It is high time that retail banks stopped thinking of electronic channels as extensions of the branch and started thinking about the electronic structure as the foundation upon which all the channels, including the branch, are built. By Chris Skinner.

For half a millennium, retail banks have worked on the basis of physical distribution. For half a century, that model has been challenged to move towards electronic distribution. Nearing the end of the first decade of the new millennium, electronic distribution has matured, works and is proven. Unfortunately, most retail banks are stuck in the 20th century. It is time for them to turn their model on its head.

This view was prompted by a debate I was having about the future of retail banking. The discussion centred around whether websites such as Second Life and Facebook are passing fads or important to the future of retail banking. But that question was flawed and the questioner was unfamiliar with ‘digital natives’.

Digital natives are people who do not think of the internet. They just get on with their lives and regard online, mobile and all other digital channels as being seamlessly integrated into their world. They think of these things as life.

Mistaken thinking

That is where retail banks are getting it wrong. They are run by ‘digital aliens’, who do not understand the digital life because they focus on branch networks as foundations.

Due to the branch focus, bankers have added automated teller machines, call centres, the internet and mobile as an extra layer on the foundation of the branch distribution system. That is why retail banks talk about multichannel strategies for integrating layers. And that is why retail banks have spent the past few years on transformation projects to improve branch sales.

But banks do not have multichannels. They have an electronic channel that underscores and provides the foundation for all end points: mobile, telephone, internet and branch. The electronic channel is based on internet protocol (IP) technologies, as is the branch today. Banks should stop thinking of channels and recognise that they are all now IP-enabled.

Thinking in terms of channels demonstrates the fundamental flaw in retail banking strategy: many banks still have everything built in layers of complexity and legacy. The electronic channels were built as layers ancillary to the branch. That is why they were separated and have a chasm of non-integration between them.

It is time to turn this on its head. It is time to think about banking as an electronic structure. It is time to admit that retail banking is not a physical distribution structure with electronic channels on top, but an electronic distribution structure with electronic and physical channels on top.

It is time for a change of thinking.


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