3 November 2006

Banks have had to think again about the role of the branch and its relationship to other channels. Jacqui Griffiths looks at how new technologies are enabling and shaping the renaissance of branch banking.

There was a time when the branch was the only way for customers living away from city centres to do their banking. As information technology developed, new channels like the automated teller machine (ATM) emerged to make basic withdrawals, and sometimes deposit transactions, more convenient. Then came telephone and Internet banking, and it seemed that the branch would soon be redundant. Banks that had previously held a captive audience with the only branch in the village suddenly found the competitive landscape blown wide apart. As new technologies enabled cheaper, remote ways of banking, many institutions ploughed their IT investments into these cheaper channels, neglecting or closing down branches.

Widespread branch closures had a significant impact on the banks. Firstly, there was a public backlash over the role the branch plays as a key public service, as it became clear that customers liked and needed face-to-face interaction. But also, banks started to notice the effect on the bottom line and realised that branches provided a very effective selling vehicle. Thus began the renaissance of branch banking, a rebirth that is still in process. Banks have now realised that they need to attract new customers to the branch, but more importantly in a landscape teeming with affordable technologies and special offers, they need both to retain their existing customers and increase their value.

"Traditionally, the remote channels have grown up as disparate offerings such as Internet banking, call centre and kiosk solutions," observes Tony Martin, EMEA marketing manager for financial services at Intel. "But banks realised that this approach disintermediates them from their customers. More recently, they have rekindled the branch as the best solution to drive a closer relationship with their customers."

David Dervish, global strategist for retail banking solutions at Fiserv, agrees, adding: "There has been a focus on branch renewal for a couple of years now, primarily because there was a period of lacking investment in the branch. There is a lot of pent up need for reinvestment in the branch, and that's what we're seeing a reaction to now."

This need for reinvestment coincides with the evolution of the branch as banks respond to technological, commercial and regulatory dynamics. Jean- Paul Adans, senior vice president of the financial services practice at Getronics, observes: "This time, the branch is seen as a place where a bank can meet its customers face-to-face. The primary focus of the branch is shifting from transactional interactions – such as deposits and withdrawals – to the provision of advice and needs-based selling." Many branches occupy prime retail space and are well trafficked, but transaction values are low.

The challenge for banks lies in becoming more retail-oriented while accommodating the demands of the financial services industry. "Apart from brand, which remains a powerful differentiator, the only other things banks can do to seem different to customers is to develop innovative service propositions, which inevitably require technology support," adds Adans.

Integral to this dynamic is regulatory compliance. "Regulatory change in certain markets is putting more pressure on branches to execute certain policies and procedures, to ensure that the right people are giving the right advice and selling the right products," says Dervish. "Those kinds of things mandate the need for more sophisticated branch technologies. Banks have seen too many things hit them too quickly over the past 5-10 years and the pace continues to pick up – if you ask banks that are going through channel renewal what lasting effects they are looking to bring to their organisation, it is the ability to adapt rapidly to change.

"So, increasing the value of branch customers is also increasing their perception of value. It is crucial that branches are integrated into a channel strategy that can respond to changing business needs, and support interoperability between channels and the integration of new channels in the future. Branch renewal technology needs to provide the foundation for providing a consistent, efficient and differentiated customer experience now and in the future. As banks recognise that their best assets are their people – the staff who provide a great customer experience as well as the customers they serve – the principle of peopleready computing becomes key.

"Great customer service needs great IT," says David Vander, managing director of banking at the Microsoft Financial Services Group. "Banks need to place a bet on their people to drive improved business performance – and this is in fact a bet on software. Branches need automated processes that will let bank staff get on with building relationships and connections while giving them the flexibility to accommodate future dynamics."

"An investment in renewing any one channel must be a potential investment in all channels. Over the past 30 years, banks have seen an explosion in the number of channels and service opportunities they use to deliver sales, service or advice to customers. And the introduction of new services will continue, conceivably to include the television as a channel for banking services."

Adans agrees: "The long-term view is that branches are the place for relationships and selling, and that the other channels are good for transactional interactions, research and so forth. If you take that view, the branch and other channels complement each other perfectly. A key issue, however, is how to make interactions that cross channels work well. Cross- channel interactions are on the rise, and customers want to be able to use the channel of choice for particular interactions."

