In downtown Hong Kong it is common to see locals with their noses pointed down at their smartphones, totally absorbed as they walk along the streets that are lined with high-end shops. In this market, where the cost of the limited retail space is being driven up by the presence of international luxury brands, it would be natural for banks to pull back on branch banking and push their tech-savvy customers onto digital channels. But, to the contrary, in Hong Kong a number of retail banks are re-energising their branch strategy.
“Rentals are ever increasing, but the physical branch is a very critical component for the consumer banking segment,” says Christine Lam, country business manager at Citibank (Hong Kong). She says that with certain customers, there is still a strong allegiance to the non-tech channels. At a group level, senior managers are driving Citi to be a leader in digital technologies, but this does not mean that the physical branch has been abandoned. “I do not see it as appropriate and enough just to rely on the digital space,” says Ms Lam.
Wow factor
Citibank was the first bank in Hong Kong to use the branch space to create a ‘wow factor’. In November 2010, it opened its flagship 'Smart Banking' branch in Mong Kok, one of the busiest districts in Hong Kong. It was one of the bank’s biggest branches in Asia. Ms Lam says the opening created a stir in the local domestic market as well as in the global Citi community, and even earned a double-page spread in Citigroup’s annual report.
Ms Lam is an advocate for face-to-face interaction with customers, as she says that this provides the bank with more opportunity to court the customer. So too is Pearlyn Phau, DBS’s head of consumer banking in Hong Kong. “We want the experience to be memorable; the branch has to be a destination,” she says.
At DBS's branch in Tsim Sha Tsui, one of Hong Kong’s upmarket shopping districts, there is a distinctive scent, refreshments are on offer and the receptionists know customers by name. The bank is also in the process of curating art pieces to display in its branches. The space is not just used for banking, says Ms Phau. “We want to hold investment seminars and cocktail evenings,” she says, adding that the branch is no longer a transactional place, but part of the customer’s lifestyle.
Bold statements
Standard Chartered also uses a signature scent in its branches. Similar to many of its counterparts in Hong Kong, Standard Chartered has revamped its approach to branch banking. In Central, in downtown Hong Kong, the bank's digital branch has been open since February 2013, and other such branches are expected to follow.
“We wanted to blend the digital with the physical,” says Samir Subberwal, Standard Chartered’s head of integrated distribution for Hong Kong and Greater China.
The digital branch is kitted out with a check-in pad and a digital queuing system, ‘breeze bars’ where customers can register for online and mobile banking, and a large touch screen with the bank’s latest offers. “We need to get customers excited about coming into a bank,” says Mr Subberwal. “The intention is to draw customers in and serve them through personal finance consultants and relationship managers, all with paperless straight-through processing."
Mr Subberwal believes that predictions about the death of the branch are premature. “The role of the branch will change – it is already changing to be more [focused upon] customer acquisition,” he says.
There are no paper forms or brochures in the branch's advisory booths; any information can be projected onto the white table between the advisor and the customer. And to verify anything, the customer signs on a tablet. The digital branch has the look and feel of an Apple store; it is more about engaging the customer with the brand, rather than simply selling products.
With limited space in Hong Kong, banks have to be focused on how they use the branch, and making a brand statement is an element many are focused on.
“The branch is actually the bank, the brand representation,” says Helen Kan, executive director and alternative chief executive officer at China Citic Bank International. China Citic has gone through a rebranding and, in 2012, launched its ‘new concept’ branches, in which the furniture is movable and the space can be used in a flexible way. Similar to DBS, China Citic is changing how the branch is used. For example, Ms Kan explains, it may host talks on topics such as insurance and weekend events can be held for families.
Selling the brand
Banks are also using the space outside of their branches to promote their brand. Citi’s flagship branch in Mong Kok has an enormous eye-catching digital facade that wraps around the building. The display, says Ms Lam, “is a visible statement to the community that we are serious about investing in this market”.
Likewise, Standard Chartered is planning to mount a huge LED facade on the side of its main building in Central. In many ways, Hong Kong is viewed as a shop window for the larger market of mainland Chinese consumers. Prime retail space in Hong Kong is dominated by luxury stores that have invested heavily to attract the mainland Chinese who come to the special administrative region to buy luxury goods. For the international banks in these shopping districts, the massive facades are an opportunity to make a brand statement to these internationally minded mainland Chinese visitors.
While the marketing of Citi and Standard Chartered aims to attract consumers who want an international bank, the approach of China Citic Bank International is different because it is a Chinese bank. “We want to be the China bank of choice. We want to position our branches so that they are knowledgeable about China,” says Ms Kan, adding that the bank recruits Mandarin speakers for its branches in Hong Kong.
Creating convenience
For local banks, the branding of the branch is equally important. The Bank of East Asia (BEA) revamped its identity in April 2013, and re-energised its branding with a ‘light ray’ of bright colours that seeks to rid itself of the association that banks are boring places to be. BEA is aiming to create a buzz with its new lively branding.
Adrian Li, deputy chief executive at BEA, says that the bank has been successful in automating routine transactions, and more than 80% of transactions can be done through e-banking. “That said, the branch is a fundamental channel for our customers,” he says. He adds that for high value-added transactions, such as insurance and wealth management products, the face-to-face personalised service is necessary.
