In recent years, there has been a change in the way people interact with their financial-services providers. The bank manager is no longer the pillar of a local community who has personal relationships with a bank’s customers. In the digital age, banks are reassessing their strategy for branch networks and are overhauling core banking systems to support multiple channels. Future Banking speaks to Forrester analyst Jost Hoppermann to find out where branches fit in tomorrow’s banking industry.
The fate of bank branches in an age when digital channels are increasingly customers' preferred means of interaction with their providers of financial services has long been a talking point in the industry. Customers' rising expectations of service levels are making greater demands on banks' technology infrastructure and forcing many to look at major investments in their broader banking platform, which makes the opportunity to save money by cutting back the branch network even more appealing.
Many banks have cutback significantly on the number of branches they operate, but there is a danger in undervaluing the branch, which is just one aspect of the human interaction with banks that many customers feel is still important. Banks must be wary of relying too much on technology to define the right products and services. They must find the right balance between the many channels they operate, and finding that balance comes not from focusing purely on cost, but on knowing what customers want.
"There is an overarching trend that we call 'the age of the customer'," says Jost Hoppermann, Forrester's vice-president and principal analyst focusing on banking applications and architecture. "One key recommendation is to focus on better service, which is how to win, serve and retain customers. That applies to all organisations, not just those in the financial-services sector. Banks have to look at how they get in touch with customers, and they have multiple touchpoints, so they must look to improve interaction online, through mobile technology and in the branch.
"But, they need to consider that customer experience is not just about channels. Retaining customers is not just about technology. Customer experience is also about corporate culture. The people working for a bank must be in a position to serve customers effectively or the technology will have no value," he adds.
The human touch
Mobile banking is a prime example of an area in which technology can deliver agile, cost-effective and value-added services. Yet, Hoppermann believes it also illustrates the importance of developing technological capability within the broader framework of multiple channels and, indeed, the core concepts of an organisation's brand. Services must develop quickly to keep pace with changes in customers' expectations, but that development process must go beyond just the technology.
"Some banks moved to mobile very quickly, but now they are finding that their services are fragmented. They have different solutions for different services, and that fragmentation can lead to duplicated IT maintenance and management," he notes.
"The omnichannel experience includes branches, although many are being shut down. It is possible that the number of branches is too high, but some customers like the personal interaction they provide. Branches are becoming more high-tech, too, but that needs to be balanced with the personal element. There is a lot of potential around changing the role of branches within the broader strategy to improve customer experience."
A consistent approach to technology must encompass all channels, and branches are an important part of the chain of customer interaction. Many banks, notably CenTrust in the US, have invested in new technological capability in branches, with innovations such as ATMs that provide video links to staff who can provide advice, and interactive touch screens to give customers access to information on products and services. This remote advisory capability is not merely there to sell more products, but also to assist customers seeking answers to important queries.
"One consequence is that branch staff can focus on less transactional activities. Banco Bradesco in Brazil opened a pilot branch in 2012 that creates a superset of the capabilities CenTrust uses. There are touch screens for marketing products, there is biometric identification for services and customers can discuss financial matters with branch staff. There are also high tech meeting rooms with huge touch screens and wall-mounted displays for customer meetings so that remote advisers can be part of the discussion," explains Hoppermann."This kind of environment is close to the branch of the future that Forrester described back in 2008. One problem is that many banks put a strong focus on customer-facing capability and channels but, often, their back-end solutions cannot meet the demands for real-time data and seamless processes, which makes it difficult to get a single view of the customer and even most current account balances."
The core of the problem
Innovations that are highly visible to customers can have a great impact on marketing a brand in the banking space, but their performance is heavily dependent on the underlying systems that support them. Without significant investment in the overhaul of core banking systems as well as other more transactional systems like lending and payments, front-end innovations will soon come up short. This poses a dilemma for the industry, given that banks have often built up a complex array of legacy systems over many years.
"To mitigate the risk and manage the complexity, a bank must approach transformation in stages. Starting with the front end is an option because that is very visible to customers and can provide direct customer benefits. However, all systems that support the customer-facing processes need to be modern, too, so that channel solutions can operate as customers expect them to. At the moment, there is often a gap between what customers expect and what banks' core systems can deliver," remarks Hoppermann.
The approach Hoppermann recommends is one that takes a focused view on specific areas of the business and modernises core systems in stages, rather than ripping out and replacing the entire banking application backbone of an organisation. The reason? "Banks work with virtual products and services, so changing core solutions is like brain surgery - but with the patient being fully awake," he says.
"Start with the business side and identify a business case, then create a roadmap. Find the hotspots that need attention then build a strategic plan. The important factor is to identify where off-the-shelf solutions are good enough, and what needs to be customised. A good place to start might be customer experience, but eventually the old core systems will need to be replaced, as some of them might already be 30 years old, but are underpinning sophisticated front-end solutions," says Hoppermann.
Hopperman sounds a note of caution in identifying the four major causes of failure when it comes to banks investing in technology to transform their business model. The first danger is that transformation projects are often IT-driven, which means there is not enough involvement from the business side. Starting by mapping capabilities and generating heat maps that show the business priorities can help banks to avoid this trap.
"The next problem is a mismatch between sourcing decisions and corporate culture. The decision about developing an in-house solution or choosing trusted off-the-shelf business applications is a big one. I have seen banks go for off-the-shelf solutions, select a vendor, define the system and then the business side of the organisation has decided to carry on exactly as before, which ultimately meant a significant proportion of the off-the-shelf-solution still had to be customised, which pushed up costs," Hoppermann notes.
"Another big danger is the tendency to put in poorly designed shortcuts. Transformation teams feel under pressure, so they might skip steps in the planning or vendor selection phase. That can lead to problems, especially if the team goes too fast in the very early stages, because it means the foundations of the project are wrong."
The final problem Hoppermann identifies is mission creep. It can be tempting to increase the scope of the project, particularly if the early stages have gone well, but it can be dangerous if additional steps are introduced without an appropriate degree of impact analysis.
Whether it is in the area of banking platform transformation or cross-channel strategy, the key theme that emerges is one of balance. The cost of running branches must be weighed against their importance to some segments of the customer base, and the capability that technology offers must be balanced against specific business cases in order to ensure that a process of transformation is managed in a way that brings maximum benefit and minimum disruption to the business.