spiders. However, because the data grows so rapidly, its almost impossible to do this successfully for long. Some banks already host social websites on their sites. For many companies that sell consumer products, this is how they see the future of their marketing strategy.

New approaches such as the increasing use of video, TV and digital marketing are also becoming

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more common, along with various applications that help to build the banks brand. Integrated campaigns are much more efficient and viral marketing is very effective. So, there are a lot of options but banks need to decide which ones should be given priority. Some banks use both traditional and modern approaches but they often fail to coordinate these properly.

Different online marketing methods are required for different purposes for example, online banners are good for raising awareness, whereas social networks may be better for customer retention. Videos are useful for explaining the benefits of a simple product, whereas more complex solutions may need a different approach.

There is a need to constantly measure the effectiveness of these different approaches, and then to learn and improve. For instance, how many new clients arrive through banners, telephone, word-of-mouth etc? Where do they go from there? A good grasp of the underlying trends and issues might require an analysis of customer behaviour; a clearer understanding of the different channels used by customers; and a view of the different profiles of the users. Banks

should be ready to experiment with innovations such as new media and behavioural targeting.

The consumer products sector is leading the use of different online marketing approaches. These companies often don't sell products online, but benefit from links with the products. In the financial services sector, some firms have deeply invested in this type of marketing but arent yet getting the full results. The questions for anyone embarking on this course are: how do you reach more customers; how do you retain them once youve reached them; and then how do you monetise the relationship (cross-sell) to those you retained? Everyone wants Internet customers, but there is still a need to understand how to capture them, and how to build the brand.

In the insurance industry, the vast majority of the marketing budget is still usually spent on traditional media but more is now increasingly being spent on new media as well. Some insurance and bancassurance companies deliberately avoid online comparison sites, as this approach isnt always regarded as being the most honest and devalues the services relationship in favour of price.


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However, the success of an online operation doesnt just depend upon the level of marketing used. Some of the key potential barriers to success include the quality of services provided, and compliance with all of the legal aspects of online sales. Banks therefore need to be aware of the various regulations that are currently in operation. They also need to know how these are likely to change in the future, and they should be ready to respond to any change.

Other uses of online bankingThe Internet may not always be a successful channel for direct sales but it can be very successful for transactions. There are also a lot of opportunities to cross-sell online with consumer finance, insurance etc.

For some financial institutions, the Internet is used more as a tool for making a brand statement, rather than for customer acquisition and business. It also plays an important role in building the relationship with the customer in terms of information gathering. For these organisations, its not the best channel for obtaining new clients its more about providing convenient services.

Although there are many opportunities in the Internet, there are also some threats to the organisation. Its important not to separate it from other channels and start treating customers differently; to remember that the customer is still the banks customer.

Limitations of online bankingRegulations continue to act as a constraint that can affect the viability of the online sales of financial services products, although there are considerable regional variations in regulations across Europe. One of the largest limitations comes from regulators demands for a customers physical signature.

In Scandinavia, the use of identification cards has made it far easier to sell deposit products online than it has in other areas. In contrast, banks in Greece have reported some difficulties in making progress in online sales due to stringent regulations and banks in Portugal face new regulations almost every month.

The process used can also limit the success of an online venture. Developing and transforming online processes is a very expensive business. It needs to be taken one step at a time. Initially, banks need to focus on improving the processes relating to products that are easy for clients to subscribe to (for example, different types of debit cards).

Most banks develop their online facilities by putting an extra layer on top of their existing processes. If a layer is then added for mobile processes as well, the operation becomes even more complicated!

Overall, there is a need to understand what the customer is doing on the website before an online product is proposed. Sometimes its a case of using trial and error in order to develop a clearer understanding of the customers activities. If a bank could generate, say, 20 per cent of its sales online, this would provide the funds needed to change the processes.

Another potential limitation is the need to address customer concerns online. However, because customers are managed by financial advisors as well, they can usually send a message to the website or meet their financial advisor if they have a concern.

Lessons from the retail sectorCouncil members referenced Amazon as an example of a company that sells very effectively online. Banks could possibly learn some valuable lessons from the retailer. Fulfilment is a major issue for the financial sector. Amazon has a huge customer base from which it can gain information about customer behaviour and it is constantly innovating. It gains trust from the recommendations made by other customers.

