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.4
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
Source: S&P Global Market Intelligence, as at 7 January 2019. Analysis is limited to banks that opened and closed branches between 1 January 2012 and 31 December 2018.
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.9 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.
1 Retail Banking 2020: Evolution or Revolution?, PwC Banking Survey 2020, PwC
2 Investopedia, as at 24 April 2019; a ‘loss leader’ strategy involves offering a product or service at a price that is not profitable, but is sold to attract new customers or sell additional products and services to those customers.
3 Caterpillars, Butterflies and Unicorns: Does digital leadership in banking really matter?; Accenture, 2019; Accenture analysis on Celent, Global Tech spending forecast, 2015-2018.
4 Accenture surveyed and conducted analysis on the largest 161 retail and commercial banks from 20 countries
5 S&P Global Market Intelligence, as at 7 January 2019. Analysis is limited to banks that opened and closed branches between 1 January 2012 and 31 December 2018
6 Bank branch closures: Is your local bank closing?, Which?, November 2019
7 Recognizing the value of bank branches in a digital world, Deloitte, 13 February 2019
8 OCBC Bank implements facial recognition technology to upgrade the banking experience, Fintechnology News, 16 February 2018
9 HSBC brings Pepper the robot to Miami, Finextra, 30 May 2019
10 Santander Bank empowers new customers with the WOW Factor, PR Newswire, 25 May 2017
11 Citibank Smart Banking – on the move – convenience powered by technological innovation, Citi, 12 May 2015