The Future of the Branch

Banks that wish to retain their profitability into the future have two options - close all the branches and become a telephone/Internet bank or make some dramatic changes to the branch.

Introduction

ATMs and Telephone Banking have been a big success for both banks and consumers. However, in the past two years or so banks have rushed to be first with new channels - WAP, PDAs and even interactive TV.

What has been the take up of these new channels? Virtually nil. Most of these initiatives were instigated to gain publicity, to promote an image as a forward thinking high-tech bank and even to bolster a share price.

Forrester predicts that it will be 2007 before online access reaches 40%. In my opinion, unless there is a sea change in the consumer proposition, this 2007 estimate is optimistic. True, the telephone is a popular medium for service based banking and the Internet is a necessary "me too" with its devotees among around 20% of the population. However, despite all of the hyperbole that consumers would migrate in droves to new channels, the branch remains the most popular channel for consumers.

What has actually happened of course is that consumers have adopted the new channels, but have not stopped using the traditional ones. Consumers want to use whatever channel is appropriate and convenient for the type of transaction they are performing and their physical location - at home, in the office, on the move etc.

Branch is king, but the branch also accounts for a massive 80% of distribution costs. This white paper examines how the branch will need to change so as to reduce cost and increase margin.

Drivers for change

Multi-channel banking is here to stay. Branches are here to stay - for a while anyway. But they must change. There are two main drivers for change. Branches must get better at selling and do more of it and there must be a dramatic reduction in cost and efficiency.

Much branch IT is over 10 years old and many branch environments are even older. Because much of the focus over the past 10 years has been new channels, the branch has been neglected.

Driving cost out of the branch

Cost reduction will come from staff reductions and rationalizing IT. Staff account for 60% of the costs associated with branches. Savings in staff costs will from come from two initiatives. The first of these initiatives will be to extend the reach of self service. ATMs and cash machines are already accepted by the general public, but more must be...