The risk management model is also different for Amazon. The company is willing to risk a certain amount of fraud, so the payments are not as secure as they would be for a bank. Perhaps banks need to go back to the days of cooperative banking and use social network techniques to make sure that the products they sell are more appropriate. This could go a long way beyond the collaborative filtering found on Amazon.

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Some of the current issues facing banks include: the tension between a perceived need for branches and the slowdown of new branch openings; the signs of major growth in sales in non-branch channels, and; major costs being taken out of distribution.

In the past, banks emphasised the need for a personal banking approach. Although this emphasis has returned to some extent, there is also an increasing focus on digital channels and sales outside branches. When asked if there will be less reliance on branches in the future, one bank said that it now starts engaging new customers on the Internet first. However, another disagreed with this approach on the basis that if the customer comes to the bank through the Internet, there is no cross-fertilisation in the acquisition process.

There was a feeling that customer behaviour has changed as a result of the economic climate. One member felt that it would be useful to know more about opportunities for monitoring consumer behaviour, as this links perfectly with the topics of digital marketing tools and monitoring platforms.

The size of the branch networkNone of the Council members felt they needed to make significant reductions in their physical branch networks in the immediate future. Indeed, some banks are continuing to make a significant investment in new branches. However, opening branches can be very expensive which can cause conflict at a time when banks are seeking to reduce costs. Despite this, one member queried if this really was a high cost model, compared with a bank conducting most of its activities remotely online. In terms of the business case, its a matter of balancing costs and revenues. Ultimately, banks have learnt that the branch approach can work and can generate a profit.

Some banks have been opening branches primarily to attract new business deposits. There

was a feeling among some Council members that branches are more effective for attracting customers than for managing them. One bank that had very few branches found that it needed a physical point of presence for providing help and advice to its customers. One possibility it was exploring was the use of satellite branches.

The overall picture in relation to branches varies considerably from country to country. For instance, in Belgium and Spain the overall number of branches is decreasing. In contrast, some banks in Italy, Portugal and France are opening new branches. In some countries, the new branches are very small, with a maximum of six employees, and they only service the retail sector. Meanwhile, one bank in the UK closed 120 branches without losing customers, as it communicated other alternative channels well in advance.

Many members made the point that for a bank to compete effectively, there is a critical number of branches needed within a specific region. Once this optimum number has been reached, banks can consider closing branches. If the optimum hasnt been reached, the bank will benefit from increasing the number of branches.

But what is the magical optimum number for branches? It will obviously vary tremendously, due to different banking philosophies and different situations in different countries. On a greenfield basis, the branch has a brand impact on the product. At a local level, a certain minimum density of branches is essential for creating brand impact and trust.

Some banks naturally need fewer branches. For instance, the population of the Netherlands is much more Internet-orientated with people not being as reliant on the branch. Meanwhile, other banks place a priority on increasing their coverage and are intent on buying new branches to raise their market share. Yet again, others will have overlaps in their branches due


Channel Innovation: The Branch Network

16

to mergers and may need to close some. The optimal size of coverage for the branch network will vary from country to country. It will depend upon the number of branches needed in that country or region in order for the bank to be able to operate effectively. There are very different opinions about the magic numbers involved.

One member said that the reason why some banks are still opening a lot of branches was because 8090 per cent of a banks relationships with its customers are developed from face-to-face meetings. He said that his bank hadnt had much success in forming relationships through other channels. It saw other channels as being useful for cross-selling, servicing and retention. However, in terms of new acquisition a physical presence is needed (although it can take many different shapes and the associated costs can vary considerably). Because this bank believes it is important to have a minimum physical presence, it has opened nearly 2,000 branches over the last two years and has followed a strategy of concentrating branches in key locations to win back important regions.

Another Council member reported that their bank had also invested significantly in branches. In the Nordic countries where the bank operates, there are a lot of Internet customers, but banks need to take sales to the next level. The online experience needs to be complimented with personal advice.

One member stated that to make a branch worthwhile, it would need 15,000 customers. Several others thought that this figure was too high. However, the average figure from Council members was approximately 3,000 customers. One suggestion for a possible transition route from the past to the future would be to adopt a franchise or agency approach. A few banks are already starting to follow this route.


Branchesremainthedriverforattractingnewcustomers.

Someconsultantsarepredictingthatlargebankswillhavetocuttheirnetworksby20to30percentinthenextfiveyears.

Ittakes20monthsormoreforanewbranchtobecomeprofitable.Itmayneedtobeevenquicker.

Weretransformingthebranchfromtransactionaltorelational.

