The New Banking Channel NetworkImproving the Bottom Line through Channel Optimization
Leading Research Paul HydeAshish JainKumar KanagasabaiJavier Sepulveda-Navarro
Booz & Company 1
Trends 2009–2015 Profitability
Gen YGen Y and younger to grow from 26% to about 40% of the workforce by 2015
Rely heavily on new media (e.g., social networking, iPhone applications) in day-to-day activities
MassFuture income stream hit by unemployment and flat/falling wages
Demand for lending products contracting as customers seek to de-lever and increase savings rate
Retirees
Population ages 65 and older to grow by 30% to almost 50 million by 2015
Demand increasing for investment products to supplement uncertain Social Security payments
Acceptance of online delivery methods is increasing
Small BusinessSmall businesses’ appetite for, and access to, debt will recover slowly, and banks and businesses continue to de-lever
Small business profits to recover slowly, in line with the economy and consumer spending
Segment
Mass Affluent
Income and home assets hit, but recovering as earning power more resilient and wealth diversified
Debt servicing capacity recovering, with balance sheet and income leading to some lending growth
Strong preference for remote channels for day-to-day transactions
Current Trends across Market Segments Point to a Difficult Low- Growth Environment for Banks
Booz & Company 2
TotalOnline/Mobile
5%
Call Center
10%
ATM
10%
Branch
75%
These Trends Are Creating New Pressures to Reduce Branch-Based Costs and Reinvest in Alternative Low-Cost Channels
Channel Cost Structure -
Banks
Reduce Costs
Increase Investments
Pressures on the Branch Network
Aggressive branch growth resulting in oversupply in certain markets
Shifting of branch volume for servicing and transactions to virtual channels driving higher unit cost at branch
70% of the branch traffic is driven by the least profitable customers (i.e., mass market)
Limited branch channel usage by younger, more affluent customers
Customer expectation for ubiquitous connectivity and seamless integration across all channels
Booz & Company 3
Previous Attempts to Develop a Coherent Multichannel Model Proved Unsuccessful
Poor Channel Alternatives
Customer Push Rather Than Pull
Continued Channel Conflict
Customer Reluctance to Migrate Transactions
Limited functionalities offered by alternative channels for banking needs
Poor customer experience in using the alternative channels (e.g., onerous voice response menus, fragmented and difficult-to-navigate online channels)
Introduction of “penalty fees” to drive customers toward the low-cost channels (i.e., stick instead of carrot)
Lack of systematic education of customers on capabilities and benefits of alternative channels
Lack of channel role clarity to perform sales, servicing, and transactions
Competing capabilities built across channels with limited integration, driven by siloed approach to channel management
Strong preference by most of the customer base to interact with banks through the branch
Reluctance to use alternative channels for banking needs because of lack of functionality, perceived lack of comfort and security
1
2
3
4
Booz & Company 4
Today, Customers Are Ready to Adopt Multichannel Access Points to Transact with Banks
Credit Card 15% 85%
Savings Account 39% 61%
Personal Checking
Account38% 62%
Might Obtain by Phone, Mail, or InternetWould Only Obtain Face-to-Face
Simple Product Origination
42%58%
Mortgage 64% 36%
Investment Management
Account
Personal Loan 61% 39%
Complex Product Origination
1
Booz & Company 5
ATM
With Significant Improvements in Alternative Channel Capabilities, Integrated Multichannel Strategy Is a Reality
Evolution of the Channel Network (1990–2010)
1990
2000
2010
Branch
ATM
Call Center
Poor channel alternatives to the branchSiloed delivery network
ATM Bank Website
Emergence of online channelBasic functionality in non-branch channels
Call CenterBranch
Call Center
Proliferation of attractive alternative channels (e.g., new media & mobile) Increasing adoption of alternative channels by customersPush toward channel integration
Mobile
Branch
CustomersBank
Website
Social MediaOnline
Budgeting
2
Customers
Booz & Company 6
