Branch Banking

The come back

Is branch-banking back in business? Has the banking industry realised the limitations of using non-branch channels and banking on technology? Several research studies by international consultants has thrown some interesting findings on these issues.

Though the basic survey has been conducted in an international setting, it has some universal findings, which will of interest to the domestic banking industry, which is undergoing a paradigm shift with technology networking and reaching out to mass retail customers. To a basic question, whether state-run banks with a large branch network or private sector banks with sleek technology will call the shots in terms of customer loyalty and profitability, some pointers have been offered in this study.

Several researchs shows that after withering for 20 years, branch banking is making a comeback. And there is a good reason for this revival: branches are significant growth engines, helping acquire up to 90 per cent of new customers. Call-centers and the Web are fine for routine transactions, but the branch needs to be the centerpiece of the customer’s interaction with the bank because it is the best place to get personalised information and attention, and to conduct complex banking activities. It is also the best channel to encourage customers to entrust more of their assets to the bank as their needs change with time.

But the moot question is that can large retail banks revive the branch system without letting it become a costly drag on their profits? Absolutely, but only if they reinvent the management model so it can profitably deliver what consumers expect: choice, convenience, and customization, feels the study.

Research shows that up to 90 per cent of customer relationships are won or lost in branches. For today’s consumer banks, reinventing local branches as a hub to attract and retain customers is essential to profit and growth.

It is not enough for retail banks simply to open up more branches that run like existing ones or to redesign them to resemble hip retail stores. The successful branch bank of the future must be a financial-services resource center. Financial advisors could conduct seminars after hours on topics as managing debt, savings strategy, or how to transition from paycheck-to-paycheck banking to accumulating wealth.

For the “mass affluent” customer - the person who is already saving and investing - the branch can offer “light” relationship management. For example, a bank specialist who sold one financial product to a customer could periodically review that customer’s needs and recommend other appropriate products.

Research also shows that there is a good reason for the revival of branch systems: they are significant growth engines for retail banks. Moreover, the study found a high correlation between branch visits and sales.

Banks are reinventing the management model in a bid to profitably deliver what demanding consumers expect: choice, convenience, and customization. In the customer-centric, ‘federation’ business model, the study proposes that the branch is the hub of an integrated multi-channel banking framework designed to maximize local responsiveness. In 2003, the consultant collected data and conducted on-site observations of branch operations that show the enormous value of the branch. For example, evidence that customers favor branches over other channels for purchasing financial-services products was overwhelming. The survey showed 12 per cent of customers, who were seeking a home loan obtained information over the Internet, but 49 per cent closed the sale in a branch.

It is found that 90 per cent of a super-regional bank’s new customers were acquired in a branch. Equally important, almost all accounts were closed at a branch, suggesting that branches can be a first line of defence in retaining customers. Customers often provide predictable clues before they close their accounts. Banks spend heavily on customer relationship management (CRM) systems to predict customer defections, but a vigilant branch staffer can just as effectively use the personal touch to solve a problem and keep a customer from leaving. The branch customer service representatives handle simple product sales and know when to refer customers to a branch-based specialist. Customers perceive the value of consulting a “banker,” and the bank gets more involved with customers. when they are planning and optimizing their choices, not just when they’re shopping for products.

Ricky Agustinus