Thechangeofformatofthebranchisimportant:peoplehavedifferentvisions.Whatkinddoyouneed,ifyouaretryingtodrivemoresalesthroughthebranch?

The role of the branchCouncil members remarked that in the aftermath of the financial crisis, it is essential that there should be a closer exploration of the potential future role of the branch, and where it should be located. The questions that need to be asked include: What is the ideal coverage of the branch? and What is the right format? At the heart of all these discussions, there should be the key question: What can we do to serve the customer better?

One contributor mentioned that because margins have been falling, banks either need to grow or to cut their costs. Any new branches really need to be profitable within 18 months.

But if branches are still going to be used, how can banks reduce the cost of this channel or make it more efficient? One way is to transform the role of the branch so that it no longer primarily has a transactional role but becomes more relationship-orientated. If this happens, the role of the branch manager is also likely to change.

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At the moment, the branch is still the primary way of acquiring quality customers. But in light of the new economic environment, what have been the biggest changes? In many areas, there has been a strengthening of resolve in terms of investing in the branch. Banks are also pursuing the issue of migration to other channels and the need to improve the online buying experience and the support tools available whether for online marketing or for CRM etc.

One innovation that was mentioned was the possibility of piloting branches in areas where customers congregate or where there is a captive audience such as on a long distance train. This is the same principle as having a mobile branch.

The members then discussed the role of the branch in relation to different processes. One bank has a map of all the main processes it wants to achieve with all of its clients, which shows how the propositions are split between the different channels. However, most banks dont really think this subject through thoroughly. They perhaps need to step back and think about what they are going to do with each channel and how the channels are going to complement each other.

One belief is that the branch is relevant for certain advice-driven transactions, because the customer wants to have a face-to-face meeting with the adviser when making investments.

Another important reason for having branches is for convenience: they are also valuable for acquiring and retaining customers. There was a feeling that one advantage of customers visiting a branch is that cross-selling is much easier there, but finding the right balance is difficult.

A further key area is the selling experience: this is where a branch definitely helps. The customer may be a regular online user but can still go into a branch and see someone and be out in half an hour without the trouble of spending a lot of time online finding and selling, dealing, downloading etc.

Its in the banks interest to get the customer into the branch so that it can sell to them. However, this approach isnt a customer-driven model

because the customer isnt being given the freedom of choice to decide which channel they want to use and the way they want to use it. The bank is directing the customer down a particular path that suits it best.

Many banks still see branches as being at the core of the relationship with the customer. The branch owns the customer and the profitability of the customer is attached to the branch. One Council member commented that banks need both a touch portal and a technical portal. The branches represent the touch portal. Although there may not be a need for so many branches in the future, there will still be a need for the right number of branches.

The true issue is: what kind of branches will be needed in the future? Even now, some branches are only manned by one or two people. One suggestion was that a minimum number of branches is needed if a bank wants to have a visible brand. Other members disagreed: one said that all of his banks customers are now online and that the bank cant really take full advantage of this fact if it is busy opening new branches. The bank only keeps a few branches open, primarily for brand awareness and advice: transactions arent carried out there.

The Council felt that arguably, the key underlying issue isnt actually about whether a bank should have branches or about its ability to sell via the Internet its about whether the bank is customer-centric or not.

One member asked about the role of agents and intermediaries, and whether this would reduce the need for branches. However, it was felt that this is unlikely: the agent complements the role of the branch by building a personal relationship with the customer, which is used to sell banking products. As far as the agent is concerned, there is a need to improve loyalty. If the customer is using a current account with the bank, it will be more difficult for them to move accounts.

Overall, there doesnt seem to have been a massive move towards agents opening accounts. The focus has returned more to the branch relationship. There is a need to persuade agents to do something

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different: to sell banking products. The sales process for insurance products is totally different from bank products. The agent tells the client that its a good product and the client signs the deal because the product is complicated and they trust the agent. Banking involves much more of an advisory process.

Banks also need to explore how the future role of the branch will change in terms of its relationship with the other channels. A lot of transactions will be transferred to different channels. Banks need to consider whether the role of the branch will become more advisory; and they need to explore the types of services that will enhance the customer experience. What can banks do that is special for customers? And if branches adopt a more advisory role, how does that change their coverage requirements?