However, to Make the Switch, Customers Need to Be Educated about Alternative Channel Capabilities
Aware of capability,but do not use
Not aware of ATM cashdeposit capability
All Segments
55%
45%
Prefers to do cash deposits in the Branch
Prefers to do cash deposits in the ATM
CASH DEPOSIT EXAMPLE
7%
Branch
ATM
Other
All Segments
75%
18%
75% of customers prefer the branch to make a cash deposit1
However, 45% of those customers are not aware they could do this transaction at the ATM2
3
1) Represents answer to question in survey -
“In what way do you prefer to make a cash deposit?”2) Represents answer to question in survey -
“Does your bank offer you the capability to make a cash deposit at the ATM?”Source: Booz & Company proprietary research
Booz & Company 7
An Integrated Channel Architecture Is Required to Deliver on Segment Preferences, Economics, and Product Complexity
Deposits/ Withdraw-
alsPaymentsTransfers
Problem Resolu-
tionInquiriesServicingCross-
SellingClosingApplica-
tionResearch
TransactionOrigination Customer Service
Products
Mas
sS
mal
l Bus
ines
s
Simple
Complex
Online
ATM
Online
ATMOnline/Call Center
Branch
AllC
hannels
Branch
Online/Call Center
Simple
Complex
ATMATM/OnlineBranch
AllC
hannels
Branch/Call CenterOnline/Call Center
Branch
Online
BranchCall
Center Branch
4
Booz & Company 8
This Tailoring Will Result in a New Segment-Driven Branch Model with a Greater Focus on Sales
Mass Affluent Branch
Market Characteristics
Mortgage Tax IRA Treasury Merchant Services
Emerging Affluent
Branch Model
Branch Attributes
•
High-end branches exuding exclusivity•
Personalized service•
Support need for privacy
•
Extended hours•
Dedicated service personnel for business clients•
Integrated ATM capability
Small Business Segment
Small Business Branch
Remote Product Specialists Remote Product Specialists
•
High home ownership rate, with accessible equity
•
High-income area
•
High business density•
High proportion of business customers
Vault Services
Business Services
Business Services
Wealth RM ATM Imaging
ATMsBusiness
RM
Booz & Company 9
Specific Capabilities Need to Be Developed to Support Each Channel’s Mission
Required Channel Capabilities -
Examples
Single governing body managing investments across channels and ensuring alignment of channel roles to client needs
Incentives for channel owners to cooperate, not compete, with each other
Training and ongoing education for client-facing employees to understand client needs, enable collaboration and referrals across channels
Massive customer education campaigns to nurture better understanding of the capabilities in alternative channels
Improved sales collaboration and warm handoff processes across channels
Increased consistency and standardization of processes and policies across channels
Standardized customer experience aligned to segment needs and value across channels
Access to single view of customer across channels to understand current relationships and potential needs
Consistent information availability and customer data capture across channels
Integrated channels across origination, customer service, and transaction value chain
Channel Governance
People
Process
Technology
Booz & Company 10
Implementing the New Channel Network Drives 10% to 15% Cost Savings
75
45
TotalStaff-Related Technology
5
StaffSupport Services
25
Staff Reduction
Note: Based on a fully loaded RM salary of $100,000 per year.Source: Booz & Company proprietary research
EXAMPLE:Branch cost
base of $700M
Fully Loaded Branch Cost Savings(US$, in millions)
Channel Network Benefits
5% to 7% cost savings from reduced branch staff driven by transactional volume transfers to alternative channels
3% to 5% cost savings from streamlined branch support services - e.g., efficiencies in the internal call center
2% to 3% cost savings from a reduction in FTE-driven technology costs - e.g., software licenses and equipment
ILLUSTRATIVE
Booz & Company 11
Contact Information
ChicagoAshish [email protected]
New York
Paul [email protected]
Kumar KanagasabaiPrincipal+1-212-551-6455kumaresan.kanagasabai@booz.com
Javier Sepulveda-NavarroSenior [email protected]
Booz & Company 12
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations.
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