In part 1 of our “sector by sector” series, we started our deep dive into retail banking. We looked at why lack of true customer engagement is bad for banks’ bottom line. We also looked at why established retail bank brands start new digital-only brands.
This week we continue our examination of the retail banking sector, but with a different focus. We will be focusing on the in-branch customer experience of retail banks. The strategy that many retail bank brands have for physical channels is almost a slash-and-burn approach. We will explain why this is a huge mistake and a missed opportunity. Physical branches are often more important than retail banks think they are.
What should a connected in-branch experience look like? What can banks do to increase footfall? Why are core banking sales dropping?
Let’s see how retail banks can approach branches in a different way. There are opportunities there.
Physical Retail Banking Locations – All About Branches
The pandemic played havoc with physical retail bank branches. But in markets like the E.U., UK, and U.S. physical bank locations have been declining for several years. In the UK alone, the total number of bank branches from 1986 to 2014 has halved. In the U.S. physical branches could be extinct by 2034. In Thailand, 801 branches have closed over the last year.
So the general trend for bank branches is very much a downward one. One reason that is often given for this is that people prefer mobile banking.
But this assertion is not true. Or, at least, it is not one-hundred percent true.
In fact retail banks, attracted by the short-term cost savings of bank closures, are putting long-term profits in jeopardy. With a rush to cut costs, retail banks are handing some of the most profitable parts of their business to new fintech players without a fight.
Banks have adopted a “digitize first” mindset without considering customer preferences. They have also applied this mindset without creating better on and offline experiences for their customers.
There is research that backs this up.
What Customers Do Versus What Customers Want
Recent McKinsey research into retail banking paints a bleak picture when it comes to branch closures. Though the research also highlights some disparities. These center on what customers are saying they want and what they are actually doing.
McKinsey, in their retail banking survey, found that usage of digital mobile banking is above stated preference. In short, lots of people use digital mobile banking even though it’s not their preference.
But usage also remains below their stated willingness to use digital banking. Lots of customers like the idea of digital, but are not sold on it.
Confused? You are in good company. There is a gap between customer usage data, their willingness to go digital and what they say they want.
According to McKinsey willingness to open a new current account via digital hovers around 75 percent. But only 30 to 35 percent of customers express a preference to do this via digital. And, to compound things, only 15 percent of these accounts get opened digitally. McKinsey found that less than 30 percent of banks around the world have introduced new digital acquisition journeys for their website or in mobile apps.
So it appears, from looking at the data, that customers are using digital banking channels more often. Indeed, digital banking is growing. But it is not giving customers what they want. There is also another troubling fact that retail banks have to deal with.
Core retail banking sales are down.
Declining Retail Banking Sales (And How To Start Solving This)
McKinsey’s research states that core banking sales fell by 10 percent in 2021. This is where the pandemic hurt retail banks. Due to lockdowns and public safety measures, retail branch activity disappeared. But, while digital channels grew, they did not pick up the slack.
This is seen across the board in retail banks that are doing well and banks that are doing not so well. Leading retail banking brands generated 40 percent growth in the digital channel but also kept branch sales declines low. Brands that are struggling saw sales declines in both digital and in-branch channels. This is in spite of a lot of growth in digital for those struggling brands.
Long story short, the banks that had already implemented a great digital experience for their customers continued to thrive. With lots of banks still not offering account opening experiences in their apps, there is a lot of room for growth.
But how do retail banks solve this sales crisis? The answer may lie in something we discussed in part 1 of this series. Customer engagement.
How To Improve Retail Banking Engagement In Branches
All is not lost for retail banks. With some investment and a change in mindset banks can have thriving branches along with captivating on and offline customer experiences. With some strong value adds for consumers retail banks can increase sales, have more engaged customers and make their branches somewhere that customers want to go to.
Here are some things retail banks can consider.
Create a connected in-branch experience
Retail banks should make an effort to make their branches places where customers want to go. They can do this by creating true O2O experiences. Banks should use high-speed wifi in their branches to help in-branch customers download or update their banking app. Staff can also help customers out when they are installing the app.
Banks can use the analytics from high-speed wi-fi to measure footfall. In a similar way to sports stadiums. If some customers spend too much time queuing in one area, in-branch analytics can help you figure out why.
Customers should be able to use their banking apps to book appointments at their branch. They should be able to use their banking apps to validate their identity in-branch, taking away the need to carry paperwork around (this would be especially useful in Thailand!).
These types of features connect the digital and physical channels of the bank. Giving people access to the support they want to receive, not a digital channel they feel they have to use.
Banks could also optimize in-branch experience according to location. For example, the needs of a retail banking customer in an affluent city neighborhood are different to a rural branch customer. This creates a more personal experience and makes customers more engaged with their bank.
Use frontline staff, do NOT discard them
Frontline staff are a key asset for retail banks. But too often banks let in-branch staff go during closures. Instead banks should recognize their value. Retail banks can retrain frontline staff. They could then offer universal support across all banking products. Rather than on specific products/services.
Banking apps should also offer branch staff the opportunity to hold virtual meetings with customers. Further integrating the digital and in-branch customer experience.
A flatter organizational structure in-branch would also help with staff and customer satisfaction. Give branches some autonomy on how they can serve their local customers via app and in-branch. This could forge great relationships between customers and their local bank.
Leverage digital marketing tech teams to drive in-branch footfall & app sign ups
Digital marketing practices can drive footfall to branches. Geo-targeted marketing via paid channels (social media, search ads) can help to drive footfall into local branches. If that branch has the cutting edge wi-fi previously discussed, then targeted offers can be served to customers while they are in-branch. With the right AI (see part 3 coming soon), these financial product offers could even be pre-approved. Making the purchase funnel from ad, to app to product take up even quicker.
Read on for part 3 of our retail banking deep dive. We will be focusing on what the digital retail banking experience should look like. How AI and machine learning makes an integrated banking experience possible and we will look at the looming recession.
Talk to MAQE
MAQE has been building O2O (online to offline) commerce experiences for a long time now. If you work in retail banking and want to connect your branches to your digital channels with a seamless experience, get in touch via [email protected].