Perhaps the starting point of any banks strategy should be to decide what sort of bank it wants to be. For instance, it might want to be a relationship bank in which the personal interaction between the bank and its customers is the main priority. This relationship might be with the institution or with the portfolio manager or relationship manager. The latter probably has the most value and helps to tie most people to the bank and grows the business. Ultimately, this relationship will be determined by what type of person the customer is; how much help they need; and whether they need that help by phone or a physical meeting. The bank needs to be there as a support mechanism rather than just leaving customers to do everything on their own.


Branchesarerelevantforcertaintypesoftransactionsandforadvice,butotheractivitiescanbeperformedelsewhere.Willtheroleofthebranchchangeandwhyarepeoplestillopeningbrancheswhenitssoimportanttohaveanonlinebankingexperience?

Thecustomerbelongstothewholebank,nottoaspecificbranch.Thebranchisnotaprofitcentre.

Branch personnelA key element of branch performance depends on the development and motivation of the senior management and their staff. Important issues that must be tackled range from training and incentives through to recruitment. In terms of incentives, one bank rewards each person in the chain of the sale whereas most banks reward the person who makes a sale rather than the group. Other banks provide all the rewards to the branch.

There is also the more philosophical question of how branch staff can be managed using different performance management models. One change that is needed to improve banking and to prepare branches for their future role involves a greater customer orientation by not just investing in the bank, but in people.

There is also an opportunity to create a new experience in banking by making the branch much more attractive. Staff need to be trained more comprehensively to give enhanced levels of service. They also need to develop a new mindset. They must learn to talk to new customers in a friendly way, attracting their interest and asking them if they need help. Basically, they need to adopt a similar approach to that of staff in a retail store. Indeed some Council members have recruited people from other sectors or industries. One member said that branch managers tend to be experienced bankers, whereas the service managers tend to comes from the hotel or hospitality industry. In Italy, some branch managers are recruited from telecoms companies.

Customers often welcome a more informal approach in which they can enter into a dialogue with the bank. Innovative technology can also help to ease the interaction with the customer. If the customer is more at ease in the bank, they are more likely to remain loyal.

At the operational level, one issue that needs to be addressed is the management of the branch sales team. How can sales people be motivated and incentivised? Banks need to explore the development of a sales plan, the best ways of putting a sales team within a branch, measuring their performance, and the role of the branch manager.

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In most markets, compliance requirements (particularly when servicing the more affluent customer base) mean that employees need either a lot of training or a lot of experience in order to take on the appropriate level of responsibility.

Age can be another factor. In some European countries, the average client is getting older. This raised the question of whether banks should be seeking to keep their more mature tellers. This in turn prompted a debate centring on the issue of whether older clients really need an older teller.

Meanwhile, Internet penetration is increasing for older customers (over 65 years old). With older people tending to use the branch more often than younger customers, this has led to the introduction of programmes to educate them on using the online channel. This even extends to sending ambassadors to visit older customers in their homes to conduct Internet banking workshops.

Customer experienceOne branch has instigated a new approach by showing its staff how they should handle customers. Employees are trained to look at the branch as a place where customers are welcomed. To formalise this approach, it has produced a checklist, covering issues that range from the interaction between the switchboard and the customer through to how employees manage the expectations of the customer after they leave the branch. The bank is also monitoring how customers perceive the service they receive in branches.

Part of this approach involved an exploration of competitors, including a comparison of retail outlets and the bank. Aspects that were covered included the knowledge of the staff and the accessibility of the retail store. These factors were then compared with the branchs approach. The concept was successfully received and was copied to the banks branch managers.

As a follow-up to assess the effectiveness of this approach, the bank carries out mystery shopping and holds customer surveys four times a year. This gives it very direct feedback on how the bank is perceived by the customers.

Another bank has been experimenting successfully with instant feedback at the branches as customers leave. This has been very useful, as the bank was able to feed the input back into the branch very quickly. Another approach is to have a portal that allows the manager to see customer views online in real time.

One member said that he saw the role of the branch as not just being about acquisition, but also about acting on moments of truth. There could typically be six or seven key moments of truth when dealing with customers such as the point of acquisition, a complaint, taking out a mortgage or saving money. Even very basic processes can be moments of truth as far as the customer is concerned such as the ability of the bank to open a new account within a short period of time (perhaps as little as 15 minutes).

One UK bank has recently published a charter in which they have made a public commitment to customers, covering a list of 14 key issues (such as limiting the time that customers have to wait in queues). This degree of commitment is important to customers the charter itself was based on customer feedback.

