The early years of the 21st century will be noted in the financial services industry as the period during which bankers rediscovered the strategic importance of their branches. Although few markets outside the UK had taken significant steps to reduce their networks, much branch-orientated expenditure was put on hold and the focus of new investment shifted towards the alternative channels. Today, banks have returned to a balanced view of delivery channel strategy. The challenge is once again to maximise revenue opportunities at the branch, while attacking costs and achieving the optimum balance between the role of the branch and other channels.
The communications network is now a major issue that needs significant consideration and investment by many banks. This is the principal artery that links all the channels in the delivery mix and yet is often inadequate at a single location. For example, the quality of networks linking most UK bank or building society branches is often inadequate to support any significant extension to their inventory of customer-activated terminals.
A network that enables the different types of channels to operate as an integrated delivery mix is still usually an aspiration rather than a reality in most organisations. Add to this scenario a new generation of customers who are increasingly multi-channel in their attitude towards their banking affairs, and the case for a strategic technology upgrade becomes overwhelming.
Key alignment
Two key factors need to be taken into account when assessing the strategic direction and value of any proposed systems upgrades. First, the customer is increasingly comfortable and demanding in the new multi-channel environment. Second, as banks have re-engineered branch processes for greater efficiency and met the demands of increasing regulation, they have no longer been able to retain all the skills that a customer requires at one location. Increasingly, they have had to respond to a customer from a location other than where they first made contact.
The need (perhaps regulatory) to focus sales or service activities through specific members of staff, who may be situated at a location that is remote from the point of their inquiry is now an everyday situation. Despite this, UK banks are still not good at routing customers accurately and quickly to the most appropriate person to deal with their needs.
Research shows that there is a significant decrease in customer purchasing intentions – from an average of 64% to 48% – if the call is subject to more than one handover. If customers are asked to return to see a specialist, about 40% of leads are lost. Banks and building societies should be looking hard at the power that is available to address this type of situation.
Technology convergence
High quality and secure voice, data and video facilities can be delivered to any point in the delivery channel architecture and then moved efficiently to another location if that is how the dialogue with the customer needs to progress. This convergence of three types of technology, which is run through increasingly powerful broadband capabilities, is offering new facilities to the retail banker beyond simple network efficiencies. IP (internet protocol) technology enables rapid movement of voice, data and video around the network. The customer can be connected quickly to a remote member of staff and the conversation may be face-to-face using readily available branch-based, high-quality video, if required.
In the near future, customers will also be able to use video from home. Research shows that dealing with a voice call in this situation, and moving it through one or two handovers to the correct person has hitherto required an average wait of 2.5 minutes for the customer. Today, this type of network transaction can be handled in about 50 seconds, whether it is just voice or includes data and video. This is because the business processes can be changed and the network infrastructure responds seamlessly.
Self-service development
A major factor in determining the level of network support required by a branch is the extent to which the bank has sought to benefit from the new capabilities of a more widely defined self-service inventory. Hitherto, the self-service complement of a typical UK bank has comprised a set of ATMs, low usage kiosks and an ‘automated’ depository that is not linked to the network (despite carrying the capability). In many cases, banks have greater aspirations but are inhibited by the capabilities of their networks.
A review of the self-service facilities located in a branch of a leading German Sparkasse (savings-cum-retail bank) will demonstrate the potential that has yet to be realised in the UK. High function ATMs, enquiry and statement terminals, well-used kiosks, depositories and currency exchangers remove the need for all but a minimum complement of cashiers at the largest branches. Similar situations apply at many of the banks in the Asia-Pacific region.
Stalled implementation
It is more than 10 years since UK banks and building societies first deployed video conferencing facilities, yet communications limitations have meant that it has not become part of a broader self-service strategy. This situation has changed. In addition, web pads and mobiles will form part of the wireless complement of customer-activated terminals at the branch of the very near future – if bankers gear up to accommodate these new low-cost applications.
Web-enabled ATMs are already a standard item in the product range of all the major self-service suppliers. Linked to customer relationship management (CRM) tools, all forms of customer-activated terminals are capable of providing a level of personalised service that extends from presenting a tailored promotional offer on screen, to an ATM suggesting that it dispenses the customer’s “usual $50”.
Self-service is another component of delivery channel strategy which offers new opportunities that are waiting to be realised. Deployment of the available network technology will facilitate a paradigm shift in self-service functionality.
