If money doesn’t grow on trees, why do banks have branches?

If money doesn't grow on trees

The answer to the above tongue in cheek question lies in what we bankers call ‘channel management’ which can be defined as any contact point between the customer and the bank. Channels have two essential elements – the point of contact with the bank and the media by which the communication is made. For example, the bank branch is a point of contact and the media (i.e. mode of communication) make take various forms; face-to-face, internet, telephony, SMS, e-mail, video conferencing and the ubiquitous mobile. Arguably ‘channel management’ or more accurately deciding on the appropriate mix of channels and product/service offerings in each channel is probably one of the most operationally taxing on executives agendas, as they strive for both improved efficiency & customer attraction and retention.

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In module 104 of the Academy’s RB1 qualification we take a look at the historical evolution of branch banking, taking in the rise of retail banking as a core business, the growing role of the post office in providing banking services and the arrival of alternative channels with which we are now most familiar. One might ask “Where does the branch fit in? ” or “Is there a future for branch based retail banking?” however before attempting to answer these questions it is fundamental to understand the importance of customer choice.

 

Typically customer-bank interactions fall into two main categories, the first being high in volume and relatively simplistic; such as making payments, making deposits/withdrawals and checking account balances. They require no face-to-face interaction from the customer and have therefore been easy to migrate to remote channels (first on-line and now increasingly to mobile) with benefits to banks and customers alike. For customers the ‘always on’, easy access, immediate execution of mobile is now the accepted and acceptable face of banking and for the banks there have been cost savings, through teller headcount reduction, a broadening of reach and the opportunity to streamline processes (albeit with significant initial IT investment outlay). Interestingly, and off-topic, this has resulted in the customer willingly taking responsibility for the ‘work’ involved in completing these simple transactions, that would have been incurred by the bank in the ‘branch only’ days!

 

The second category of customer-bank interaction involves face-to-face customer contact, either because of information ambiguity or because the transaction may involve a large amount of money (think mortgages, investment advice et al). The bank branch remains a popular solution for this type of transaction. To gain an understanding of the role of the bank branch within the portfolio of channels it is useful to seek an understanding from communications theory, where it is stated that when customers face information risk, they seek advice and the comfort of a second (professional) opinion. There are two sources of information risk; information uncertainty and information ambiguity, both of which merit further consideration.

 

The former is present when an individual knows how to carry out a service but doesn’t have sufficient data to do so. A typical example would be opening a core savings product, where the customer knows the product they wish to purchase and may even have enough information about the core product but due to the differentiated set of product choices (e.g. higher interest rates for non-withdrawal, or the tax efficiency of the product) seeks the bank’s help in making the choice so as to mitigate the risk of making the wrong choice. Such uncertainty is reduced by an exchange of information between the customer and the bank. Importantly this doesn’t necessarily mean the customer needs to visit a branch or interact with branch staff, indeed the bank website may be an adequate source of information.

 

Information ambiguity, on the other hand, exists where the customer requires clarification, enhanced understanding, feedback and dialogue. Here the customer will likely seek face-to-face contact (such as in a branch channel or call centre). Indeed where there are high levels of uncertainty and ambiguity (mortgages) there is an increased likelihood that customers will demand personal interaction in the branch environment. There is some research that suggests face-to-face communication is a ‘natural’ way of communication between people and also that social & cultural backgrounds influence channel (communication) choice.

 

Increasingly the customer-bank relationship is further complicated by the fact that customers want to move from one channel to another at the different stages of a transaction. This implies that banks must seek to integrate all channels and make all information on their banking offers readily available at all contact points. A silo mentality will not permit this seamless movement of customers across channels which suggests that a ┬ámulti-channel strategy (allowing customers to use the channel of their choice) be adopted. Some say this is inadequate and what is really required is an ‘omni-channel’ strategy (viewing the experience through the eyes of the customer, being holistic) orchestrating the customer experience across all channels so that it is seamless, integrated and consistent. Remember, making complex hand-offs between channels for the customer must be fluid for the customer.

 

So … is the branch still relevant? The simple answer is ‘YES’, however the critical issue for banks is that they must seek to integrate all channels and make all information and execution on bank offers available at all contact points.

 

If you’d like to know more about this topic including a full discussion of the issues involved in multi-channel management then our internationally accredited Certified Retail Banker qualification is the right programme for you.

Andrew Search
About Andrew Search 10 Articles
Andrew has been an RBA faculty member since 2011 and lectures all over the world for us. He enjoyed an extremely successful 25 year retail banking career in regional management and strategy roles for Halifax Building Society and Lloyds Banking Group. He has Chartered Institute of Banking certification, an MBA from Cranfield School of Management, graduated from Chartered Institute of Personnel & Development and is a Member of the Chartered Management Institute.

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