As a result, banks have to think about their architectures, how they model business processes, and what changes they need to make in each channel to support this interaction. Says Adans: "Service oriented architecture (SOA) is part of the solution, as is modelling customer interaction types to work out the best business processes to capture the greatest share of the cross-channel customers."

For Vander, any renewal of one channel has to be based on components that can be leveraged again later for other channels. "A number of advances make this focus on reusable business components possible," he says. "For example, XML Web services and Web services interoperability (WS-I) standards, and the SOA they help create. This allows for the creation of modular, services-based IT components that can serve as shared building blocks for multiple applications and solutions."

Customer insight, interaction insight, and systems that support people in helping customers are crucial elements of successful branch renewal. "Ultimately, that boils down to a few groups of technologies," says Adans. "A single customer view so you know what products your customers hold, and as much as possible about the customers themselves; a way of capturing transaction streams independently of channels, so you can get an idea of who is doing what, and how; and to actualise the service proposition you get from all this data, a way of implementing business processes that can span channels."

For Adans, customer interaction management technology is of crucial importance. "With interaction management, you go beyond knowledge of the product holdings, to visibility of the way that customers use their products in channels," he says.

"Channel renewal is about building systems that support people, and not the other way round – look at the teller systems most banks have in place now – you can do a withdrawal or take a deposit, but can it tell you who your customer's wife is, or provide some advice about consolidating loans and credit cards? Where does it record the fact that your customer's baby is due next month so that appropriate service propositions – such as an increased credit limit – can be offered?"

Solutions like Getronics managed branch and channel renewal, and Fiserv's channel-independent Aperio solution, offer this agility by integrating streams of information from other channels while providing a single customer view, enabling a branch culture that is by no means isolated from remote channels. In doing so, they enable intelligent customer interactions and a more 'retail' sensibility while meeting the bank's need to be a bank, not a boutique. Indeed, multi-channel integration while preserving existing channel investments is also a way to keep costs down. "Getting cross- and multi-channel interactions while leaving pretty much all the existing stuff in place is probably the Holy Grail," says Adans.

"A couple of key technologies have emerged in the past 18 months that really speak to enabling us to abstract business logic out of channel silos," says David Hamilton-Matthews, vice president of product strategy at Fiserv. "Things like Web services, smart client technology, and business process management engines and platforms are really the key pillars from a technology standpoint."

The immediate benefits of branch renewal can be seen in the overall service proposition, a key differentiator for bank customers. Next- generation branches like those opened by Deutsche Bank and Washington Mutual have found a high level of acceptance among customers. In the medium term, says Adans, that perception is converted into revenue: "As new customer needs arise, they naturally gravitate to branches where they've had good experiences."

Branch renewal's long-term value lies in its resilience and collaborative capabilities. "Analysis and integration of the service delivery channels into a single delivery mechanism is essential to succesful branch renewal," comments Martin. "The retail bank's remote channels now drive the customer to the branch office for a more personal touch."

"The supply chain of most financial institutions today really needs to be active and collaborative across all channels," adds Hamilton-Matthews. "A customer may initiate a loan application over the Internet. They then need to be able to call the call centre and have the operative pick up that application and move it further through the supply chain, and then the branch needs to be able to pick it up and complete the fulfillment process through face-to-face engagement with the client."

As Adans observes, a positive customer experience creates growth: "One UK bank has a 15 per cent increase in its current accounts in a region for each new branch it opens. While the current account is probably not that profitable, it is fundamental to any banking relationship – what new products might the customer acquire if they are well served in the basics?" Building reusable components into channel renewal will enable the branch to evolve in relation to other channels. Dervish points out: "In a lot of cases it's just adding delivery methods to existing channels. When you think about the Internet, and some tier one players now adding chat capabilities to their retail banking Web sites, that's not necessarily a new channel – it's a new delivery method leveraged through an existing channel. Likewise, we're starting to see the emergence of videoconferencing based in branches – to be able to pipe in a mortgage expert, for example, into a branch on an as-needed basis, would be much more efficient than having one resident at every branch."

Vander concludes: "A strategic approach, based on the judicious use of good infrastructure and the development of reusable business components, will enable banks to provide customers with a seamless, cross-channel experience that makes sense economically, with technology factors that make the experience reliable and effective. We believe we'll see more banks use this approach as they renew channels, using the customer experience as a key differentiator. These experiences will be delivered on a cost basis, allowing banks to continue to invest in developing and delivering innovative services."

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