Telephone banking has lower transaction costs than branch networks yet has not generally increased bank profitability. This paradox is often said to arise from the fact that branch networks are not really shrinking enough to realize the savings. Another reason offered is that bank call centers are becoming like automated teller machines - the market advantage is lost because just about every bank has them. So how do banks justify investing in a call center? What are the right questions to ask at the outset to help ensure success? So far, the promise of call centers has centered around cost reduction. While it is true that telephone transactions are much less expensive, the reality is that the convenience prompts a lot more use and, sometimes, excessive use. So a lower transaction cost multiplied by much higher transaction volume erodes anticipated savings. If branches are not closed to offset the cost of building and operating the call center, net costs actually increase. Further, customers tend to think anything that saves the bank money should result in lower fees; they want the savings passed along to them. Instead of emphasizing cost savings, bankers should justify investments in call centers for two other reasons.

Defensive strategy. As with ATMs, banks must offer telephone banking to avoid customer defections.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.