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WHY LEAN BANK BRANCHES ARE THE FUTURE ONCE THE LOCKDOWN IS OVER

LEAN BANK

By Mark Aldred, banking specialist at Auriga

 

What are lean bank branches and why are they so important?

A lean bank branch is a physical location providing banking services that have been optimised to cut operating costs, maximise efficiency and maintain high levels of customer satisfaction. While the popularity of adopting the lean branch model is rising, it is no secret that bank branch networks are continuing to be trimmed, particularly in rural and remote areas. According to Which?, over 3,000 bank branches have closed in Britain since 2015 amid falling footfall, rising costs and increasing competition from online challengers.

Here are four reasons why banks, once the lockdown is over, should invest in lean branches rather than close them.

  1. To generate additional revenue streams and drive profitability

Often the first reason given for a bank deciding to shut a branch is that it is no longer profitable. With a lean branch model, banks can achieve branch profitability once again. This requires them to be open-minded to new possibilities for the space, and to introduce extra banking services and thus generate fresh streams of revenue. One way of doing this is to create a shared or white label branch, where a bank can share the branch with another bank or organisation to allow them to use the space or technology.  This might be a financial services provider, a café, travel agent, soft play centre, office space or community hub. Not only could lean branches mean greater cash flow with the additional revenue streams, but it could also encourage an increase in footfall and dwell time as it becomes more of a destination and place people want to visit and spend time. Banks should follow the leads of Virgin Money and the Bank of Scotland which have both enjoyed the benefits of trialling new store concepts recently, with the latter offering free training events and space for locals to network.

  1. To improve efficiency and cut unnecessary costs

A common feature of lean bank branches is the use of the latest technologies to replace systems that drain resources with ones that enhance efficiency and optimise performance. Technologies like automation and AI can drastically transform processes by taking on mundane, repetitive activities, freeing up time for more challenging tasks and customer queries and allowing branch staff to upskill. This is crucial as employees must be equipped to deliver more for customers when they need it and focus on activities where human interaction is bringing added value. In the lean-branch model, almost all branch employees will be multi-skilled sales and service bankers and will spend most of their time on targeted, analytics-driven activities.

Assisted-service terminals that offer video banking technologies to staff could even allow branches to double or triple access to expertise. As staff are available by video link, the customer can easily request whichever subject matter expert they want based on their specialist knowledge and experience. Furthermore video banking is useful in helping boost financial inclusion and extending banking services to areas that were ill-served by traditional banking. With video tools, small locations in remote parts of the country can offer services that would otherwise only be available in urban environments where it is more cost-effective to open larger, multi-teller banks. They can also enjoy extended service hours.

Lean branches can also benefit from Big Data analysis and learning to predict the amount of resources needed in each location and improve the quality of service by making back and front office processes as frictionless as possible. This should mean that customers are less likely to queue, get focused service faster and leave the branch satisfied, encouraging them to return.

  1. To improve experience and drive loyalty

Customer expectations have arguably never been higher, yet still there are so many banks who use the same, decades-old legacy systems. Moving towards a lean bank branch doesn’t just mean bringing the space into the 21st century, it means bringing the experience into the 21st century too. Today’s customers don’t engage with their bank via only one channel, and expect to decide for themselves what channel they use to start and end a transaction. Fortunately, there is software available that is entirely independent of hardware and allows banks to streamline all channels together. Information about each customer is therefore shared. This means the bank can track the entire customer journey and ensure one source of truth. Further, when a customer walks in to the lean branch, the bank can quickly pull up on their tablet information about who they are, what products and services they use and are likely to need, providing an opportunity to offer a new service relevant to them.

 

  1. To keep branches open, protect choice and maintain access to financial services everywhere – even in rural areas and in cases of IT failure

Moving towards the lean branch model is not just sensible for the bank, it is vital for protecting access to financial services in the UK. By trimming their branches of excess expenditure, sharing services between channels and improving efficiency with technologies like AI and automation, banks can make sure their networks stay profitable and – crucially – open.

Maintaining touchpoints like bank branches and ATMs is key to maintaining choice of channel for consumers so they can access financial services however they choose. This is particularly important for the elderly and people with disabilities. According to the latest Ofcom Access and Inclusion report, just under half of over 75-year-olds do not have home broadband, and internet users with a disability are less likely than non-disabled internet users to bank online (45% vs. 61%). But it’s also important for many others too, such as first-time buyers who prefer speaking about their mortgage in-person, those living in rural or remote areas, and consumers whose bank has suffered an IT failure and whose only choice for making a payment is to get emergency cash from their local branch.

For all these reasons, it’s clear that lean bank branches are the way forward. Banks should therefore avoid closing branches and instead invest in lean ones.

Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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Banking

2021: THE NEW-NORMAL LIFECYCLE FOR BANKING

Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG

 

It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.

Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.

In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:

 

Reputations are reborn

Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.

In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.

 

Coming of age in the way of working

Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.

Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.

 

The death of cash

Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.

Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.

The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.

 

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