The Value of Multi-Channel Banking
By Mark Elkins
October 21, 2003

Summary: Embracing new channels will enable retail branches to become profitable - and to continue to deliver personalized individual service to customers. By Mark Elkins.

Full Text (Page 1 of 3)  

Retail banking has seen many changes in the past 30 years, but perhaps the most radical has been a changing distribution model and the emergence of new, electronic channels.

The retail bank branch had served the banks well, providing a personal and individual service to customers. In the 1970s, ATMs (Automatic Teller Machines) became increasingly widespread; in the 1980s, telephone banking became popular; and in the 1990s, Websites were established that enabled online banking. Each successive channel opening coincided with branch rationalization programs, but the branch is not dead yet!

In fact, the branch still has an important role to play in the distribution of products and services, but it is a role significantly different from that of the past. No longer a processing center, the retail branch will become a fully-fledged sales channel, incorporating and adapting new technologies to deliver greater efficiency to customers at less cost - allowing branch staff to effectively sell a broader range of products and services.

Multiple channels - Multiple choice
Perhaps one of the most radical changes, however, has been the development of new channels to market. In the 1960s the bank branch was the sole channel to market, joined in the 1970s by ATMS, in the late 1980s by telephone banking, in the 1990s by Internet banking and, perhaps for the next decade, mobile banking.

Each successive technological development has enabled banks to communicate with their customers in a more cost-effective way, resulting in the reduction of cost per transaction. The OECD calculates that Internet banking reduces the cost of transactions by up to 89 per cent; perhaps a mobile channel will reduce transactional costs even further. With previous channels looking more costly in comparison to their new counterparts, many banks in Western Europe,
Australasia and North America started to pare back their branch network, in anticipation that the new electronic channels would ultimately replace the expensive high street branch network.

Having entered the 21st century we find that traditional and electronic channels coexist to deliver a full range of financial services to both customers and potential customers. Some 70 per cent of bank customers use multiple access points, and appear not wholly reliant on one channel or another. The point is that customers will use the channel that is most convenient for them: convenient in terms of their own location, type of transaction they are seeking to undertake, and their relative perceptions of the new communication alternatives.

Multi-channel dynamics
Operational cost reduction, increasing customer contact points, improving convenience for customers, and extending customer reach are all reasons that can be put forward for the adoption of multiple channels. Certainly a multi-channel approach broadens the appeal of the banks to a wider section of the community. For the technophobes there are the branches, for the technophiles the Internet, and for all points in between the ATMs and call centers. For some, the actual physical presence of the bank on the high street is reassuring in itself, knowing that their cash is in safe hands.

The Internet - Open all hours
Banks worldwide were swift to embrace the Internet as an additional route to market. The Internet-only bank quickly emerged, often a new division of an existing market player, leveraging the branding of the parent organization. But the Internet did not prove attractive to everyone. Research conducted by MORI in the UK suggests that mistrust of security is hampering the adoption of online banking. User name and password are considered insufficient security measures by 6 million people, although 38 per cent of respondents not currently banking online stated that they would use it if security measures were improved.  Security remains a concern to consumers in Germany.

The use of WAP (Wireless Application Protocol) and 3G (third generation) by consumers revealed similar concerns about electronic data access from a telephone. Research suggests that the development of this channel may be hindered by end-user concern about security, with a lack of trust. It seems that the banks have to do more to convince the general population about the safety of both fixed and mobile online banking if they are to continue to grow customer bases using these channels.