CHICAGO-In spite of long term investments in alternative service delivery channels, the cost of serving members is not declining, and the traditional bricks-and-mortar branch will remain a key channel well into the near future, according to one person.
Dennis Campbell, a Filene Fellow and Harvard Business School graduate, noted that even though financial institutions have been investing in alternative delivery channels since the mid-1970s, it hasn't largely affected the branch model. Costs are down per customer/member, he noted, but not overall.
Campbell's comments came as part of the Filene Research Institute's "Future of the Branch" Colloquium, with Campbell speaking to the issue of whether electronic delivery of services actually increases costs.
Campbell did a 2005 study on one major U.S. bank that found, on average, consumers who use online banking are 35% more profitable than those that don't. But those same consumers' profitability drops by 16% once they become active online users, because they manage accounts more closely and are better at avoiding fees. These same consumers ramp up their overall transaction volume once they go online, said Campbell, and in the process become significantly more costly to serve.
While most banks and CUs have invested in technology with the thought it would drive costs down, the unexpected issue, said Campbell, is that the transition to e-services can change consumer behavior in unanticipated ways.
While consumers that use e-services are disproportionately "captive" or "sticky," Campbell noted that they also tend to be the least satisfied, even as they represent the highest retention rates.
Caution! Watch For Complacency
Campbell repeatedly stressed the need to watch out for service complacency, noting that when competitors enter the market, banks tend to lose the service-sensitive customers, while CUs lose members that are more focused on pricing. The most unprofitable consumers tend to defect at the highest rate, he said, adding that when an institution that provides better service enters the market, the ratios shift so that higher-profit consumers defect.
