Setting the Stage:
Branch banking in the U.S. is at an inflection point exacerbated by the COVID-19 crisis. Almost daily, banks are announcing mergers whose stated benefit is cost savings through branch consolidation. Others, with branches shuttered during COVID-19 lockdowns, are now assessing if they need to reopen at all. Up to 30% of branches that were closed due to the pandemic may never reopen, according to data from S&P Global Market Intelligence.
At the same time, digital adoption is breaking records. According to a J.D. Power study, the use of mobile banking apps reached 72% of customers at the four largest U.S. banks in April 2020 – a year-over-year increase of 10%. As banking products are commoditized and behemoths like Google and Facebook step into this space, banks acknowledge they can’t compete on product range, price or even digital capabilities alone. They need to find ways to differentiate themselves from fintechs and digital challengers.
Advantages to Branch Banking:
There are some advantages that banks maintain over their competitors. According to an Accenture study, while overall trust in financial providers might be eroding, more than half (57%) of consumers believe that when providing advice, their bank has their best interest in mind “always” or “most of the time,” and 62% believe that the advice is smart, personalized and well-informed.
Studies have also shown that customers prefer a human agent rather than a digital experience, for advisory services or solving complex issues.
The combination of customer trust along with a trained army of bankers and a physical branch presence gives banks a distinct edge that fintechs and digital banks cannot match. Banks have begun to realize that they need to reorient their relationship bankers as trusted advisors to increase customer acquisition, build lasting relationships, strengthen customer engagement and boost revenue.
Digital Transformation Goals:
The paradigm has shifted from a physical branch-based network to a virtual network of knowledgeable bankers armed with the tools to assist customers anywhere.
Given current trends, the focus of branch banking transformation is on sales and advisory capabilities, relationship building, digitization and automation of processes and problem resolution. Teller cash transactions, traditionally the forte of branch systems, now rank low in the order of priorities at most banks.
Customer expectations are exceedingly high as they question why account openings that take five minutes online take upwards of 30 minutes in a branch with a banker. Customers also expect omni-channel capabilities across customer and banker channels.
Simultaneously, bankers expect to have the same view of accounts and transactions as online customers do and require a full 360-degree view of the client relationship, including all touchpoints, notifications and service requests.
Future branch banking software must support a universal banker model via role-based personas with mobile and collaboration capabilities allowing bankers to move seamlessly between their locations and devices. At the same time, robust security, alternative authentication models, offline mode support and integration with branch devices are considered table stakes.
Impediments to Branch Transformation:
But why do we see few banks embarking on a branch transformation journey? The reasons are multifold:
· Operational and reputational risk: Most branch systems have been heavily customized over the years, and technical/operations knowledge of the systems often lacks in-house. Upgrading these creaky systems, updating processes and training employees on new replacements presents a major risk to the business.
· Cost of replacement: Branch systems replacements are expensive owing to the complex functionality, multiple integration touchpoints, legacy customizations to unwind, process reengineering activities, retraining and the inevitable branch reimagination that accompany such initiatives. The hefty investment commitment serves as a deterrent for most banks.
· Lack of compelling business case: In retail banking, the benefits of replacement include reduction of operating costs and simplification of complex workflows. These cost savings are less compelling to management over other investments aimed at supercharging revenue growth and boosting customer numbers. Staff reductions are often not feasible due to the lean staffing models in most U.S. banks.
· Lack of options: Banks have limited options when embarking on a branch digital transformation journey. Most vendors offer branch software that is tightly coupled with their core banking systems. True core agnostic systems are limited and incomplete in functionality. As a result, mid to small-tier banks have limited choices. While the largest banks can contemplate a custom buildout with the right technology provider, this is not feasible for most banks and they remain shackled to their aging branch infrastructure.
Fresh Approach to Branch Transformation:
A strategy banks can try parallels a well-tested approach used in core banking system replacements called ‘hollowing out the core.’ This involves strategically stripping out functions from legacy core banking systems and moving them to modern digital solutions. Over time, the core is left only with the transaction processing function for which it is best suited.
In the branch context, this model is advantageous as it mitigates the enormous risk accompanying the monolithic legacy branch platform. It is possible to phase in new functionality, focusing on high ROI services, thereby managing the bottom line and banks have the ability to test and learn along the way.
The new platforms would provide speedy, seamless and paperless end-to-end customer journeys to in-branch clients. Additionally, these journeys would be omnichannel, meaning customers should be able to go home and complete an application started in branch by uploading documents, signing forms and selecting additional services. All functions would be mobile-enabled to provide bankers and customers maximum flexibility. Cash transactions, vault management, and cash drawer management would continue to be handled by the existing teller systems.
Technology Driven Transformation:
Achieving a hybrid service delivery model requires banks to have robust unified digital engagement platforms that manage the interactions across all channels. A digital engagement platform manages the business rules, user preferences and entitlements, channel interactions, integrations and analytics in a unified manner across all channels.
The advantage of migrating capabilities from disparate standalone branch systems into a centralized digital engagement platform is extremely powerful. It gives banks the freedom and flexibility to build reimagined experiences for the banker-assisted channels while benefiting from the economies of reusing existing capabilities. Similarly, complex processes that were once the domain of the branch can in turn, be exposed for self-service via the digital channels. And, all this can be done incrementally based on the risk tolerance of the bank.
For long-term success the branch transformation should not be viewed in isolation but as part of a holistic and ongoing journey of transforming all the bank channels to a truly hybrid banking model serving customers of today and tomorrow.
Rajashekara V. Maiya – VP, Global Head for Business Consulting, Infosys Finacle
Rajashekara Maiya serves as VP and Global Head for Business Consulting at Infosys Finacle. He is a seasoned Banking Technology, Regulation and Compliance expert and has over 25 years’ experience in the industry.
He is responsible for Business Consulting at Finacle, which includes Pre-sale, Solution Architecture, Account Mining and Digital offerings. Before taking over as the Head for Business Consulting, he was responsible for the Cloud Business for Finacle, which included charting strategies for Cloud Hosting and working with Cloud Infrastructure providers. Further, he was responsible for the Ecosystem collaboration and bringing out point applications in the banking space and Fintech engagements and was instrumental in launching the Blockchain Solution.
Maiya specializes in risk management, regulations and compliance and has been quoted on these and other topics in numerous publications. Maiya is the co-author of book “SMACing the Bank” which was released in November 2017. Prior to joining Infosys, Maiya was an audit manager with an accountancy practice. He holds a master’s degree in commerce, specializing in banking, costing and taxation, and is an Associate member of the Institute of Chartered Accountants of India. He has completed the Executive Certification of Graduate Business School at Stanford University-USA.