Bank branch networks and direct delivery channels

Bank branch networks and direct delivery channels

Branch closures within the UK have received a fair amount of publicity over the past few years. The reasons for this coverage emanate from the scale of these closures. Between 1994 and 1999 the branch networks of the major British banking groups (MBBGs) have been reduced from 13,950 to 11,274 — a decrease of about 20 per cent Moreover, it is estimated that a further one in three bank branches will disappear from our high streets by 2005. This suggests that the number of customers currently using branches will decline from its present level of 66 per cent to 44 per cent in five years’ time.

Unprecedented competitive pressures, together with developments in direct delivery channels, have provided the banks with both the need and the means to reduce their cost infrastructure substantially. As a consequence, operating expenses as a percentage of gross income for the MBBGs came down from 64.1 per cent in 1994 to 54.0 per cent in 1999; and staff costs as a percentage of gross income were reduced from 35.9 per cent to 28.8 per cent during the same period.

Investment in direct delivery channels could, however, have a negative impact on overall cost structures unless the costs of other channels are simultaneously re- engineered. Investment will be primarily in strengthening call centre offerings, followed by Internet delivery and interactive television, but as these channels are supplementary to the traditional delivery channel base, they will have to be introduced as direct replacements for current channels if they are to reduce bank costs substantially. This logic partly explains why branch networks will continue to be greatly reduced in the future and why they will move further towards becoming sales orientated.

This raises the problem of how banks can change the way they deal with customers, ie how can they persuade customers to use direct banking when the reality is that many customers are not in a position to use these new channels even if they would be more beneficial to them. In this respect, the banks run the risk of ‘disenfranchising’ the customers least able to use new channels or even to open an account with one of the new entrants. This raises the possibility that the better- off customers will have access to lower cost services through the direct delivery of financial services. The worry is that the low cost channels are most likely to reduce the costs of handling the most profitable customers, while unprofitable customers will still use the most expensive channels.

The problem has also been compounded by the fact that retail bank products are not designed as consumer products. In other words, they are not designed to support customer needs, but rather to reflect the needs of the bank’s accounting system. Moreover, because retail bank products are transaction-based, they are difficult to differentiate. This suggests that, in order to survive in an ever increasing competitive market place, retail banks will have to expand their product range and focus beyond consumers’ transactional needs. This partly explains why retail banks have placed an emphasis on bancassurance and why products traditionally regarded as ancillary have become extremely important in generating revenue. It is, however, debatable whether many of these so-called ‘ancillary’ bank products are conducive to being sold in high volumes via direct delivery channels. Conversely, branches which have tangibility and place an emphasis on relationships and the personalisation of service interaction appear to be well placed to retail these sort of products.

Representative APR 391%. Average APR for this type of loans is 391%. Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

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