The future of bank branches coordinating physical with digital capgemini consulting - digital transformation

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  1. 1. The Future of Bank BranchesCoordinating Physical with Digital
  2. 2. Digital Technologies will Accelerate BranchTransformation, Not Make Them ExtinctThe percentage of UScustomers who preferto bank online jumpedto 62% in 2011, up from36% in 2010.Retail banking is evolving atan accelerated pace. Globally,banks are facing disruptions frommultiple directions. Business andeconomic realities have reducedthe total number of US bankbranches by 3,000 between 2009and 2012 - a decrease of 3% overthe 3-year period.1 In Spain alone,banks have closed 5,000 branchesor 12% of their overall capacitysince the financial crisis began in2008, lowering the total branchcount to approximately 40,000 in20122.That is not all. Digital technologieshave also brought a significantshift in consumer bankingbehavior. The percentage of USbanking customers who preferto bank online jumped to 62% in2011, up from 36% the previousyear3. Today, four of the top fivetransactional banking activities inNorth America bill pay, viewingbalances/transactions, viewingstatements and money transfer are happening online4. Apartfrom standardized transactions,the number of customers usingbank branches to apply for retailfinancial products dipped whileusage of the Internet channelincreased (see Figure 1).This brings us to a key questionthat retail banks increasingly face.Do brick-and-mortar brancheshave a role to play in the futureof retail banking? This questionis becoming louder by the dayas banks increasingly need tostay relevant to a digital-savvyFigure 1: Channels US Consumers Use to Apply for Retail Financial Productsconsumer. In this paper, weattempt to put this question inperspective by discussing theevolved roles that a physicalbranch can take, and how physicalcan co-exist with digital. We alsopresent our view of branch modelsof the future and actionablerecommendations on how todeploy them.236% 37%17%8%2011 20102%40%32%16%12%In a branch/ in person On the Internet(computer)On the phone By mail On the Internet(mobile device)*Base: 10,647 US online adults (18+) who purchased a financial product*Base: 20,036 US online adults (18+) who purchased a financial productSource: Forrester, The State of North American Digital Banking: Priorities, Goals and Metrics, July 2012
  3. 3. Studies indicate that47% of US bankingcustomers believe thata bank is not evenlegitimate unless it hasbranches, up from 41%only a year ago.Consumer preferencesare changing butproximity and advisoryremain integral to thebank branchWhile everyday transactionsare being conducted online,the branch continues to be theprimary channel for high value-addedproduct sales (see Figure2). In the minds of consumers,bank branches are not vestiges ofa bygone era. The mere presenceof physical branches providescustomers with the confidenceand reassurance needed in thecurrent post-financial crisis era.Studies indicate that 47% of USbanking customers believe that abank is not even legitimate unlessit has branches, up from 41% onlya year ago5.Figure 2: The Branch Remains a Preferred Channel for Complex Products and Advisory18%10%10%9%53%10%2%48%14%28%13%9%4%7%73%69%76%5%5%20%5%6%4%70%39%75%28%70%59%70%1%5%1%5%8%2%5%8%3%11%3%3%4%1%3%7%7%3%10%1%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Research/compare available products/servicesPay for somethingTrade a security (e.g., buy/sell a stock)Transfer funds between accountsObtain support from banking representativeReceive/review account alertManage my accountPay a billApply for a loanCheck account balanceBranch Telephone Bank's WebsiteATM/Kiosk Bank's mobile app/site Social media (e.g. Facebook)Source: Cisco study, Winning Strategies for Omni Channel Banking, 20123
  4. 4. We dont envision abranchless future, buta future with fewerbranches.Bank branches arebeing reinvented tofocus on relationshipbuildingGone are the days when branchesrepresented a one-size-fits-allsolution for all demographicsand services. The onset of digitalhas resulted in a bifurcation ofthe banking environment. Whileself-serve digital channels cater totransactional activities, branchesprovide relationship-basedactivities that require proximity.Recent research indicates that90% of consumers prefer face-to-face advice for complexproducts6. While some bankshave segregated advisory onlybranches, others have specialareas for this service. For instance,HSBC and Barclays banks havepremier branches providingadvisory-only services to theirhigh-net-worth clients while ItalysCheBanca! Bank branches providepersonalized service areas within aregular branch7.4Digital tools are drivingthis transformation ofbranchesThe advent of digital has notbeen lost on banks. Many bankshave begun leveraging the latestinnovations in technology tooffer a personalized bankingexperience. Most initiatives arestill in an experimental phase. Forinstance, Bank of America hasconverted about 16 of its branchesin