Although one or two Council members doubted whether the bank would be able to meet all of these commitments, this approach highlighted the important question of how banks measure and manage the customer experience.

Branch profitabilityUnsurprisingly Council members were concerned about the profitability of the branch network. One approach is to explore how technology can help to increase the level of income received from customers.

This is an important issue. When discussing the branch network, banks tend to talk about decreasing costs which, indeed, is necessary in the short term. However, in the medium to long term, they need to look at increasing the income from customers. This may come from the development of other products and services, or from different pricing combinations. Technology can also help to stimulate sales and increase profitability.

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Banks also need a physical presence if they intend to target the mass affluent markets. Although most members agreed that branches are very expensive, they still recognised that most relationships with customers related to high value products are conducted on a face-to-face basis. To make these more cost-effective, they should be focused on the more profitable customers.

Trust The world of financial advice continues to become increasingly complex. Consequently, customers either have to be very skilled and secure in their own knowledge and abilities or they need to be able to fully trust advice provided by their bank.

What is the relationship between trust and confidence and the development of new channels? Do banks feel comfortable about moving increasingly towards a more online route?

When banks were closing branches four or five years ago, this was often carried out without any real analysis of the situation. It was based purely on efficiency. If two branches were fairly close to each other and therefore customers were less likely to react negatively to a closure, such a closure would go ahead. However, this didnt address the underlying issues. Banks always need to remember the importance of the customer relationship, which is based on trust.

Trust is still a dominant issue for many financial institutions, particularly in the current economic climate. There is a pressing need to work out how to regain customer trust where it has been lost. This is one reason why the branch is often essential because many different discussions take place with customers at face-to-face branch meetings, where they can feed back their concerns and desires. The Council agreed that in the majority of cases this needs to take place in the branch because a one-to-one relationship is essential.

From the customers point of view, the issue of trust is one of the most important factors in their relationship with a bank, along with a greater focus on convenience. Banks are now going back to basics and part of this means a reliance on their relationship managers.

The role of relationship managersThe type of relationship that develops between a relationship manager and their client will vary according to the customer. Any customer wants to have a focal point. Some will prefer a face-to-face meeting whilst others might be happy with a more remote approach.

Council members were asked what percentage of their customers have relationship managers. One bank gave a figure of 25 per cent, and said that a video call can be used to communicate directly with the relationship manager or the call centre. Since introducing this system, the bank has had 80,000 calls but still sees this as being just one point of contact with the customer.

The criteria for having a relationship manager again vary from bank to bank: one cited an account balance of 50,000 as being the lower limit. However, it shouldnt just be about the money a customer has, but also their future potential.

The percentage of time an adviser spends in meeting customers at their home or business (rather than the branch) also varies. On the business side it tends to be high, but on the consumer side it is typically less than 10 per cent. Customers don't always want a banker in their home and bankers prefer appointments in the branch. So the branch still tends to be the key place where many sales are completed.

The Council agreed that the customer has to feel that they are dealing with just one organisation. Therefore banks should place more reliance in the judgment of their relationship managers, as they are the people best placed to really know the customer.


Everytimeyoumeetacustomer,youshouldusethismomentasasellingmoment.

Therealwaytoincreasesalesisword-of-mouth.Itswhereyoumakethedifference.

Ithinkthemostimportantthingfromthecustomerspointofviewistoregaintheirtrustandfocusonconvenience.

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Contact centresCouncil members agreed that the difficulty facing banks lies in how to establish a relationship between its remote customers and contact centre staff. This isnt just an issue of technology its an issue of organisation.

One bank uses localised call centres rather than the centralised ones adopted by most financial institutions, even though the localised centre is a more expensive option. The aim is to give a more personal service. However, as bank staff alternate between the branch and the call centre its proved difficult to keep track of which staff member has completed a sale.

One member asked if call centres are a neglected area of a multi-channel strategy. The focus seems to be more on branches, online banking and mobile banking. Call centres sometimes receive bad press, including a lot of customer criticism about the use of interactive voice response telephony.

Another Council member said that in his bank, contact centres are taking over the role of staff in the branch, with many employees moving physically to the call centre. Currently, there can be an issue with transferring staff between different channels, although in the future, there will have to be more flexibility in this area. This led to the question of whether contact centres will have a much stronger role in relationship management in the future. This could be partly driven by cost as call centres traditionally drive customers through in the most efficient way and at the lowest cost.

