|Touch the Future (September 2010)|
Rapid changes in how customers bank threaten traditional banking. It doesn’t have to be that way, however. Community bankers and the author of BANK 2.0 discuss what the bank of the future needs to be.
Rapid changes in how customers bank threaten traditional banking. It doesn’t have to be that way, say three community bankers and Brett King, author of “BANK 2.0”
* * *The following section represents highlights of the conversation. You can hear the entire discussion at www.ababj.com
ABA BJ Community banks have long thought that what they bring to the competitive table is service. Brett, how would you capsulize the old definition of service versus what the new definition of service may turn out to be?
King Most banks measuring customer experience look at only one or two channels—the primary channel being the branch, and then maybe call centers. But there’s a whole bunch of other channels that are involved: Customers in most developed economies are five to ten times more likely to interact with your bank via an ATM machine, for example. Today banks still think, “As long as we get the experience in the branch right, then our customers are going to be happy.” But these days service is a lot more complex.
ABA BJ Ohio Valley was an early adopter of mobile banking. What motivated that?
Butler Brett spoke of the need to leverage traditional community banking and this is an example.
Southern Ohio and western West Virginia don’t have the broadband lines they do in other areas. When mobile devices hit this area, that became the major mode of getting onto the internet. So when we were afforded an opportunity to be a beta site for mobile banking, we jumped at that.
We see lots of Gen Y’rs using it, but we also see a lot of Gen X and many older customers as well. The Ys talk to their parents and get them on Facebook so they can see their pictures. So they begin adopting the technology.
King As we get richer and richer experiences with customers through these digital devices, we’re shifting transactions out of the branch. Essentially what we’re seeing is that the need to come into a branch to do a transaction is becoming redundant.
This will require adjustment. Traditionally what bankers have relied upon is if someone comes into the branch to do a transaction, a cross-sell opportunity will present itself. Yet banks don’t really want customers coming into the branch to do transactions, because they’re quite expensive to handle. So branches ultimately have to become a selling environment on their own. And so, increasingly, we’ll move to an environment where customers will come in and engage, because they will still want face-to-face advisory that the branch permits, on occasion.
Smith We had a meeting with the board recently and the topic of service came up. I said, pointing to Bryna Butler, “We have a Gen Y’er right here.” So we asked her, “What’s important to you about service?”
Butler And I said, “I just want to be able to find things fast.”
King It’s all about speed. Service is speed of delivery. The faster you can do it, the better they perceive the service delivery.
Smith Brett, something I face as a community banker is the regulatory wall. Nonbank providers like MoBank in the U.K., they don’t face that kind of thing.
King U.S. regulators are going to have to think differently. It may take a generational change. But financial services is innovating so fast these days that the regulators are going to be constantly playing catch up.
ABA BJ Brett, you wrote about innovations in branch design and purposing—about “bank shops” and “pop-up branches”—less permanent structures than the traditional granite branches that have been there 100 years.
King Banks have to be about pervasiveness—being wherever the customer needs his bank to be at that point in time. An easy example is when you walk into a car dealership to buy a car. That’s the time you need information about a personal loan. Now you might do that through your mobile phone, but if there is an advisor from your bank at the car dealer or if one of the car dealer employees was trained by the bank to offer loan advice, that’s an advantage. The principle is anticipating behaviors and trying to embed the banking functionality.
“Branches” may be very temporary structures. For larger business customers with a relationship with the bank, the bank might give them a “branch in a box,” which would be a screen that provides access to the bank’s products and services for their employees, rather than being at a physical branch. So it’s not so much about the branch per se as taking the functionality and the physicality of banking to the best location where it’s needed for the customer.
Butler One of the ideas that we’ve been playing with is an unmanned, express branch.
King There are two concepts, in that regard, that I think are promising. One—particularly well-suited to a shopping-mall type of environment—would have a virtual teller. In another concept, your branch officer essentially becomes very mobile and he may have an iPad, which is connected wirelessly to the bank, and he’s walking around engaging customers in that way.
ABA BJ I’d like to touch on small business banking, the sweet spot for many community banks. In Brett’s book, there’s a section where he says, “Local knowledge that translates into better service for local small businesses has been the key to reviving unprofitable small town branches, not the branch in itself.” Jeff, that really plays to the traditional strength of the community bank, doesn’t it?
Smith That relationship is really what we have to offer. Money is money. But relationship is very key to us and quite frankly I think a community banker is more interested in the person in that business than perhaps a larger bank is.
King You’re going to see banks getting closer to their customers and providing an extension of the bank to the small and medium-sized business. For example, one of the biggest problems such companies have is cash flow and managing their accounts receivables. If you could integrate the accounting function—or get a lot closer to it—then you could have a look at the cash flow of the business, and better anticipate its needs.
McCalla Another issue is technology. We come up with great ideas but then we run into roadblocks because we don’t have our own programming staff. We have to focus on interfacing with our core systems and sometimes that holds us back from being innovative.
King That’s a challenge. Actually the big banks often have the same challenge. A third-party developer can put together a pretty basic iPhone app within 48 hours. But it will take most banks nine to twelve months to deploy that app because of the back-end integration. The solution is to have a library of Application Protocol Interfaces (APIs) to get access to those core pieces of functionality within the bank’s systems. Think of it like Apple’s iTunes. The bank becomes iTunes and engages the developer community to do the innovations using the APIs. I know there is concern about regulatory issues and security, but ultimately something like that is going to have to be the solution because otherwise the innovation is just not coming fast enough.
McCalla We often run into the issue of what to charge? An example is online financial management. I would never pay for something like that because I can go to Mint.com and get it free.
King In the short term, the way to solve this problem is to look at the total customer relationship. The objective has to be about deepening the relationship and that comes through understanding the customer and their behavior more.
In the future we’ll be designing products to smaller segments and finding ways to get the message to that customer. â–
The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj0910/index.php?startid=26
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