See also Mortgage and Finance Gazette.
In the retail industry the shift from bricks and mortar to online has been dramatic. Businesses such as Amazon have grown to be world leaders without any retail lineage on main street. The conversation about retail has many parallels with the rhetoric about bank branches. The benefits of online, access from anywhere, 24/7 platforms and reduced requirement for staff are absolutely clear to both the retail and the banking industries. So is the future online or offline, Lisa Arthur, in Forbes, summed it up well - “Today’s consumers live multi-dimensional, multi-platform lives –and their buying behaviors reflect that same complex dynamic.“ We know that most frequent customer interactions with their bank or credit union can be done online so there needs to be a clear and compelling reason to retain the expensive channel that is the branch. What can the financial services industry learn from retail?
‘Showrooming’ is the practice of going in to a shop to see a product, try it on and get your questions answered but then going online and buying it. This is driven in retail by the price difference between bricks & mortar and the online global marketplace. Generally this price differential does not exist in the same way for financial products. There are different dynamics in financial products that may be driving showrooming. Many products such as mortgages, investments and savings impact a family rather than an individual.
This can involve a staged origination process through multiple channels. We know from research that reverse-show rooming is a pervasive characteristic of financial services product origination. Customers do the research online and go to the physical location to open the account. According to a Harris poll, in the US 69% of people reverse showroom in retail. This dynamic is a significant challenge and opportunity for banks. Technologies such as iBeacon can be used to trigger the customer action when they are within proximity of a physical location. Consistent experience across branch and online will reduce friction in the sales or service process. Customer delivery channels are not competing against each other, they depend on each other for success. This dynamic must be reflected in the internal structures of the financial institution. When the mobile banking product manager is fighting against the branch product manager for budget, is it likely to lead to the best outcome for the customer or the bank?
A transaction or origination is only one element of what the store or branch does. The opportunity to immerse the customer in a multi sensory brand experience is a key differentiator. For people over a certain age, entering a Hollister clothes store can be a bewildering experience. Who decided it was a good idea to buy clothes in the dark anyway! Hollister is creating a club like feel with the lighting, sounds, format and team. The format fits with the target market. CIBC grasped the importance of the physical aspects in interaction in their installations in Toronto Pearson airport where they have 6 ‘branches’, 27 ATMs and a lounge. Forget all of your preconceived notions of what a branch is as these branches feature open design concepts and lots of self service technology. They are not destinations; they are pit-stops on your journey. Toronto Pearson airport has 37 million passengers each year, 40,000 staff and processes 100,000 new arrivals to Canada. New arrivals need banking services and whether they originate these online or through one of the many formats of CIBC branch, there is no doubt that CIBC have positioned themselves in the minds of the new arrivals as the major banking service provider.
Corporate and social responsibility (CSR) is becoming a mainstream trend across industries. CSR is currently in focus in the retail industry. It is no longer just a feel good HR activity in large multinationals. Consumers of all types of product, both financial and non financial, are increasingly aware of the brand value and how it aligns to their community principles. Clothes retailers collect old items for charity in their stores which drives both traffic and sales while also creating a connection between the customer and their brand. Financial institution need to leverage their assets to reinforce their brand’s social responsibility. Some of this can be online, however the physical locations in the communities provide a strong tangible link to the message. This could be as simple as having a community notice board in a branch or putting defibrillators in all of the branches so that local ‘first responders’ can access them. ‘Caring brands’ are monitizing that positioning.
The on-demand economy has been the impetus for significant investment in mobile banking and triggered many of the innovations in fintech. Over the last few decades the retail landscape has shifted significantly from main street to large shopping malls. Retailers are always trying to guide the customer behaviour but in many cases are following the changing habits of the customer that have been driven by changes in technology and lifestyle. Malls are feeling this pressure now and retailers are becoming increasingly nimble, changing their store experience and stock on an increasingly frequent basis. As online is optimized for standardized mass market products and services, the physical channels are increasingly focused on the higher value customized product and service experience.
Retailers open new stores, close under performing stores, change format and respond the market demand ruthlessly. If they don’t, they fail. Financial institutions retain branches that underperform and make minor tweaks to the operating model. Criticism of the failures in branch banking are valid as are criticisms of retailers who retain the business models that they operated in 1990. There is less criticism of those retailers as they are so hard to find! The analysis of future of physical interaction in banking should not start with a bank’s current branch infrastructure, it starts with understanding the market needs. The solution that is right today may be different to what is required in 3 years time. As in retail, being nimble is a managed competency of the organization. Predicting the need of your customer in 2022 is just luck.