Over the next two years or so, the main change in contact centres is likely to involve integration with the Web. For example, when customers visit the banks website, they will be asked if they want to be contacted by the call centre (either via immediate text chat, audio conferencing or video).

MobileTodays mobile technologies provide a wide range of new opportunities for banks to improve sales

productivity while offering customers greater convenience. Council members believe that extending basic banking functions and services to customers via mobile devices can deliver a wide range of new sales and services scenarios.

One of the key changes over the first half of 2010 was an increasing focus on mobile services (including mobile payments from person to person or from person to business) and more advanced banking services. Some online services


Other Channels and Strategies

22

have now been transferred to mobile applications. Various banks are now pressing for more services (such as small purchases) to be adapted for the mobile market. This change is being driven by

both the customer and the product development arms of banks.

In Russia, marketing campaigns are changing and younger employees are joining banks. One bank is therefore focusing increasingly on mobile and Internet banking, with a quarter of its customers using the Internet even though Russia doesnt have such a strong dependence on the Internet as Western Europe.

The bank has had a huge increase in new customers in the consumer finance sector and is trying to provide them with basic Internet access. To manage its multi-channel approach, the bank has special departments for Internet banking, consumer finance etc.

Integrated communicationsAnother option is video conferencing. There is some evidence that customers are better at keeping appointments for an online video conference than at turning up in person. Several Council members are piloting this approach.

One bank has integrated communications with their ATMs, so if there's a problem with the ATM, the customer presses a button and an advisor answers. They can usually see the customer, as most ATMs have cameras. One or two other financial institutions have also tried this but have found problems with queues developing and with issues relating to insufficient light.

The Council agreed that video conferencing would be most effective when targeted at specific clients, products and services. The products in question would need to be very profitable and video conferencing solutions need to be linked to all channels in case the client wants to change products.

Overthenexttwoyearsorso,themainchangeincontactcentresislikelytoinvolveintegrationwiththeWeb

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Customer acquisition and the strategic approaches used by Council members have changed significantly during the current economic climate. If the bank is already well established, it faces a choice of how to balance the mix of growing through the acquisition of new clients or increasing share of wallet from existing customers. The majority of Council members are focusing on the latter option which they believe has the added benefit of increasing customer satisfaction.

The cost of customer acquisition is critical, but tends to vary considerably among Council members. The issues revolve around how to get the most out of expenditure on acquisition and how to do this in the most effective way. One Council member said that their bank tried to cherry pick the best customers by combining advertising and digital marketing strategies with opportunities to meet the customers needs. The Council agreed that the underlying key to reducing acquisition costs is having the right mix of products, prices and communications. This is more important than concentrating on distribution alone. Banks need to design products that the customer needs, at the best possible price. If this is communicated in the best way, it will keep the distribution costs down.

Some financial institutions may opt for a multi-channel approach to developing a lower cost base. They can then push this to their customers, who start to buy more through the Internet. In a way, this is effectively a commodity banking approach, with simple products that are competitively priced. However, while some banking activities can be based on price, others can't.

The Council agreed that, if price is used as a primary differentiator, this can cause issues when using promotions designed to attract new customers. Price discrimination techniques can pose problems when dealing with the rest of the existing customer base. Loyal customers want better conditions than new customers and are likely to be unhappy if they see new customers being offered better deals.

So, what sort of prospective customers should a bank be targeting? The Pareto principle suggests

that 20 per cent of customers account for 80 per cent of a banks business. However, that 20 per cent changes over time: and to maintain a reasonable level of profitable customers, the bank still has to keep serving the other 80 per cent.

Looking at the different market segments, banks need to have different products and services for low and high margin customers. But its difficult to know where to draw the line and whether to have complete segmentation of the different groups. It is also becoming increasingly difficult to determine which customers are likely to be profitable and which wont which impacts acquisition and cross-selling capabilities.

The Council also debated the case for focusing on the key points in someones life: such as leaving home, the first job, moving house etc. However, in some cases, this doesnt always create a clear advantage for instance, banks may go out of their way to attract students but then they leave university and possibly switch bank as well. Also, banks that target specific age groups need to consider the changing requirements of their customers as they move through life stages which obviously has a significant impact on growth opportunities.

A Council member commented that in the past year or so, acquisition costs have been higher than ever before and that acquisition has become more difficult as many people are scared of changing banks in the current economic climate. While the branch is seen as a dominant way to acquire and build relationships with customers in many countries across Europe, the main difference from the past is that it cannot do this in isolation but needs interconnectivity with other channels to achieve the ideal customer relationship model.