Washington, D.C. and LosAngeles into specialized brancheswhere customers can get expertadvice on mortgages and smallbusinesses via video-conferencing.Similarly, Citibanks SmartBanking branches are customizedspaces with innovative technologysuch as media walls8, interactivekiosks and work benches thatenable customers to self-navigateand gain information on a widearray of products and solutions,and also conduct transactions (seeFigure 3)9.Digital technologies todayshould not be seen as purelysubstitutive. For the bankingindustry, significant benefits awaitwhen banks start seeing digital ascomplementary. We dont envisiona branchless future, but we dobelieve in a strong future for thebanking industry with fewerbranches. Rather than competewith online channels, we areconvinced that bank branches willbe transformed to become part ofan integrated customer experiencethat spans multiple bankingchannels. While transactionalbanking migrates to online andself-service, bank branches willbe an integral part of a new socialinterchange, a place to buildvaluable customer relationships.Figure 3: Citibanks Media Wall and Interactive Work Benches with Digital Service BrowserSource: Citibank website
  5. 5. 5The Branch in the Digital Age: Its Allabout Online and Offline CoordinationThe banking industryis currently at theinflection point theretail industry wasabout a decade ago.60% of Burberryscustomers shoppedonline and then pickedup their products fromthe store.Banks can learn fromthe experience ofretailers that havetransformed theirfront-end and back-endoperations with digitaltools, thus blurringthe online and offlinedivide.The banking industry is currentlyat the inflection point the retailindustry was about a decadeago. The retail industry hasbeen amongst the earliest tobe impacted by the advent ofdigital. Over the past decade,many retail chains that were notable to transform themselvesdigitally have had to shut down.For instance, in the UK, leadingretail chains Blockbuster and HMVdeclared bankruptcy 10. Similarly, inthe US, former leading electronicsretailer Circuit City shut downits retail stores and reopened inan online avatar11. At the sametime, many online-only retailerssuch as Dell, eBay and Piperlime(Gaps online-only clothing store)have realized that having a pureonline presence does not work forall categories and that blendingstore operations along withonline operations can yield farbetter results. Indeed, a surveyindicates that more than half ofbrick-and-mortar retailers believethat integrating e-commerce andin-store experiences will be criticalover the next five years12.We believe that banks can learnfrom the experience of retailersthat have transformed their front-endand back-end operations withdigital tools, thus blurring theonline and offline divide.Retailers are usingdigital technologies tocoordinate their online/offline offeringsDigital is permeating multipleaspects of the retail business from marketing and merchandisingto operations. Retailers areinvesting in in-store digitaltechnologies such as streamingvideos, scannable barcodes thatprovide product reviews at kiosksand interactive digital displays.In order to effectively bridgethe online-offline divide, manyretailers are also implementingdigital technologies such as real-timeinventory information anddigital barcodes of merchandisingat the store13. Burberry is a verygood illustration of online-offlinecoordination: 60% of its customersshopped online and then pickedup their products from the store.Similarly, Macys transformedits front-end physical storesinto a blend of physical anddigital where customers couldeither shop online or in-storethrough Wi-Fi connected kiosksand request in-store pick-up.The company also centralized itsinventory and equipped its storesto handle direct-to-consumerorder fulfillment. Macys storesput digital displays next to realproducts, allowing consumersto go through an endless arrayof variants. Similarly, in itscosmetics department, a beautyspot touch-screen providesphysical inventory with a virtualinteractive display that offers moreinformation14.By introducing elements of theironline channels into their physicalstores retailers are providingcustomers with the best of bothworlds leading to high online-offlinecoordination.Some banks have already takenearly steps in transitioning to sucha coordination model.For instance, Burberry effectivelyuses digital channels to bringits brand to life in stores. It hasallocated about 60% of its mediaspend to digital. It uses Facebookand Twitter to launch productsto its target customers. Storeemployees carry iPads, whichprovide customers access tothe complete global collection,regardless of what is available
  6. 6. Digital Elements in aBanks Physical ChannelHelp Extend a BranchsPresenceSome banks have introduceddigital elements into a physicalbranch. US Bank BBVA CompasssVirtual Banker is an example ofhow banks are using digital toolsto devise branches as physicalextensions of the Web (seeFigure 4). The Virtual banker isa collaboration tool that allowsvideo c