Many banks are turning their attention towards their branch networks in
the increasingly stiff competition for a bigger share of customers’
business, say Roy O’Neil and Chris Gentle.
Some people say the trouble with banks is that they are run by bankers.
Desperate to re-ignite their growth potential, many of Europe’s retail
financial institutions are undergoing a two-pronged cultural
revolution. First, sober-suited bankers are hiring high flyers from
grocers, telcos and travel companies. Their aim: to inject the
fundamentals of retailing into financial services to create a
super-charged (responsible) selling-machine. At the same time, and just
as significant, is the fundamental shift that is occurring in staff
skills and behaviour.
After years of being obsessed with cost reduction, today more and more
bankers are rebalancing this view by focusing on growth, too – and
rightly so. Across Europe, financial services companies have recognised
that to be successful in future they must have strong and sustainable
revenue growth. The key to success lies in maintaining a dual focus:
continuing to emphasise cost optimisation while building a strong
selling machine to enhance share price growth.
Competition for customers
The battle to gain a greater share of a customer’s business will not be
won by buying more technology or inventing exotic financial products.
The financial services industry’s key to future success lies in
bringing about a cultural revolution in the skills, ethos and quality
of people, and simplifying the processes that are used to offer
personal financial services. This battle will be played out largely in
the branch.
The branch will be central to success. It provides a showcase for
changes elsewhere in the organisation. If the people and process
changes have been implemented well – and linked to the organisation’s
strategy and structure – revenues and service quality are likely to
improve significantly. In short, the branch will be critical both in
manifesting changes made within the business and as a flagship of the
organisation. Without doubt, the branch will be the battlefield of the
future.
The branch is key
Customers regard the branch as central to being a retailer in financial
services. Deloitte research (Branching Out? 2003) shows that the branch
is the preferred channel of more than 50% of all customers in the UK.
Other data shows that customers in most major European markets visit a
branch at least once a month.
With branches accounting for up to two-thirds of the operating costs in
a typical European retail bank, there is still strong pressure for
further branch closure. Our survey found that many players were
grappling with how to optimise branch use in their overall business.
Many of the institutions that responded were the result of a large
domestic merger, requiring branch rationalisation. However, there
appears to be no industry consensus on the optimal density, staffing
levels and service offerings in branches. The average number of staff
at a typical branch across Europe has remained almost constant in the
past 10 years, according to Unisys data.
Transformational role
Our survey showed that many institutions are turning their attention
towards the branch network. The case of a Belgian bank highlights the
role the branch is beginning to play in the cultural and business
transformation of financial institutions. The division of
responsibility at the branch has changed radically, with 20% of staff
now tellers dealing with “daily banking” needs; the remainder of staff
focus on service and sales.
The Belgian bank has also introduced dedicated teller tools, such as
‘one click’, for total customer information. In some instances, tellers
also sell simple products that are easy to handle. The tellers have
instructions to send customers to either retail advisers (operational
advisers who work on their portfolio of customers, make late
appointments and answer queries) or to professional advisers (who
provide independent advice for wealthy individuals and small
enterprises). Some branches also have administrative staff: the bigger
the branch, the more administrators are needed.
However, other survey respondents have moved all processes out of their branches.
There are many reasons why the branch is at the core of building a
successful selling machine. They include the shift from an
administrative culture to a service culture, manifestation of the
brand, and creating an experience that delivers on the brand promise
and optimises customer service. The bank that takes the lead in
balancing its investment in branch infrastructure with its investment
in branch culture is likely to achieve significant competitive
advantage.
Micro-management
Surviving and prospering in the retail financial services market of
the future requires an obsessive focus on the day-to-day detail:
micro-management. But financial institutions are complex organisations
that rarely reward such behaviour. However, some banks and insurance
companies are now shedding the shackles of old banking practices to run
their businesses more efficiently and effectively.
Central to an effective micro-management strategy is the ability to
track the correct data. The following five categories are recommended
for measuring data: customers, product sales, staff, profit and
branch/channel usage. For instance, in the customer category, measures
such as customer satisfaction, footfall and churn are key indicators.
In the profit category, margin per product and branch profitability are
two possible measures. What is critical is that these data are
available at the branch level within 24 hours.
A huge challenge for large financial institutions involves capturing
and collating the correct metrics. However, the vast majority of
institutions were not built to deliver this kind of information. This
gives new entrants an opportunity to build greenfield business
infrastructures that deliver key performance indicators as part of the
day-to-day functioning of the business.
It is paramount that the infrastructure can collate, analyse and send
out sales targets on a daily basis. Although this is only a pipe dream
at present for many financial institutions, some are making progress.
One major UK bank already has such a system in place. Another expects
to have a branch P&L breakdown for each product sale within 24
hours sometime next year.
New model
This marks a fundamentally different way of operating an organisation.
Such systems allow true micro-management from the centre as products
are pushed that meet customer demand and have attractive margins. This
provides the type of model that will have online, real-time reporting
systems.
The future winners are likely to be banks and insurance companies that
embrace this transformation. The blending together of retail, finance
and technology skills will pave the way for a more adaptive, flexible
and profitable organisation. Nothing less than a complete cultural and
business transformation will allow businesses to succeed – and the
difference will be in the detail.
Retail in the Detail: How financial institutions can grow revenue in
the 21st century is a joint report from Deloitte and Dresdner Kleinwort
Wasserstein.
Roy O’Neil is a partner in the financial services practice at
Deloitte and Chris Gentle is global research director of financial
services at Deloitte Touche Tohmatsu.