Marketing strategies
The effective management of any retail network, especially one being operated in a heavily regulated environment, requires significant resources to be devoted to the creation, deployment, management and renewal of branch merchandising. If a merchandising system is already in place, a four to six-week effort is often needed to create and deploy a new merchandising scheme. Pressure to shorten the timescale of the exercise is usually only applied as an exceptional matter, to meet special needs or urgent campaigns.
Networked electronic merchandising systems are able to reduce time to market and costs while offering a product of comparable quality, which may be varied by branch or location. Campaigns or promotions can be produced at short notice, varied by the day or hour, and all with centralised control that provides maximum efficiency and assures compliance.
Windows of opportunity
Banks have taken differing attitudes towards the merchandising of their branch windows. A variety of mandatory notices may need to be exhibited, which can often look unsightly. Thereafter, banks and building societies tend to divide into two groups: those that opt for blanket coverage of a full glass window with posters, etc, and those that keep the view into the branch relatively free from visual obstructions. Some branches may have (usually older) frontages where there is little scope for merchandising.
Whatever the style of premises and window strategy, the messages that are communicated by the assortment of posters and notices – often with little sympathy for the corporate livery – could be generated electronically. This approach would not only offer higher levels of quality and stimulation, but would also ensure greater cost efficiency. As such, it should also be weighed in the balance when assessing the many advantages that will arise from a strategy of creating a best-in-breed communications network.
The same communication systems also lend themselves to audio and video or television connections between locations. A head office or central location can broadcast to individual branches. A group of branch managers could be linked for a briefing without leaving their offices. Abbey in the UK and BCP of Portugal are among the banks that already have a beneficial experience of working with this medium.
Property management
Supporting branch power supplies and security has raised the need for myriad automated systems, each with their own internal or external networks. These are usually expensive to install. They also add costs, delays and disruption to any work that has to be carried out on the branch premises. For example, a typical large bank branch will often be supported by or provided with a power supply, a burglar alarm, telephone, locking systems, a fire alarm, a public address system, digital networks and customer/intruder surveillance.
The ability to rationalise the provision of these many services through a single industry standard wire, capable of handling IP communications, again presents an attractive combination of cost-saving opportunities and added functionality. It also offers the synergies of operating through a single network. One of many examples is a fire alarm or burglar alarm that triggers screen messages at a remote control desk, spoken messages at the branch through the public address system, and a claxon. The system could also be programmed to respond to irregular movements picked by cameras.
The use of camera technology offers the opportunity for management to watch at first hand the experience of customers using the branch. Are there queues that require more staff in the service area? Are there difficulties with a particular piece of equipment? Is the new promotion attracting the attention desired? All of these are facilities that retailers already use as they seek to extract the maximum benefit from store traffic.
Transaction analysis is already widely used to optimise the balance of cashier positions and self-service terminals, and has proved to be a highly effective means of ensuring the optimum number of machines are purchased and deployed. The use of live observation or video analysis adds further to bankers’ ability to judge the effectiveness of the individual features of a branch.
Investing for today
With the branch likely to remain the predominant channel for the foreseeable future, the case is strengthened for addressing the extent to which the latest communications technologies can improve both its cost efficiency and revenue generation.
A recent investigation undertaken by Datamonitor on behalf of Cisco identified five key areas in which technology expenditure is both necessary and likely to deliver cost and income benefits. The areas are:
- upgrading the branch network infrastructure;
- replacing legacy systems in branches;
- CRM-enabling the branch;
- increasing self-service capabilities in branches;
- process re-engineering.
The premise of the research was that greater cost efficiency should be one of the key objectives of future investment, with the greatest return envisaged from eliminating the heavy cost burden of legacy networking and communications systems.
Banks such as JPMorgan Chase in the US, Abbey, and BNP Paribas and Credit Agricole in France are already taking a lead in deploying a new generation of network technology. However, not all banks yet demonstrate an understanding of the critical importance of the new benefits that it brings. Others have embraced it to achieve cost savings in their IT services but have failed to realise the other available benefits.
A move to the next level of network technology may not seem to be a strategic requirement but it is an enabler of effective strategies in many critical areas. As more banks take this path, those that do not will be progressively less able to compete. Their channel strategy, customer management techniques and branch effectiveness will increasingly fall behind.
This is today’s technology, it offers benefits today and it should be part of today’s corporate plans.
Jordi Ferrer is business development manager, financial services, at Cisco Systems Europe & Emerging Markets.
