Below is an excerpt from BritishAmerican Business’ newsletter Network by Kevin Travis, Partner at Novantas, LLC.
Over the past few years, U.S. banking preferences and behaviors have continued to shift away from the branch into remote channels (e.g. online, call center, mobile). As a result, there is a valuable and growing segment of customers who see remote channels as their primary channels, with the branch as an alternative channel for limited, high value interactions (e.g. getting financial advice, applying for a mortgage). These “Virtually Domiciled” households still use branches in some capacity, but sparingly (less than once every four months).
As new technologies such as remote deposits on the mobile phones and image enabled ATMs become more prevalent, the shift away from the branch will accelerate, increasing the number of customers who are virtually domiciled. Banks have a great opportunity to accelerate this transition by identifying the customers who exhibit the appropriate behaviors today and providing them with the appropriate channel and technology offerings.
For traditional network banks, these findings are a double-edged sword. The Virtually Domiciled are much cheaper to serve, so banks will want to find the most effective means of acquiring, cross-selling, and servicing these customers. Yet, walk-in traffic goes down as fewer customers use the branch, leading to fewer cross-sell opportunities, given the traditional “reactive” selling model. With lower profitability on accounts and lower traffic, a bank’s return on sales force investment (“RSI”) suffers, creating a potential sales crisis in the branch. In fact, many branches may be at or below their staffing floors (staff requirements below minimum staffing due to very low volumes), resulting in stranded fixed costs and further depressing RSI.
For challengers such as direct banks, credit unions, and wealth managers, the Virtually Domiciled customers represent an opportunity to grow the customer base, particularly if these players can couple market leading remote transactions, sales, and advice capabilities with limited physical footprints that attract those customers who are not yet ready to dispense with the branch altogether.
In order to succeed in this environment, banks will need to evolve their multi-channel delivery and sales systems towards customer activities and preferences rather than constrain their capabilities to historical bank infrastructure (e.g. branch domiciling, geography). Understanding specific customer transaction behavior should be a priority for banks going forward, as the better a bank understands what customers are doing, the better positioned the bank is to serve them, sell to them, and ultimately grow share and profits in the “new normal” environment.