BEA has transformed the design of its branches so that they are more geared toward serving customers and building relationships, rather than the space being used for day-to-day transactions. Instead of having tellers in the branch, BEA’s 'iFinancial Centres' have 'iTellers', a teller who is connected to the branch via video link. At the iTeller station, the customer speaks to the teller over the phone and can see them on the video screen. They can scan documents, or sign on a digital pad, to verify their identity and they can go through the transaction process on the computer screen with the teller. When they are done, they can opt to print a receipt from a small printer.
“Our goal is to use technology to bring greater convenience to customers,” says Mr Li.
China Citic Bank International has introduced a similar service model, where customers can be linked by video conference to product specialists so that the bank does not need to have experts in every branch.
Brick versus click
The role of the branch has changed and is increasingly being used to serve customers for more complex interactions. “Before the 1980s, the branch was the only channel in Hong Kong,” says Ms Kan. “Now you see the branch as the key channel, but it is surrounded by all channels,” she adds, with the digital channels becoming increasingly important.
“You have to make branches as productive as possible, and at the same time you have to make the e-channels as accessible and convenient as possible,” Ms Kan says, arguing that customers do not distinguish between the channels. “They do whatever they think is convenient," she says.
This point has been picked up by Ms Phau at DBS, too. “Customers no longer look at brick and click separately. Before, clients were a lot more consciously either a brick or a click client. Now they expect you to have both,” she says.
Clients expect the services to be the same and consistent across the channels. “It is even more relevant for the affluent segment. With the more sophisticated, investment planning it is no longer either or [physical or digital]. What is important is how we integrate the two,” says Ms Phau. Customers in Hong Kong are sophisticated and highly knowledgeable about financial products. They typically look at a new product from an automated lead generation, do research online, shop around online for other deals and then come into the branch to complete the process.
With complex wealth management products, more face-to-face time is needed and there is an increasing focus on using the branch space for these high-end interactions with relationship managers. With financial portfolio planning, the business is very much built on trust. “If I were to invest $1m, I would want to be able to look that person in the eye,” says Ms Lam at Citibank.
New business
Hang Seng, Hong Kong’s largest bank with 3.3 million customers, covers the whole spectrum from mass market to the high end. Similar to other banks in Hong Kong, it has been automating the day-to-day transactions. If it is a single, simple payment, it will mostly likely be done online or at an ATM, says Nixon Chan, Hang Seng’s head of retail banking and wealth management. But if it is more complex and the customers wants a cross-currency conversion, to consolidate their banking or change their banking arrangements, they will go to a branch, he says.
“Wealth management is now a very important piece of business for the bank,” says Mr Chan. Insurance and investment have become increasingly important in a low interest rate environment where banks are struggling to make a profit on lending. Rather than earning revenue from the margin on lending, many banks are turning their attention to fee-based income from wealth management products instead.
The bank has recently built two brand propositions for the wealthier end of the spectrum: Preferred and Prestige. Mr Chan says that the Preferred and Prestige outlets offer financial planning and insurance, and are useful in a market where the safety net is not huge and people are keen to start planning for the future. The bank has opened six of these branded centres and plans to open another 20 in the next three years. However, Mr Chan says: “We cannot give up on the mass market, we still have traditional branches in strategic locations.”
Hang Seng is unique as it is the only bank in Hong Kong to offer branch banking services across the MTR rail network in the special administrative region, with outlets in 72 stations. Some of the small branches in the subway stations are manned, some are not. Mr Chan explains that a number of factors that go into the decision, such as whether there is the space for live tellers, whether there is already a branch on the ground or not, and whether they can complement the services for small and medium-sized enterprise customers.
A fundamental channel
While many banks in Hong Kong are moving up the customer scale to use their branches for wealth management, Citibank has turned its attention to customers down the scale. The bank has focused on wealth management and has always placed an emphasis on using the physical branch to build relationships with its clients.
Citi already had the infrastructure and the physical locations in place and realised it was short-changing itself for a larger opportunity. Citibank Hong Kong has now broadened beyond wealth management and is tapping the emerging affluent segment.
“It’s not that we’ve moved in the other direction but, more generally, we have broadened the mandate of the branches to be a universal service branch,” says Ms Lam. In the branch it is now possible to apply for a credit card or loan with instant fulfilment, do transactions and get wealth management service.
As another foreign challenger to the market, DBS is also targeting the affluent segment. Ms Phau explains that over the past two years, the bank has undergone the strategic refocusing of its business in Asia outside Singapore. “We want to compete effectively and we want to compete to win,” says Ms Phau.
For DBS that means not going after the mass market, and targeting the affluent and high-net-worth segments. The bank has consolidated its branch network and the branches have been relocated to the affluent areas across Hong Kong, a process that has been completed over the past 12 to 18 months. Ms Phau says that the number of branches has been reduced from 45 branches to 36, which she describes as an evolution and “optimisation of the footprint”.
In contrast, Ms Kan at China Citic Bank International has expanded her bank's network from 30 to 35 branches and is looking to open two or three more. Aside from these two examples, evidence suggests that the overall number of branches in Hong Kong has remained constant. This is perhaps surprising considering the high rental costs and tech-savvy customer base in Hong Kong. For those who believed that digital channels would spell the death of the branch, Hong Kong is a case study to show that branches are alive and kicking.
