For Asian banks, Branch is still valuable

by Sohini Bagchi    Jul 02, 2013

banking customer

Multichannel banking is moving into a new phase with the increased growth of internet banking, mobile banking and customer centers. Although this form of banking existed before, in recent times, it is not only customers who are reaping tremendous benefits from various channels, but also banks have started earning additional profits from multichannel. However, in a market like Asia, where the banking scenario is still characterized by the bricks and mortar of the traditional branch and ATM, the question arises: whether the branches will become obsolete with the rise of multichannel model?

The branch is not obsolete

Experts believe the Asian banking scenario is diverse. In markets such as Australia, Hong Kong, Japan, Singapore, perhaps South Korea where the pace of change is sharply accelerating, driven by the spread of computers, broadband connections, and smartphones, banks will soon adopt the “self-service” model. However, markets such as China, India, Indonesia that are still evolving, multichannel behavior is relatively slow to take off, and the shift brings in the challenges to optimize their branch networks.

In an article published by McKinsey, Jiab Chusacultanachai and Kiyoshi Miura write that in emerging markets, “There a lot of residual value inherent in the branch network. Whether it is about mortgages, current or the savings accounts, the branches still drive a significant proportion of sales. In these markets several high value customer segments also prefer branches. After analyzing their customer base, some leading multichannel banks have found that a portion of their high-net-worth customers, for example, prefer branch banking.”

The authors also point out this is not the case with emerging markets alone. In a mature market like Japan, where digital banking is well advanced, branch networks are still holding steady. Therefore, it is a mistake to assume that as the shift to online banking gathers momentum, the branch network will disappear. Instead, branch banking will play a more innovative and supportive role.

The new role of branch

Experts believe banks must understand precisely the value of the branch in their markets. “This is driven by the bank’s customer base, its ability to use the branch as a touch point to trigger multichannel sales, and the branch’s utility as a source of information to customers,” say the authors.

According to Joseph Polverari, Chief strategy Officer, Yodlee Interactive, an online banking solutions provider, banks should invest in a customer-segmentation analysis, to find out which customers use one or more channels and how they consider each channel. Likewise, an understanding of segments and the cost to serve each segment will enable them to make decisions about the branch network.”

He also points out that banks should not ignore the extent to which branches serve as a touch point for multichannel sales. Rather, banks will need to investigate the connections between branches and other channels to ensure that the links between channels are strong, especially between telephone and branch and Internet and branch, besides direct-marketing tools to lure customers to the branch to provide more personalized information.

Finally, the branch has a vital role to play in the distribution of information. As McKinsey research has established with customer decision making becoming more complex and takes place in more channels, the branch becomes more vital. “It may have lost part of its edge and monopoly as a point of sale, but its role as a critical information channel continues,” find out the McKinsey article.

The shift to multichannel

To take advantage of the shift to multichannel, retail banks should consider changes to four aspects of the branch. These include locations and format, network density, staff size, and staff expertise, say the authors. Moreover in order to build a successful multichannel architecture, they should understand the extent to which they can leverage their current assets to appeal to customers.

“The key priority is to revamp the existing network first to drive customer satisfaction and productivity within the channel. There is also a need to add or revamp specific capabilities in people and technology through multichannel intersections,” says Shrawan Kumar, General Manager – IT, Allahabad Bank. The next important step he believes is channel integration, which is essential but a challenging task. Kumar opines that banks will need to set up mechanisms to monitor customer activity across channels and therefore it is essential for product and channel teams will have to decide jointly on investments.

When banks can become more multichannel in its decision making, they can seamlessly boost productivity and profitability.