The picture from the past that most people have of retail banking is essentially that of the branch: the place, and possibly the person, that is, the branch manager, where one would go for all of one’s financial needs.
This picture has changed fast. The salient question now is whether developments are making people’s lives easier or more complicated.
The “people” are far from homogeneous. Each sector have their own different needs.
The retail (branch) banking network used to efficiently serve as the locum where the last thing that would pass through the minds of the all-knowing (real or pseudo) managers and staff was to shovel cases onto some centralised or head office person.
Will retail branches be with us over the coming decade?
In the 1960s, probably inspired by that great Maltese banking luminary, Barclays Bank’s Louis E. Galea, banking was taken out of Valletta to the towns and villages. The number of bank branches, agencies, and more recently ATMs, grew exponentially.
The trend is now definitely in reverse. At bank head offices it is not the needs of humans which predominate but the following of a “business unit” strategy within which “products”, “channels” and “support services” are the objects and where decisions are based solely on criteria related to demand and profitability.
Branches, where they continue to exist, only serve as one of a number of channels of distribution to customers.
In other countries, banking has become fragmented. The scale and scope of economies have fundamentally changed the sector (I hate describing it as an “industry”).
The defence continuously brought up is that in its previous form, retail banking was sheltered, inefficient and complex in ways that affected operational costs.
Every customer today sees how far down the road this has gone, with almost every process automated from end to end. We already are at a stage where computer systems talk to one another with little or no human contact between them.
The digitalisation process has affected banks in a revolutionary manner. But customers still ask a key question. Are the new technologies “better” – better in the sense of serving humans in ways that make their lives easier and not ever more regimented, complicated and lacking in human contact?
Has the cost of the new technologies, and of whatever new distribution channels are being flaunted, actually dropped in a way that has drawn banks closer to their customers, as distinguished from shareholders?
It should be the banks themselves who admit that most of the value-added is now coming from outsiders to the “industry”, from software and equipment providers, card processing organisations and other vendors of all sorts.
The figure of the local, kind, all-knowing and all-solving branch manager has become practically obsolete- John Consiglio
In the middle of all this, the future of the bank branch or agency becomes a matter of high importance. It needs to be looked at not merely from the viewpoint of profitability but also from the perspective of what banking is all about at a time when the branch is no longer considered an important channel for distribution of mainstream financial services.
I know there will be several people in certain head offices who will simply mutter: “Let us be… haven’t we already dealt with such issues a long time ago?”
The question remains, though, whether regulation has, along with technology, forced the banks to fragment in a manner that places ever more importance on the “head office” as opposed to the customers in the towns and villages.
In several markets, the banks have disaggregated themselves into groups of companies. Cross-selling has not by any means become easier – witness the hideous telephone contact problems so many customers face daily. The figure of the local, kind, all-knowing and all-solving branch manager has become practically obsolete.
If branches, where they continue to exist, continue to be seen only as sales centres, then the future of retail banking looks dim indeed.
Locally, the present scenario is one where a big-small, or small-big, tussle is being waged. The two leaders, BOV and HSBC, are solidly entrenched in their digitalisation visions and living comfortably in their “share of the market” cocoons. They do this on the inputs about size of customer deposits and lending levels but not on personalised customer service perceptions.
The other banks niggardly rumble on through the adoption of individualised attention to customers’ needs and retention of their current networks.
The question of what the banking distribution structures within the country will look like in a decade’s time is a vital one. The basic underlying question remains: what is banking all about, humans or money? Is it a service or just a business?
John Consiglio teaches at the University of Malta’s Department of Banking and Finance.