It is widely believed that the onset of Internet banking and the expanded use of ATMs will prompt the gradual demise of the retail-banking branch network. However, this belief is in contrast to both the facts of the situation, as well as the principles of best practices in regard to customer service and organic growth within the banking business.
Without question, the Internet and online banking have revolutionized the industry by making banking more accessible to more people and by creating a more cost-effective way to perform transactions. Customers can now open accounts, transfer funds and pay bills from their home computer, rather than having to drive to a branch and wait in a teller line to make a simple transaction. Current studies estimate that more than 25 percent of U.S. households now use the Internet for banking; nevertheless, despite the existence of this technology, it has not stopped customers from making the trip to their neighborhood branch. Therefore, larger banks are increasing their retail presence, rather than vice versa.
Beyond immediate customer demand, there are several business imperatives driving this trend. First, banks see retail banking as a relatively stable revenue stream to compliment the cycles of wholesale banking and securities trading.
Secondly, effective customer service is always one of the core building blocks of any business, and banks are now focusing on the importance of the branch in building profitable relationships with retail customers. This is necessary because it costs a lot more to get a new customer versus retaining an existing customer and, unfortunately, this is still an issue with some branches reporting customer retention at only 50 percent.
Thirdly, while the Internet allows a cost-effective way to execute transactions, it is not as effective for selling products. To grow, banks will need to cross-sell products to a bigger customer base. They are quickly realizing the importance of face-to-face interactions in promoting services and products. As Richard Kovacevich, CEO of Wells Fargo, describes the situation: "The products are commodities. The way you distribute them is not."
Therefore, in an effort to provide better customer service as well as effectively cross-sell products to a larger customer base, banks are not only expanding their reach by building new branches, but they are also investing heavily in modernizing both new and existing branches to transform them into centers for financial advice and sales that will allow banks to sell other services such as insurance and investment products, credit and debit cards, bill payment services and personal investment services.
This increased effort to cross-sell and provide advisory services will necessarily involve freeing employees from their teller counters so that they can serve customer needs. Currently, only about five percent of employee time is spent selling. To free up tellers, some banks are now implementing teller-assisted, self-service kiosks. These solutions enhance branch responsiveness, expand cross-selling opportunities and allow tellers to support more customers, while using equipment designed to reduce risk and improve speed and accuracy.
Banks are also finding non-traditional locations for new branches to reach a more diverse customer base. These small branches are strategically placed in locations convenient to the customer, such as grocery stores. While their small size means they typically do not offer a full array of services, it also makes them dramatically less expensive to open compared to a traditional branch office.
While the Internet and call centers are arguably more convenient options for the customer than going to a branch, branch banking won't be going away soon, for reasons as diverse as revenue, customer demand, customer service and cross-selling opportunities. Online banking will not cause the demise of retail banking. It will simply alter its role as well as expand the role of the teller.
