After years of more talk than action, the North American retail financial-services sector has reached a tipping point in technology use. Legacy branch-centric operating models are giving way to multichannel, customer-centric initiatives, according to Celent's report, Emerging Technologies in Retail Banking: The Long Road to Customer Centricity.
"Perhaps the only thing more depressing than the current retail banking business and regulatory climate is the prodigious effort needed to equip retail financial institutions to thrive in our increasingly multichannel world," says Bob Meara, senior analyst with Celent's Banking Group and the report's author. "A significant majority of financial institutions are ill prepared for what is upon them. A minority have begun a complex journey, but there is a long way to go. No one has yet arrived."
Among the report's key findings:
- Online rules. The online channel is now considered more strategically important than the branch channel by a majority of financial institutions. This reflects a dramatic change in thinking. The number of banks ranking the branch channel number one or two in importance declined from 73% in 2010 to 54% in 2012. This occurred alongside a dramatic ascendency of the mobile channel from 23% in 2010 to 51% in 2012.
- ‘Branch of the future' may be emerging. While substantive branch transformation remains a rarity in North America, there appears to be a growing consensus that the status quo is unsustainable. In 2012, considerably more institutions indicate intentions to make significant changes in branch configuration (55% vs. 24%). Importantly, over the past three years, this sentiment has been accompanied by action-significant investments in technologies to improve sales and service effectiveness: customer relationship management, customer analytics, and campaign management systems.
- Platform systems get modern. Two years ago, the bulk of branch channel technology spending had been check imaging. With check imaging projects largely complete, banks turned to removing the remaining paper in the branch, in the form of automated deposit account-origination systems. In 2010, 22% of banks and 47% of surveyed credit unions had such systems. In the 2012 survey, usage grew to 28% and 52%, respectively.
- Even cores may be changing. Aging core banking systems present an impediment to delivering the customer centricity that more banks seek. Yet, few financial institutions have had the courage to change cores. That may be changing, albeit slowly. The number of banks indicating they were somewhat likely or highly likely to replace or refresh the core system over the next three to five years jumped from 17% in 2010 to 24%. Credit unions responded similarly, growing from 13% to 24%.
- Online and mobile-platform usage growing. Financial institutions are investing in more capable online and mobile platforms, with a minority (38%) of large banks also delivering a unique tablet experience and another 46% indicating specific plans to do so. Emerging online and mobile functionality is in the works among the large banks and will be made available by smaller financial institutions subsequently. Business case or not, financial institutions broadly know that mobile is no longer optional. Fielding and maintaining a competitive mobile channel is a high priority toward achieving retail banking strategic objectives among 81% of banks and 93% of credit unions surveyed.
- Experimentation with social media widespread. Some 80% of responding financial institutions claim to be "active" in social media. What is meant by "active" varies considerably, though. Roughly two-thirds of financial institutions listen to and track what others are saying about them in social media. Fewer use social media for marketing (outbound) communications (42%), and fewer still integrate social media into CRM systems as they do with other methods of customer communications (5%). Among all the retail banking technologies covered in this report, social media is the most nascent and viewed as the least strategically important. Most commonly "owned" by marketing departments, social media is not (yet) viewed as a respectable customer engagement channel. Instead, for most financial institutions, it remains a curious marketing and, at best, voice-of-the-customer medium.
- Movement toward customer centricity. Customer centricity relies on ways to integrate channels, inform front-line sales teams, rigorously track open leads and queries, and understand customer behavior and product consumption in relevant and actionable ways. North American financial institutions are investing in a growing number of back-office systems to assist them in their journey towards customer centricity, from campaign management to predictive analytics and relationship pricing systems. But most financial institutions aren't well-equipped to "walk the walk" when it comes to customer centricity.
- Customer centricity may be a journey, not a destination. Regardless, most financial institutions have hardly begun the journey-particularly smaller ones. Yet, surveyed adoption intent suggests a growing number of financial institutions at least have their bags packed and ready for the trip. A key challenge in moving from product- and channel-centric views to customer centricity is that product and channel organizational silos still abound.
- Branch business down. Financial institutions continue to observe steady declines in branch transactions and accompanying foot traffic. While responses varied significantly, both 2010 and 2012 surveys point to an average decline of approximately -5% CAGR. Responses vary considerably, however, with 45% of respondents anticipating declines from 10% to 25% over the next five years, one-fourth expecting 25% to 40% declines, and about 20% expecting steep declines of up to 60% over the next five years (-12% CAGR).
- Branch count changes? Maybe. Despite declining branch business, a large majority of financial institutions insist on continuing to invest in growing branch count: 59% of banks and three-quarters of credit unions surveyed expect to operate more branches in five years than they do now. The data appears at odds with accelerating consumer preferences for self-service channels, and the ever-growing branch transaction costs resulting from the changing mix. Most financial institutions seem trapped in their expensive branch infrastructures, until they demonstrate the ability to sell and service customers elsewhere. Too many financial institutions are overly reliant on the branch for sales to contemplate a right-sizing. Celent is skeptical that the surveyed intentions will play out over the next five years. A modest reduction in branch densities appears overwhelmingly more likely. Yet most institutions don't see it that way. Instead, focused on growth, most can't imagine doing so without continued branch expansion.
[This article was posted on August 28, 2012, on the website of ABA Banking Journal, www.ababj.com.]