Mark Aldred, Banking Specialist at Auriga
2021 should be about making the lives of customers easier by tailoring the customer journey and targeting the imminent issue of access to cash. Taking into consideration the effects of COVID-19, the government and communities will be working harder than ever to fix cross-industrial problems to offer customer solutions. Recently, news about staff redundancies and towns affected by bank closures have infiltrated the news agenda, however HSBC’s recent announcement on its latest UK branch strategy has added a drop of hope into the banking industry.
Legacy banks have experienced a mass reduction in the number of customers using traditional banking channels, and there has also been an influx of new entrants consuming the majority market share with digital only solutions. Surprisingly, despite the acceleration of bank branches shutting down, the closure rate has still not reached its peak, as a prediction of 40,000 more banks are expected to close within the next three years in Europe, hence the issue around access to cash is to worsen. Fortunately, different measures have been taken within the industry to counteract these growing issues, as forward-thinking banks have adopted alternative models.
An active approach to help solve this problem has been the destruction of ATMs, however this is being done at the expense of communities that are most heavily dependent on them. Even though there is promise that this will decrease extra costs and increase efficiencies, there still remains a possibility of losing customer loyalty and withstanding reputational damage. Self-service can be a viable solution to this conflict, which is why HSBC’s innovative strategy that goes beyond branch restructuring has garnered attention.
A more efficient banking service
HSBC plans to introduce both digital services and pop-up branches. Although a step forward, it may have missed the mark on how self-service banking can be complemented with assisted and remote service and then remodeled into a lean branch format. This is an opportunity that grants communities a bank branch in a box and an alternative to losing access to bank branches as a focal point for financial services. An example of this is how modern ATMs can offer additional services such as paying bills or even doing live video calls with a banking specialist. This way, access to cash can be subsidised by creating alternative revenue streams. This trend is also becoming increasingly common in other countries like Italy.
The future of banking
Incorporating a banking service that operates 24/7 would drastically change the economics of a physical branch. The next generation of bank branches must also be cheaper, smaller, smarter, full-service and automated. An example of how this can benefit a business, could be seen in Millennium BCP’s strategy in Portugal. Around three to four years ago, the private commercial bank found difficulty in reputation management and the cost of infrastructure. In retaliation, the MTM branch model was born, along with a new style of the 24/7 branch, which was accompanied by overnight remote banking.
The results proved that this approach was profitable, as banks increased in greater proactivity, received double the amount of deposits in comparison to legacy banks and required less costs. As personnel managed the transactions during the day, and remote tellers at night, this also contributed to how they managed to save money operating the bank. Moreover, this also improved customer loyalty and the retention score.
High street bank closures
There are subgroups that have become accustomed to using bank branches as a channel of financial services. This may be because it is deemed as more dependable and provides added comfort and security to the customer. Therefore, as there will be less high street banks available, an alternative way of ensuring customers are not missing out on accessing banking services is by considering the option of sharing facilities to maintain local financial service hubs. Shared facilities is not a foreign concept in Europe, by doing so it is possible to save on costs, generate revenue, and strengthen the relationship between the business and the community.
In many European countries such as the Netherlands, Sweden, Finland and Belgium, ATM infrastructure sharing is already an active trend in the markets. For example in Belgium, an initiative referred to as Batopin, means that a network of bank-neutral ATMs, previously managed by its four biggest banks will form a single software platform in 2021. Bank-neutral ATM estates is another way banks can guarantee customers continuous access to cash without burning through costs.
Overall, HSBC’s new strategy of providing digital service as well as pop-up branches is a good idea, although self-service banking can be extended to incorporate assisted and remote services into a leaner branch format. This way, customers will not have to lose direct access to bank branches, and customer loyalty can still remain intact.