Digitalmarketingtoolswillhelpustoacquirecustomersmoreeffectively.

Thecrisisweareexperiencingismakingitmoredifficulttoacquirecustomers.


Customer Acquisition

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The Impact of Technology

The Retail Banking Advisory Council agreed that technology is a major enabler in transforming retail banking to reflect the new economic environment, but believes the industry needs to better leverage existing investments in IT. At the same time, the proliferation of new channels has created major challenges. Council members agreed they must adapt quickly to survive and recognised the need for a new customer relationship model. With transactions and customer information generated across multiple touch points, the reliance on siloed processes and technology reduces sales productivity and leads to an inconsistent customer experience. The heart of the issue is disparate, disconnected systems that have made it extremely complex to integrate customer and transactional information.

Most banks have data silos wrapped by business processes which limit the economic potential of the business. For decades the industry has focused on lowering the cost per transaction but to be competitive in todays economy, banks need to move from a transaction centric to a customer centric architecture and business model. The key to growth is unlocking the power of data in a way that differentiates the customer experience through delivering world class customer service, and innovative products and services.

The following technology trends were identified by the Council as having the greatest impact on the industry over the coming years: Cloud computing Leveraging existing IT investments, reducing costs, delivering innovative new products and services

Digital marketing Using adaptive online and mobile technologies to more appropriately target customers for new services and products

Business intelligence Driving business value from data and managing enterprise risk

Social networking and communities Enhancing and protecting customer loyalty

Ubiquitous high availability High availability and low latency is now expected everywhere.

Technologies to support transformationThe following technologies were identified by the Council as key to supporting retail banking in the shift from a transaction centric business model to a customer centric model:

Fordecadestheindustryhasfocusedonloweringthecostpertransactionbuttobecompetitiveintodayseconomy,banksneedtomovefromatransactioncentrictoacustomercentricarchitectureandbusinessmodel

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Cloud computing The way people consume technology is changing. Banks are looking to the cloud, both public and private, to help them leverage existing IT investments, reduce costs and create new business opportunities. In the financial services industry the cloud provides a platform to eliminate the need for large scale capital investments and drive innovative new products and services. Most modern applications have been created on a services oriented architecture (see next paragraph) to allow them to take advantage of and be available in the cloud.

Services oriented architectureWithout a foundation to build loosely coupled services, banks IT infrastructures are required to communicate with other services in very specific ways via each individual channel. This creates a costly complex infrastructure with multiple silos of information that are difficult to maintain and adapt. Banks are implementing a services oriented architecture to integrate disparate channels and create an agile infrastructure where back end systems can be exposed to new services and channels as they emerge or evolve.

Business intelligenceBanks require business intelligence solutions to integrate and analyse their customer data and report on that information to make better informed decisions. This will enable banks to measure and learn from customer behaviour for product development and marketing purposes as well as performance management. Banks want to access this business intelligence using a familiar and easy to use interface. Customer relationship managementCRM backed by strong business intelligence is critical to better serve the customer and support growth opportunities. CRM solutions should be fully integrated with the day-to-day work environment of front line staff and make it easy to translate customer insight and centralised marketing campaigns into successful customer interactions. Many existing systems are viewed as difficult to use with a high learning curve.

Ultimately systems should have a familiar user interface and be designed to work the way front line staff are used to working.

Unified communicationsA significant factor in building lasting customer relationships is the ability to communicate with customers in the way they prefer and in a way that is most appropriate to the stage of the sales cycle. This means the whole range of communication capabilities, including e-mail, telephone, SMS text, instant messaging and video conferencing, should be integrated and made available to front line staff. This will also have a significant impact on real-time collaboration between advisors and product specialists or legal expertise within the bank required to complete a proposal or customer analysis.

MobilityIncreasingly, we can expect customer contact to take place outside the branch in locations such as the workplace or at the customers home. In this context, mobile technologies will be an essential tool for advisory staff who operate remotely and need full access to customer and product information in a secure and protected manner.

Remote advice Shared access to specialist advisors is increasingly important, given the ever-greater complexity of products being sold through branches, not to mention the greater use of collaboration across multiple channels to expedite sales and ensure efficient fulfillment. It is not economically feasible to maintain the necessary level of expertise at each branch and in each channel. As a result banks are increasingly looking to technologies that give customers access to remote advisors, complementing the essential face-to-face contact in the branch.

