The transformation of retail banking in a digital world
As the well-known saying goes, “The customer is always right”.
This is true in today’s increasingly digital world, where retail banks globally are faced with ongoing advances in technology, which are shifting customers’ expectations – and changing the regulatory landscape.
Retail banking is all about customers’ overall interaction with their financial provider. Nowadays, most customers want the same thing – easy-to-use, reliable and secure products and services that can be accessed anywhere, anytime, on any platform.
However, expectations and technology-enabled solutions are challenging the benefits synonymous with retail banks, such as the existence of physical branches both locally and internationally. This has seemingly paved the way for newcomers, such as digital-only banks. Such firms can tailor their products to today’s consumer needs as technology continues to evolve, without the legacy issues experienced by many established banks.
Attracting new customers is a key challenge for banks globally
A survey conducted by PwC1 revealed that banks across the US, Europe, Asia-Pacific and emerging markets view growth as a top priority, and aim to achieve this by attracting new customers – by extension, this will also include retaining their current customer base. This works in tandem with the need to deepen customer relationships, by continuing to build trust and enhancing customer service.
To make matters even more challenging, banks can no longer rely on the time-tested “loss-leader” strategy2 , which focuses on customer loyalty and the ability to create significant cross-selling opportunities. Indeed, there is an increasingly large question mark on the entire concept of cross-selling, still a key performance indicator for many banks, as digital penetration – and regulation – drives unbundling, favours price comparisons and makes switching financial services suppliers much easier.
So, what are retail banks doing to ensure they are not seen as a thing of the past, and remain relevant to their customers in a digitally-driven future?
A long road towards digitalisation for most…
Many financial providers are aware that, in order to fully embrace digital change, they will need to significantly invest in technology. In fact, traditional retail and commercial banks spent approximately $1 trillion globally between 2015 and 2018 on transforming their IT, with a large portion being dedicated to technologies such as cloud and AI-powered analytics.3
However, 50% of the banks analysed by Accenture4 have been identified as not having made much progress on digital transformation. A further 38% were viewed as lacking as compelling a story compared to those seen as fully committed to digital transformation.3
Do banks still need branches?
In this digital age, high street banks appear to have recognised the main challenges that come with maintaining a purely physical branch. This includes high operating costs, outdated infrastructure and inefficiently tracking customer engagement.
Technology has become increasingly crucial to how financial providers interact with their customers, with many consumers switching to online and mobile banking. For many retail banks, this has meant reconfiguring their high street presence, with over 10,000 US bank branches closing between 2012 and 20185 , while over 3,000 UK branches have shut between 2015 and August 2019.6
However, physical branches remain the dominant method of opening a bank account.7 They also generally provide comfort to, and are aimed at building trust among, customers in respect of safeguarding their money and data, resulting in higher customer satisfaction.
Making bank branches more digital-friendly
Today, retail banks across the world have transformed, or are beginning to transform, their branches using digital technology, to enhance customers’ experiences in-store. Examples include OCBC Bank, which implemented facial recognition technology in a Netherlands branch8 ; and HSBC, which launched Pepper, an AI-based robot, in its US branches, with the ability to interact with customers, pitch and help workers sell their products.8 Moreover, Santander Bank introduced its ‘Walk Out Working’ initiative in 2018, which encourages and enables its customers to set up mobile and online banking accounts in-store.10 And Citibank has been rolling out its ‘smart branches’ over the past couple of years.11
As banks become ever-reliant on technology in order to remain ahead of digital disruptors and meet customers’ needs, they will need to address several challenges. Continuing to reinvent their in-store environment will be key to creating a unique presence and providing customers with a seamless experience. More investment will also be necessary in order for banks to create innovative approaches to digitalising their branches, while also being able to integrate these solutions across multiple channels.
Given the fast pace of digital transformation across businesses, we expect to see a more pronounced transition from offline to online services over the long term.