In future decades, banks will have to let go of their fixation with traditional means of interacting with the customer and instead offer solutions that meet the public's growing expectation of accessing banking services wherever and whenever they need them.

While there has been a rapid take-up of internet banking in the past decade, and an even faster take-up of mobile banking in recent times, in many ways the perception among bankers remains that banking interactions fundamentally do not change. Over the next 15 to 20 years, however, banking is in for a severe shake-up in the way customers interact.

Banking is traditionally a physical business. Branches have always been the place to get your cash, apply for a home loan or open a new account, or deposit a cheque. We are often told by bankers that 'trust' in banks is wrapped up in the physical reality of branches. Yet, in the past eight years, branch use in the UK has declined rapidly, to the point where we have 24% fewer physical branches. Last year in Sweden 88% of the population did not even visit a branch at all. So what are the trends for the branch over the next two decades?

We know that cheques are in terminal decline. The UK Payments Council has mandated that cheque settlement in the UK will cease by 2018, but customers are coming into the branch less and less for cash transactions as well. SNS Bank in the Netherlands actually took the step of removing cash from its branches entirely last year when it observed that fewer than 2% of customers entering the branch were doing so for the purpose of a cash transaction. In the UK in the past 12 months, the use of cash in the retail payments arena declined by 3%, or £1.6bn ($2.5bn), largely as a result of increasing debit-card and credit-card usage.

As mobile payments technology starts to bite, the decline in physical cards will be rapid and unrelenting. So by the start of the next decade, most of the physical elements of our day-to-day banking will have been entirely replaced by digital interactions.

A different mix

Given the take-up in mobile banking, the likely impact of integrating near-field (contactless) communications into devices, and the role of person-to-person payments in the mix over the next five years, daily interactions with the bank are set to change quite rapidly. If today internet banking is the most frequented channel, followed by ATM, branch and call centre, the next five years will see a significant shift in this pattern.

By 2015, the most 'interacted' channels for the bank on a daily basis will be ranked as follows: 1. mobile; 2. internet (desktop, TV, etc); 3. ATM; 4. call centre; 5. branch.

By 2020, with cheques gone and the use of physical currency in serious decline, even the humble ATM will start to wane. Initially, this will mean banks detaching themselves from their ATM networks, outsourcing this function to third-party networks. By 2030, it is likely that most cash interactions, in developed economies at least, will be totally superseded by mobile payments technology.

We can expect lots of technology-led approaches used as an attempt to 'save the branch' from extinction, including trying to make bank retail spaces appear more fashionable - maybe taking a leaf out of Apple's book here. However, it is inevitable that branch networks will shrink over the next 10 years as first the teller function disappears, and then behaviours increasingly turn us away from visits to the branch.

There is a pattern here. As customer behaviour changes, based on modality, the mix of services offered becomes vital. What this theoretically should produce is a very different set of priorities for investment in different banking channels. Right now, organisation structures, metrics and budgets all lag significantly behind customer behaviour. That will rapidly have to change as banks, particularly in the retail game, retask themselves over the next two decades.

Service as a differentiator

I often hear from bankers that the key differentiator in the physical 'branch', as compared with so-called 'alternative' or direct channels, is the human factor, that people come to the bank to see a face, to get a level of service that just isn't possible without a human interaction. The only flaw in that logic is that if you ask most people today how they characterise their branch experience, it is likely they will mention queues and being treated like a number, not outstanding personal service.

What must be a differentiator in the future, then, whether in a branch or through the total multi-channel experience, is the quality of the service engagement. We want customers to walk away with a smile on their face, having had their problem solved or their needs met.

The challenge is that as the physical becomes less critical in the day-to-day banking relationship, the need to deliver bank functionality is not just about the product or service itself, but how that capability meets my needs as a customer in the context of my life.

In fact, when a bank tells us as customers that "you need to come into the branch and sign a piece of paper", we're increasingly likely to be frustrated by this because we see such an interaction as inefficient in an always-on, super-connected world. That level of frustration will only increase as 'Generation Y' and digital natives become the dominant customer segments.

Building great journeys

As banks, we seem pretty insistent on requirements that are designed to frustrate customers, rather than please them. The key to where banking technology must evolve in the next two decades is understanding how such development can help in reforming the value of banking from an interaction perspective. As we become more mobile, as paper money and cheques disappear, and as it becomes harder and harder to differentiate a brand through physical real estate, technology will be about seamlessly delivering banking when and where we need it.

If we are out in London's Docklands on a Saturday morning attending an auction for an apartment, it is then and there that we need to know how much money the bank will give us for a potential mortgage - it is little benefit telling us to come into the branch on Monday for a chat. If we are out trawling antique stores for a bargain and we go to pay on our credit card, it would be nice if the bank proactively offered us a cheaper credit facility for a big-ticket purchase. If we are online at the British Airways or Lufthansa website, that is when the bank needs to think about offering us travel insurance or a great deal on a personal loan for a holiday, not waiting for us to walk into a branch later to fill out a travel insurance application form.

When we break it down, the need for banking is often contextual, or at least the potential for banking to provide a service experience is. Today, bankers generally insist on us coming to them. The greatest revolution in banking of the future will not be technology that is cool, but will be reforming journeys for customers, delivering banking pervasively when and where consumers need it.

Letting go…

Right now, that can't happen because the prevailing mindset is that banks need to tightly control the interaction, and that is best done if we bring the customer into our 'secure' space. Already we're seeing that banks are increasingly being displaced in the multi-channel landscape because of this outdated logic.

Very soon, Google, Apple, Nokia and their pals will be challenging banks for ownership of the retail payments space. While banks and the likes of Visa and MasterCard will undoubtedly remain part of the underlying transaction, the fact is that increasingly they will be relegated to the back-end wires and not the front-end customer-facing mechanism. The risk here is that someone else will increasingly dominate the conversation with the customer.

What social media, mobile and pervasive technology such as geo-location and augmented reality are doing is shifting the power to the consumer. In the near future, brands will be openly evaluated on their performance for the consumer. Forget customer satisfaction surveys, this will be a real-time social ranking of your performance as a provider of a product or service.

New businesses, such as Foursquare, Groupon, Gowalla, Facebook and others, are already playing with the concept of offering you a discount or offer based on location and/or your relationship with a service provider. We're also increasingly seeing both aggregators of financial services products and new models such as peer-to-peer lending taking a more active role in providing solutions direct to customers.

The real differentiation

Put all of this together and being big, secure, having a strong physical distribution capability and owning a banking licence are just not differentiators for the future. It is not what is going to win you business, build trust or give you access to customers.

In the future, if your capability as a financial institution to deliver to a customer when and where they need it is not fine-tuned in the multi-channel space, then someone else will take ownership of your customer. You'll be left stuck in the transaction space, battling shrinking margins.

Bankers need to detach themselves from their attachment to the physicality of banking and think about engaging customers increasingly from a distributed, pervasive banking basis. As bankers of the future, we will need to take the bank to our customers, not the other way around.

Brett King is author of the book Bank 2.0 and an advisor and consultant to several major financial-services organisations


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