27 February 2004

Branch banking is back from the brink of a much-publicised demise. with the help of a number of retail banking experts, martyn white examines the current position of the branch and assesses the technologies that are helping to shape its new future.

Once believed to be on the verge of extinction, branch banking is back at the top of the delivery channel 'food chain'. For many analysts the end of the branch was supposed to be quick and brutal, yet much like the successful breeding programmes of endangered species it is being nurtured back into life with careful thought. And it would seem that banks are determined to deploy the technologies that will utilise its full potential.

Budgets may be tighter now than ever before, but a number of analysts believe that the branch network is the key focus of current IT investment. TowerGroup, for example, last year predicted that branch renewal would command the greatest share of bank IT budgets for the next five years.

According to Datamonitor, technology investment in the European branch delivery channel gained momentum last year and is expected to be worth just over US$1bn (™0.8bn) by 2005, growing at 9.6 per cent per year. US banks, on the other hand, will invest US$4.4bn on their branch channels by 2006, according to Celent.

By 2005, Datamonitor forecasts that 19 per cent of Europe's branches will be renewed. The figure will only see a steady rise though, as renewing the branch will be an incremental process due to the complexity and distributed nature of branch networks, says Datamonitor.

This is due, in part, to the typical branch configuration still consisting of 'dumb' terminals talking to a mainframe-based teller application over low-speed communications lines. While perfect for low-value transaction processing, this kind of infrastructure cannot support the needs of a relationship-enhancing branch.

The focus for banks is on evolving the concept of the branch and rethinking its functions. Some banks are using visually striking video walls to convey a sense of technological superiority, whilst others have even turned over the day-to-day operation of the branch to what are essentially franchise owners, responsible for the profit and loss of regional branch networks. Many other banks are redesigning the look and feel of the branch to make it more relaxed.

But the most important aspect of branch renewal has been the technology. Many financial institutions have gone 20 to 30 years without updating their branch technology. It is fair to say that the branch delivery channel took a backseat due, in part, to the huge investment in alternative delivery mechanisms, especially with the advent of the Internet and attempts to move customers to lower-cost channels. In that period, branch technology has languished while technological capabilities have advanced dramatically.

What is holding back the use of self-service technology and functions developed for the Internet within a branch context?

Konstantin Koenings: Antiquated technology platforms are the problem. Only 33 per cent of UK ATMs, for instance, are currently on a Windows platform, but this will grow to 90 per cent in the next three years. The move from OS/2 to Windows is a major investment and – until now – time and resources for European banks has been tied up in implementing mandatory requirements. Taking advantage of new functionality is an important factor driving the move to Windows. Keith Waterman: The technology is available to offer self-service devices in branches but organisations are still structured in both channel and product silos and are suffering from the economic difficulties of the last couple of years. So organisations are focusing their efforts towards making their current channels successful and creating a real, true and worthwhile single view of the customer rather than introducing new channels and initiatives.

Kevin Scott-Evans: And actually, the leap into the self-service Internet world is quite a big one for the customer, which is why we're approaching it in incremental steps.

Urs Candrian: I totally agree. The first issue is the acceptance of self-service within branches, as many people still want to bank the way they always have done. Personal contact is still important and will not disappear. Secondly, many banks are not ready with their infrastructures and with the capability to guide customers to self-service.

Kevin Scott-Evans: Those are among the reasons why we're running a number of trials to see what our customers want and how self- service would fit into our branch channel. We're currently trialing a full Internet banking service in our branches with over 200 standalone Internet podiums. One barrier to adoption, so far, has been the sign-on process. Customers don't automatically have their log on details when visiting a branch. At home, Internet users usually have that information logged somewhere. We now have to understand, in terms of the distribution mix, where offering this sort of functionality actually fits. It may be that the Internet podiums are used for electronic brochureware and as a platform for form filling. To get around the sign-on problem we're also trialing Internet access in the branches using a card and a pin number.

Koen van den Brande: The whole idea of a multi-channel architecture is that by having integrated one channel i.e. the Internet, with a number of capabilities, allowing customers to literally help themselves, you should be able to deploy that same set of solutions to the other channels, especially the branch network. Current network capabilities in branches are a barrier and it is taking time for banks to get broadband access into their branches.

How much effort should financial institutions put into integrating ATMs with their online banking program, and other channels?

Keith Waterman: With the development of more sophisticated ATM and self-service devices, banks have realised that business processes that were traditionally supported in branches and contact centres can now be delivered to customers whose preferred delivery channel is the ATM.

Konstantin Koenings: But it depends how banks regard competitiveness as a priority in the long term. Analysts estimate the potential rewards are substantial: ten times faster time to market of new developments, 25-40 per cent savings on infrastructure, and 60 per cent savings on support. Anything approaching these returns makes banks significantly more competitive.

Keith Waterman: Yes. And it is increasingly important that banks have a multi-channel strategy that enables customers to initiate complex processes, such as applying for a mortgage over one channel and completing the process in another, such as the branch. This strategy allows the banks to target particular customers during ATM usage with specific sales and service campaigns.

Koen van den Brande: There is the opportunity now, because of developments in technology, for banks to have a consistent multi-channel architecture in place that includes the ATM.