Virtual call centre New telephony standards and technology make it possible to construct virtual call centres which allow people in the branch to become call centre agents during certain periods of the day or when a complex customer interaction requires this capability.


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Retail banks face many challenges over the coming years. There is the continuing question of where they should be concentrating their efforts and budget. Should they be investing in the development of online banking and other non-branch channels (such as mobile)? Or should they be putting faith in new branches and greater coverage? Or should they pursue both routes?

The answer will vary from bank to bank and from country to country. Financial institutions have recognised the need to focus more on the customer experience. However, this has to be balanced by the need to control costs more carefully.

Not every bank is pursuing a cost-cutting route, some are focusing on the alternative increasing their income. This isnt easy but it is possible, with the right approach and the right products.

Overall, there are signs of a continuing and major growth in the development and use of non-branch channels but so far, this hasnt meant that banks have lost faith with branches. In fact, in many cases, quite the opposite is true. There is some evidence of a strengthening of determination to invest in branches.

Despite this trend, branches may start disappearing in the future as other channels increase in popularity but they will still have a valuable role to play as part of a complete multi-channel strategy. They perhaps (like the banks themselves) need to be transformed so that they can play that role more efficiently. Their success will be measured by the quality of customers they attract; their overall profitability; and by the transfer of knowledge that can be used throughout the network.

The key development recently has been the growth of online banking. This now needs to be matched by improvements in the online buying experience. More and better support tools are also needed whether for online marketing, CRM or other purposes. These in turn can help to capture more information: the lifeblood of any growing business.

So, although the future is still uncertain, banks are already learning how they can respond to the economic environment ahead. As last years report mentioned, there are still many challenges ahead but with the right attitude, the right resources and the right strategies, these can be turned into opportunities.

Conclusions

Branchesmaystartdisappearinginthefutureasotherchannelsincreaseinpopularitybuttheywillstillhaveavaluableroletoplayaspartofacompletemulti-channelstrategy

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Mediobanca, the Italian investment bank, launched an exciting new retail bank in 2008 CheBanca! The bank started with just a few employees and four product lines: transactional accounts, mortgages, deposits and cards. It aims to provide a full set of channels, including Internet banking, call centres and branches with no price differentiation.

One of the main differences about this new bank is that it wasnt prepared to follow the traditional mantras of established banks. It wanted to build something fresh and dynamic.

A new lookOne of the most dramatic changes from traditional banks is the format and appearance of the banks branches. Instead of following the long-held belief that all branches should look like offices, CheBanca! developed its own very distinctive style. Conventional counters and desks have been replaced by brightly coloured booths around a banking square, where people are free to browse, use self-service facilities or seek advice.

The main square includes waiting areas, comfortable seating, refreshments and a childrens play area. The central space can be used for hosting events such as classical music matinees, jazz evenings, book presentations or photo exhibitions.

In the booths around the perimeter, customers can sit next to the banks advisors, looking at the same screen (instead of facing each other, separated by a desk). This enables the customer to watch the advisor as they access different Internet services, and they begin to realise that they can easily do this themselves at home.

The branch is the brandThe contemporary design of the branch and the booths is complemented by the bright yellow and white colours that are used throughout. This highly visual format means that the branch has effectively become the banks brand a uniform

brand that is used everywhere and is immediately recognisable.

The power of this visual branding is reinforced by mobile branches that mirror the look and feel of the fixed branches. These are sited in prominent positions in major shopping malls and have three key aims: branding, acquisition and lead generation. They also give the bank more flexibility for covering a given local area. The fixed branches act as the main hub, with the mobile branches extending the coverage. CheBanca! also adopted a new approach to staffing, with many employees being sales personnel hired from non-banking sectors. The bank believes that its easier for people to learn the technology than it is to learn sales skills especially as the products it offers are fairly simple.

Another change was in the opening hours of the branches. These open on Saturdays and until 7pm on weekdays, so that they have similar hours to shopping malls and retail outlets.

The new look branches arent just a pilot project: their format will be used throughout the banks branches. CheBanca! plans to have 220 fixed branches by the end of its fifth year, all of them reinforcing the brand with their unique style.


Chebanca! A new way of thinking; a new type of branch

CASE STUDY

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At Isbank in Turkey, the branch network is one of the most popular service channels, accounting for nearly 30 per cent of total chan

Documents

Microsoft EFMA Report - Transforming Retail Banking to Reflect the New Ecomonic Environment (1)