The New Banking Channel Network Optimization
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The document discusses trends in banking customer segments from 2009-2015 and the need for banks to optimize their channel networks in response. Key points: - Younger, older, and lower-income customer segments will grow and rely more on digital/remote channels, reducing branch traffic and increasing unit costs. - Previous multichannel strategies were unsuccessful due to poor channel alternatives, lack of integration, and customer reluctance. - Today customers are ready to use alternative channels, especially for simpler transactions, if capabilities are sufficient. - Banks must develop an integrated channel architecture tailored to segment needs and product complexity to improve profitability while meeting customer expectations.
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The New Banking Channel Network Optimization
- 1. The New Banking Channel Network Improving the Bottom Line through Channel Optimization Leading Research Paul Hyde Ashish Jain Kumar Kanagasabai Javier Sepulveda-Navarro
- 2. Booz & Company 1 Trends 2009–2015 Profitability Gen Y Gen 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 Mass Future 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 Business Small 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
- 3. 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
- 4. 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
- 5. 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 Account 38% 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
- 6. 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 branch Siloed delivery network ATM Bank Website Emergence of online channel Basic functionality in non- branch channels Call Center Branch Call Center Proliferation of attractive alternative channels (e.g., new media & mobile) Increasing adoption of alternative channels by customers Push toward channel integration Mobile Branch Customers Bank Website Social Media Online Budgeting 2 Customers
- 7. 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 cash deposit 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
- 8. Booz & Company 7 An Integrated Channel Architecture Is Required to Deliver on Segment Preferences, Economics, and Product Complexity Deposits/ Withdraw- als PaymentsTransfers Problem Resolu- tion InquiriesServicing Cross- Selling Closing Applica- tion Research TransactionOrigination Customer Service Products MassSmallBusiness Simple Complex Online ATM Online ATMOnline/Call Center Branch All Channels Branch Online/Call Center Simple Complex ATMATM/OnlineBranch All Channels Branch/Call Center Online/Call Center Branch Online Branch Call Center Branch 4
- 9. 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 ATMs Business RM
- 10. 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
- 11. Booz & Company 10 Implementing the New Channel Network Drives 10% to 15% Cost Savings 75 45 TotalStaff-Related Technology 5 Staff Support 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
- 12. Booz & Company 11 Contact Information Chicago Ashish Jain Principal +1-312-578-4753 ashish.jain@booz.com New York Paul Hyde Partner +1-212-551-6069 paul.hyde@booz.com Kumar Kanagasabai Principal +1-212-551-6455 kumaresan.kanagasabai@booz.com Javier Sepulveda-Navarro Senior Associate +1-212-551-6498 javier.sepulveda@booz.com
- 13. Booz & Company 12 Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. For our management magazine strategy+business, visit www.strategy-business.com. Visit www.booz.com to learn more about Booz & Company. ©2010 Booz & Company Inc. The most recent list of our offices and affiliates, with addresses and telephone numbers, can be found on our website, www.booz.com Worldwide Offices Asia Beijing Delhi Hong Kong Mumbai Seoul Shanghai Taipei Tokyo Australia, New Zealand & Southeast Asia Adelaide Auckland Bangkok Brisbane Canberra Jakarta Kuala Lumpur Melbourne Sydney Europe Amsterdam Berlin Copenhagen Dublin Düsseldorf Frankfurt Helsinki Istanbul London Madrid Milan Moscow Munich Oslo Paris Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East Abu Dhabi Beirut Cairo Dubai Riyadh North America Atlanta Chicago Cleveland Dallas DC Detroit Florham Park Houston Los Angeles Mexico City New York City Parsippany San Francisco South America Buenos Aires Rio de Janeiro Santiago São Paulo