Urs Candrian: My strong belief is that all channels should be seamlessly integrated, no matter what they are. All channels should hold the same information and type of functionality so the customer has the best possible choice.

What role will the new generation of ATMs play in reducing the need for tellers to deal with cash transactions?

Koen van den Brande: One of the reasons that ATMs were originally successful, but didn't completely reduce the need for tellers, is that they're great for cash withdrawals yet proved less popular with the public for deposits. The new generation of machines use scanning technology to show exactly what has been deposited.

Konstantin Koenings: That's right. Intelligent Deposit ATMs are capable of providing instant proof of deposit and account updates. Moving the cash transactions to the other side of the teller counter allows the branch to be rethought from the perspective of where a branch can be located.

Kevin Scott-Evans: We now have a new version of ATM in 20 per cent of our branches, called Fast Tills. This ATM allows deposits and withdrawals of cheques and cash in real-time. The new generation of ATMs are really high-spec PCs that dispense cash. And we're already finding that customers who use self-service are becoming more inclined to buy products and services, without the need of a face-to-face channel. However, an ATM is no longer a differentiator in a branch because customers expect it.

Keith Waterman: But the development of new ATM and self- service devices will greatly affect the way a 'traditional' branch teller operates. It will reduce the number of cash related operations that teller staff undertake, allowing them to concentrate on providing added value services and developing those all important customer relationships.

So, what teller transactions can be ideally automated and why?

Kevin Scott-Evans: They all can! The Fast Tills we have now automates probably 90 per cent of the transactions a teller can do. However, it still needs customer backing. With Fast Tills we had to build trust, for example, by making sure customers receive an electronic image of the cheque on their receipt when they've made a cheque deposit.

Roger Lang: The discussion about moving everything away from the teller has been going for a while. When I was at Digital, about 10 years ago, we actually built the branch of the future in Stockholm. The concept was to build a semi-circular area at the entrance where the customer transacts with the machines. The idea behind the whole architecture was for customers to stop 'harassing' tellers. But now banks are finding that if they want market penetration, customer retention and improved relationship management they have to be a 'high-touch' outfit, one that is able to reach out to customers at every touch-point. When people walk into the bank it's an opportunity for high-touch relationship management and cross selling for deeper penetration.

What has happened to early experiments with introducing retail content such as coffee shops into branches?

Konstantin Koenings: Over recent years there has been much hype and speculation in the specialist media about the new styles of bank branch, the 'skinny' branch, 'lite' branch; the 'boutique' branch; supermarket branches; 'café' branches; semi-automated and fully automated branches. All, and more, have been launched with great fanfare and with mixed success. Most of the banks that have pioneered in this have assessed the value and benefits and many are returning to the core vales of banking.

Urs Candrian: That's right! I don't think these experiments have been successful because they weren't really well thought out. It seemed like organisations said, 'the technology is available so let's try it'. But self- service is still young and needs to mature first.

Can a pure thin client infrastructure satisfy the requirements of the branch manager and adviser roles or would it be better to build an infrastructure which supports both alternatives?

Koen van den Brande: When a bank puts an infrastructure in place it's very clear that for transaction processes the thin client, browser- based environment is the right way to go and that matches the need for a multi-channel architecture. When it comes to different kinds of staff, such as branch managers and advisers, the answer becomes quite different. For example, it's likely that the branch manager will want access to local spreadsheets, or a local data analysis tool, or local capability for creating marketing campaigns. And it's not necessarily certain that they are best served by a pure browser client. The overall future branch transformaion strategy needs to be considered crefully when deciding on the basic branch infrastructure.

Keith Waterman: I believe that bank managers and advisers are equally well served by the use of browser-based thin client applications. The requirement for 'fat' client applications is diminishing as thin client technology is improving to provide more robust and scalable operating systems. The use of browser-based applications reduces costs and training time as these systems are more intuitive and the proliferation of home PCs running 'standard' software makes more users computer savvy.

What new technologies are likely to provide further opportunities to transform the way branches work in the long term?

Urs Candrian: The individual parts of what goes to make up the branch of the future are still maturing. The concept is here, the individual pieces are here, but as a package, or as a combination, it is still not ready. However, all the banks are working on modernising their branches and in one or two years I expect it to be a reality. But then, in one or two years we may well have a new vision of how the future should look!

David Followell: Wireless personal devices for employees and customers, interactive displays, marketing focusing on audio as well as visual senses and possibly the tactile sense. More moving rather than static images, product information downloadable to your personal device rather than printed paper leaflets. Biometric authentication is another. Konstantin Koenings: Wireless, GPRS transport layers will replace leased line cost and complexities. Web services (XML, .NET, IFX) are likely to accelerate channel integration, either by updating the channels and core systems or by providing wrappers around legacy core systems in the short- medium term.

Roger Lang: I think we'll see acceleration of high performance computing in the branch. And Microsoft's easy to use technology will be the key enabler. We've already been able to demonstrate how the Wintel platform can be used for super computing and the financial institutions we talk to are happily surprised. The architecture of .NET is not only designed for Web services, but also easily adapted for scalable super computing. So, using .NET for distributed computing, for grid computing, for high- performance computing is here and now.

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