As Lewis Carroll pointed out in Alice in Wonderland, sometimes you have to run as fast as you can just to stay in the same place.
In this time of unparalleled technological change and constantly growing competition from non-traditional sources of financial services, banks have fallen well behind their speedier rivals. Why does Starbucks command a price-earnings ratio of 52, while the average retail bank is 13? Regrettably, bankers- preparing for the next wave of nonbank competition- are basing decisions on an old operating paradigm.
The new paradigm requires a new operating model that would reduce the number of full-service branches by 50 percent; increase the number of supermarket, warehouse superstore, mall and outlet branches by 100 to 200 percent; increase telephone sales and service capacity by 100 percent; install dozens of new automated loan machines; and substantially increase the number of self-service and video branches-perhaps by as much as 1,000 percent.
This new paradigm mandates a fully integrated delivery system and could reduce costs by roughly one-third while doubling sales output.
In simple terms, this new paradigm dictates three essential elements: integrated sales, service and financial transaction processes; a platform of state-of-the-art technology that provides a solid foundation for an integrated delivery system; and a comprehensive customer reference "data mall" that contains complete data on household relationship contact and transaction histories, demographics, sales and service preferences and financial stability.
The bank that wants to keep its customers and fight off convergence with the retail industry must know its customers in ways it has never dreamed of until now.
Picture an environment where a private banker can mine relationships for sales based on customer preferences for purchasing, where specific sales offers are directed to specific buyers in the household based on their specific needs and delivery channel preferences. Where products can be created at the customer's office, in a video kiosk, or over the phone. Where the likely "next product" for each household can be predicted, offered and closed. Where likely "next lost" customer accounts can be predicted and targeted offers made to reduce attrition.
The ability to know customer preferences for sales, service and financial transaction delivery by customer segment is the key to all future investments in sales and delivery capability. If your bank is considering a significant investment in sales or delivery, consider this question: Which customers prefer to do what things through which channels? Unless you have an answer, you cannot evaluate the proposed investment.
Starbucks knows its customers' preferences-not only for product, but also for delivery-and the result is frothing up shareholder value.
Integration of all delivery channels is not a new concept, but it is one that has been talked about more than acted upon. To move ahead in the financial race, retail banks must understand and utilize Internet-style network communications to create a common customer interface for customer segments having the same or similar goals and characteristics.
The list of financial services offered by retail banks is long and getting longer every day. For the average customer, gaining knowledge and understanding of these myriad services is extremely difficult. Today, access to financial services and a full explanation of the advantages of each can be attained through available electronic communications which are only sparsely being taken advantage of by today's bankers.
For all channels of communication, the habitual use of "customer language" rather than terms used and understood only by bankers should become standard practice. When that goal is achieved, the customer data bank can pave the way for promotions and sales offers precisely targeted at investors based on their demonstrated needs and preferences.
Now, more than ever, retail banks are under constant scrutiny from their customers, investors, regulators, and the financial community.
Discarding the debris of the past and concentrating on opportunities of the future is not as easy as it sounds. It requires huge expenditures of understanding and cooperation on the part of employees from the CEO on down, from shareholders, and from consultants skilled in this kind of essential transition. But once the necessity of these changes is accepted and the improvements are implemented, the rewards will be substantial.
The financial markets would reward such market leaders with loads of fresh capital. Customers would reward the bank with loyalty. And the industry would reward this "Bank of the Future" with envy.
William Clay is a senior manager in Deloitte & Touche Consulting Group's Financial Services Industry practice.
