Earlier within my career I had been the main Financial Officer for any regional savings bank. Because the CFO my primary concerns were centered on the general financial health from the bank. I made use of a few higher level metrics to determine my performance and also the performance from the bank.
The very first measure was capital adequacy, or did the financial institution have adequate capital, not just to meet regulatory needs, but additionally to put itself for growth so that as a cushion for unpredicted downturns. The 2nd qualifying criterion was Return typically Assets. That’s, was the management team effectively using the banks assets to develop a significant go back to fulfill the investors along with the regulators? A financial institution may wish to increase the percent of their assets which make money for that bank – earning assets. On the other hand, it has to minimize the percent of assets that do not produce earnings – non-earning assets. A reliable CFO works using the management team to maximise the Return typically Assets, therefore maximizing profits and growing banks equity or internet worth. All of this, obviously, needs to be balanced with supplying a suitable degree of customer support in conjuction with the bank’s goals. A lot for that accounting lesson, so how exactly does this connect with an enhanced technique for retail banking channels?
Banks will always be searching which are more effective ended up being to deliver their professional services. As soon as three decades ago, the branch was the only real method for the financial institution to have interaction using their customers. When ATMs were introduced, banks saw them for people to do fundamental transactions, creating more branch staff for that more complicated transactions. Despite the fact that ATMs were costly, banks were banking (pardon the pun) that ATMs is needed them reduce their overall branch expense therefore creating more assets for additional productive use – and to some extent these were correct.
Banks used exactly the same logic for that newer channels for example contact centers, IVR, Internet, mobile banking and today remote video connections. All these new channels has, to some greater or lessor extent, taken the responsibility from the branch network and, a minimum of theoretically, reduces the requirement for cost intensive stand-alone branches.
So with the channels being used, what would be the retail delivery strategy for the future? What would be the mixture of channels that delivers the finest value towards the customer while enhancing the bank using the two criteria I pointed out above – driving a proper Return typically Assets that includes towards the bank’s overall equity or internet worth?
For one moment, place yourself in the footwear of the Chief executive officer or CFO. Everything being equal, what channels can you prefer your customer utilize? Like a former CFO, my response is simple. My choice could be in my people to utilize Internet, home video and mobile channels. How can this be? Simply, they are channels in which the customer assumes the interface costs. This certainly helps increase the bank’s utilization of its assets.
But let us also view it in the customer’s perspective. Branch visitors are declining as customers embrace alternative channels. Certainly there’s, and will also be for any considerable time period, customers who require or like the branch. The reason why with this are very well documented and there’s you don’t need to enumerate them here. However, it’s as well revealed that in certain markets, clients are eschewing the branch in a way that some bank executives that I have spoken declare that Internet and mobile transactions now take into account 99% of financial transactions. These banks also report health balance sheets (think internet worth) and Earnings Statements (think Return typically Assets) and, importantly, very satisfied customers.
So, given these two perspectives, I have faith that – eventually – the house, using its Internet, video and cell phone abilities, will end up the best delivery funnel for many retail banks. Certainly branches will stay, becoming less transaction oriented and devoted more to individuals interactions requiring personalized and intensive service. However a “home-branch” strategy enables banks to lower their fixed costs allowing not just for much better bank profitability, but the opportunity to offer better rates on savings and loans products, in addition to anytime, anywhere convenient plan to their clients. It might be this transformation will evolve gradually, but for me, it’s the ultimate win/win strategy for the bank as well as their customers.