Bank branch networks and direct delivery channels: part 2

To be successful, branch networks will need to be more efficient and cost effective than at present. In this respect, retail banks could consider franchising some of their branches, possibly adopting the model of the Abbey National or the Post Office. These models certainly have potential because they allow the franchisor to reduce staffing levels and avoid the fixed costs associated with a comprehensive branch network. In the present UK regulatory environment, we will not see completely self-employed entrepreneurs running bank franchisees in the immediate future. However, if the industry’s current polarisation rules changed to permit ‘multities’ under which franchisees were able to offer the products of more than one company, a franchise would be well positioned to maximise the potential of a liberalised regulatory regime.

This may be a distinct possibility in the not too distant future and a new type of independent or ‘free’ branch might replace the traditional own-brand tied bank branch. This would allow the banks to franchise, outsource or even float-off their branches. In the two latter instances, corporations could be established to run the branches, selling financial services on behalf of a range of banks. Although such a strategy is attractive from a purely cost perspective, it would place banks under even greater competitive pressure. In particular, the banks will need to develop stronger brand images at both the corporate and individual product levels.

An alternative approach would be for branches to embrace the technological revolution further and consider incorporating multimedia kiosks which not only pay money out, but also offer a wide range of other business functions.

Multimedia kiosks are not only flexible in terms of the type of services they can provide, but also in the way they can be financed. For example, they can be used as multiple information points, financed by advertising from a range of companies. Services available through these kiosks include travel agencies, estate agencies, the retailing of clothes, furniture and consumer durables, etc. Customers can match a major purchase with a bank loan application and establish product sales for both the retailers and the bank.

By using video conference links on a multimedia kiosk, a customer can also gain instant access to bank experts trained in precisely the product area of the customer’s interest. Interactive terminals or touch screen kiosks can provide on-screen links to pre-recorded explanations by bank staff and access to live video conference links for personal discussion of more complex products. Branches could also use state-of-the-art ATMs which incorporate cheque scanning rather than the traditional ATM deposit envelopes. These have the potential to increase dramatically the value of deposits taken by branches compared with human tellers.

Similarly, an Internet cafe; service could be providing by locating PCs in branches linked directly to the website of the parent bank. The website could also have ‘call me’ buttons which enable customers to enter their telephone number next to the product in which they are interested and press the ‘call me’ button on the screen. Under this system, the number is sent directly to the call centre’s automatic call distributor (ACD) which dials the number. The call centre computer telephony integration system displays the appropriate script on the agent’s screen and they connect to the customer’s number. This approach would be very conducive to a strategy which is aimed at making the call centre the hub of the bank, providing support services for all channels so that the same execution infrastructure underpinned all basic activities.

Although not an exhaustive approach to the problem of how to deliver a high quality service to a wide range of customers, the Editorial has provided an insight into how retail banks can move towards resolving this problem without unduly increasing costs by replicating delivery channels. Banks should try to satisfy as many customers as possible, but this objective must be counterbalanced by the equally important objective of controlling costs. Investment in direct delivery channels is a credible strategy, but it does have inherent problems which partly explains why the banks have taken a fairly gradual approach to branch closures. Alternative approaches to making branches more profitable must, therefore, be given serious thought.

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