Banks have a variety of options to deliver their products and services – branches, call centers, mobile, third-parties, social media, etc. “Omnichannel” has been a popular buzzword for a while with the prevailing concept that banks need to provide all channels as customers want to choose which channel works best for them. We think this is the wrong way of looking at the challenge and that banks need to take a more active role in the long-term planning of their portfolio of channel delivery options. In this article, we explore a variation on the traditional omnichannel delivery framework and promote the concept of a more dynamic approach that may serve banks better as they go through strategic planning.
The Challenge with Omni-Channel Delivery
As part of strategic planning, it is imperative for banks to consider how certain products and services make it to the customer. A traditional delivery map looks something like the below with the method, category and cost of delivery mapped in graphical form. Mapping allows banks to visualize how they are delivering their product and services.
The problem with the traditional model is threefold. First, banks often assume that every product needs to be delivered through every channel. Second, banks often act like channel delivery is passive. Third, banks often think about channel delivery as a snapshot in time.
Certain Products for Certain Channels
Trying to fit every product into every channel needlessly drives up cost and makes the bank’s sales efforts less effective. When developing a new product or a new channel, a criterion should be what channels best match the product or what products best match the channel. Some product solutions, such as cash management may be best delivered in person and may not fit a mobile or interactive teller sales strategy. Conversely, alerts, electronic statements and even health savings accounts (HSA) may be best done almost strictly online and mobile. The cost of delivery is not only cheaper (graphic below), but often the conversion rates are higher.
While a customer service representative may do a fine job of educating and selling a health savings account, they also have a variety of other products to position, and so opportunity cost must be taken into account. By leveraging account-level data, that HSA may be able to be more effectively sold with a targeted email campaign and landing page complete with video and product information. Our point here is not that CSRs shouldn’t discuss HSAs, only that maybe the branch shouldn’t be the primary channel for delivery. That decision if that HSA account is best positioned in the branch or online largely depends on how committed the bank is to its online/mobile sales channel, its usage statistics and what other products are primarily positioned through the branch.
Channel Delivery Is an Active Exercise
While it is true that certain customers want certain products delivered in certain ways, banks can, and should, influence this decision. If you don’t put enough information about your loan sweep product on your website, don’t expect customers to use your online presence as their primary delivery channel. Banks need to proactively determine how to shift customers to one delivery channel to another. The rise of interactive virtual tellers (IVTs) highlights this perfectly as banks can use this technology to bring many online products to the branch in an efficient manner. While a full-service branch may contain all products, smaller branches can now leverage the IVT channel to at least start the introduction of specialty products such as mortgage, wealth management, and others.
Dynamic Delivery Overtime
Perhaps the biggest change in the bank channel delivery construct should be to look at channel delivery over a time series. Banks can not only influence how customers view and interact with different products but can do so with a multi-year campaign in order to impact the longer run.
A dynamic view of channel delivery is particularly applicable to the transition from branches to mobile. For those banks that believe their future is more mobile, having a strategic plan now to educate customers in the branch on how to use mobile, will serve to more efficiently move customers from one primary channel to the other. If done correctly, banks proactively start to phase out some branches and move customers to online, mobile, call center, kiosks, and IVT channels.
Instead of seeing mobile as a long-term additional fixed cost, looking at dynamic channel delivery in this way shifts the perspective to seeing some branches as short-term interim costs. This is what Amazon and other previous pure online e-commerce companies are finding that having a physical presence around for the next five to ten years is required to transition the last 40% of the public to primarily using their online and mobile channels. Those physical stores are there to socialize the brand and speed interaction to mobile. For some bankers, this is a radical paradigm shift.
Putting This Into Action
Channel delivery is bank’s largest single functional costs. For banks to make above their cost of capital, right-sizing channel delivery is the one thing banks need to get right to improve efficiency. While important now, as larger banks do this more effectively, many community banks will find themselves at a strategic disadvantage as their cost per delivery will end up being multiple times greater than their competition.
For the purposes of long-range planning, banks should take a look at how each product or service gets delivered and then figure out what they want the future to look like taking into account current trends. The question shouldn’t be CAN banks deliver a given product through each channel, but SHOULD we be delivering the product through a given channel. The answer is no and how we manage delivery can have a major impact on a bank’s strategic value.
Submitted by Chris Nichols on September 25, 2017