As with so many of the revolutions currently being unleashed in areas such as telecommunications, digital technology and robotics, it is difficult to predict where we will be in the next five years, never mind the next fifty.
But as with any major technological change of the past, if handled right, the ongoing digital transformation of the high-street bank branch should lower costs, raise productivity, and provide clients with efficient and affordable services, while transforming the role of people working within the industry.
It is this latter point which concerns most people whenever faced with massive technological disruption — the fear that humans will be replaced by machines or, in the modern world, by computers and robots.
There are many reasons for change. For one, digitisation provides banks with a comparative advantage by greatly decreasing costs. There can be significant expenses given the sheer amount of paper and people needed to carry out banking processes. According to PwC, each branch transaction costs about $4, while online and mobile transactions cost 9 cents and 19 cents, respectively.
Another compelling reason is competition. There are a growing number of FinTech start-ups ready to provide a range of new and innovative products to millennial clients, who have an easy familiarity with the digital age, and who are not only comfortable with new products and services but expect them. And the number of start-ups is growing as regulators begin to open up to them, even creating ‘sandboxes’ where new digital players can establish their businesses and thrive.
Banks have also pointed to the rapidly evolving regulatory landscape as another reason to adopt digital platforms, as changes are far easier to implement digitally rather than adding staff to create new procedures for each regulatory compliance challenge. Fines for failure to get it right can be daunting.
Branches remain a vital component
As the digital revolution gathers pace, banks are fast shutting physical branches, as can be seen in countries across multiple geographies including the US. According to the Federal Deposit Insurance Corporation, Chase closed branches in 190 locations, a 3.4 per cent decline, between 2012 and 2016.
At the same time, Bank of America closed 243 branches (16 per cent) and Citi 302 branches (28.5 per cent). In addition, Wells Fargo announced in July 2017 it would close 450 branches. The World Bank has noted similar trends between 2012 and 2015, particularly in the European Union, with an aggregate decline of 17 per cent
Yet for all that, branches remain a vital component of the modern bank transformation, and while physical branches are closing at an unprecedented rate, there will continue to be a role for the high-street bank. It should now be more a question of what that bank branch will look like. Increasingly, branch location is also evolving and moving away from stand-alone location to malls and customer entertainment areas, which naturally attract footfall.
The branch will continue to have value for its role in attracting and retaining clients, in brand awareness, in selling new products to clients, and in cash management. While many banks are cutting branch numbers, most are investing in reimagining the role of the bank branch, and some banks are beginning to roll out new branches.
Digitising some of the bank’s more basic transactions such as cash deposits, recycling and withdrawals frees up a more agile bank branch better able to offer innovative new products and services, and this is where the physical branch comes into its own. More complex, value-added products will require the personal touch that online banking doesn’t allow, so that products can be better explained and promoted to the bank’s clients.
While nearly half of banks’ clients report that they rarely visit a physical branch anymore, according to PwC’s 2017 US Digital Banking Consumer Survey, millennials make more use of the branches than the older clients as they are more likely to consider the new kind of product that banks can offer.
Many customers also appreciate the personal experience, and this helps to build relationships based on trust.
Many adopting a hybrid model
For banks, it is a question of how they will join the digital revolution. Whether they digitise merely front-end operation or overhaul the entire back room will depend on their clients and their overall business strategy.
But wherever they go, branches will change and many banks are adopting a hybrid model of transformation, in which a variety of interactive digital experiences and self-service technologies are supplemented by a more personal bank interaction for some of the more complex products and services.
Popular technologies introduced in banks include touch screen walls, tables, and tablets; biometric identification; RFI beacons that discreetly announce clients’ arrival at a branch so that their needs can be addressed; and interactive teller machines. Banks don’t always need to develop these technologies themselves; they can partner with Fintech and digital companies to drive their businesses forward.
Important to maintain human element
One of the most important things to change in the ‘bank branch’ of the future apart from the introduction of new technologies will be to train staff to be able to talk clients through what is now being offered, to help them make the best choices for their needs, to fix problems, and to explain and promote the new technology, particularly to older clients.
As David Horton, Head of information at digital, business consulting and technology services provider Synechron, says: “It’s about people. It’s about relationships, local knowledge, body language, smiling, being polite and generally trying to help clients that make all the difference. No amount of technology transformation and digital alternatives can compete with empowered and motivated branch staff.”
Standard Chartered is one of the leaders of the banking industry’s digital future and is investing materially in upgrading its skilled resources by attracting industry talents
The bank believes that it is important to strike the right balance between personal service and technologically optimised services to cater to increasingly complex customer needs. Making progress in the digital landscape with a human touch will be a defining capability. Standard Chartered is taking bold steps towards digital banking in Africa, the Middle East, Asia and Asia.
The bank is in the process of setting up a purely digital bank in Cote d’Ivoire (Ivory Coast), which is likely to become a template for others key markets in Africa and beyond.
The bank offers simple and convenient banking; with full-fledged mobile/online on boarding from opening an account to sending money internationally, which is something the local banks cannot offer. It also has bill payment functionality, sales and a full-service request offering on mobile with zero touch capability.
— Jaydeep Gupta, Regional Head, Retail Banking, Africa and Middle East