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The transition from branch banking to digital banking
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The transition from branch banking to digital banking

The transition from branch banking to digital banking

By: John-Claude Hesketh

There are few sectors that have yet to feel the impact of the digital revolution. The financial services sector, with its hitherto conservative approach to business transformation, has had to accelerate its IT know-how to keep up with the pace of change. In consumer financial services, the transition from branch banking to digital banking has been nothing short of radical. The race is still on, with unrelenting pressure to cut branches and reduce overheads while investing heavily in online and mobile banking. The consequence of falling behind in this brave new digital world is binary: live or die.

Banks are feeling the heat and need to adapt rapidly

The financial crisis took its toll. While banks are still nursing tarnished reputations – and grappling with a host of new problems such as mis-selling scandals, ubiquitous IT gremlins and interminable telephone answering systems - the threat of fresh competition from challenger banks looms large.  Trusted household names such as Marks & Spencer and Virgin Money are serious competitors and better flexed to respond to digital trends. It is clear that the banking sector must reinvent itself - and fast - while maintaining a firm grip on customer service and security.

The shift to virtual banking is very real. So how can the typical retail bank rise to the digital challenge? The answer, at least in part, lies in a new breed of leader who can connect with customers, embrace change, restructure operations and embed a new innovation culture.

The last five years has seen the rise of the Chief Digital Officer

Over this period financial services organisations, with their traditional leadership, have struggled with the transition from a strong, wide reaching branch network - on which many senior executives have built their careers - to a 24/7 application and technology led business. To combat these struggles, many financial services organisations simply appointed a digital guru to help them through the innovation minefield.

The next five years will see the rise of the truly digital CEO and the demise of the Chief Digital Officer

Digital is here to stay and therefore the next generation of CEO will, by the very definition of the market, have to be more ‘digital’. Financial services organisations anticipate that well over half and close to three quarters of their revenue will be driven by digital channels in the next decade. If the CEO of an organisation is not the thought leader and the ‘most digital’ individual in their leadership team, then their impact and influence will be greatly reduced.

Digital is enhancive, not competitive to a branch network

In certain institutions the ‘digital bank’ has been completely separated from the ‘traditional bank’, both within organisational structures and leadership. In some cases this has created a somewhat adversarial ‘us vs them’ mentality, where the traditional bank and its leadership see the digital bank as competition, rather than enhancive to their own agenda and working for the same umbrella organisation.

The organisations that can form a strong coherent bond between their digital and branch businesses will be the most successful in the ever evolving, more competitive consumer financial services market place. A consumer ultimately sees and knows one brand, they are unaware and care little for internal politics and therefore will be most impressed by an organisation that illustrates its own loyalty, knowledge and interest in them.

In terms of leadership, the type of character that will thrive in this environment will have to be collegiate, customer centric and hold no desire to create individual, isolated fiefdoms within an organisation. True collaboration between traditional and new will be essential to the long term success of some of the world’s oldest and most revered financial institutions.

Branch banking is here to stay – people like doing business with people

Whilst the world is getting more digital every day, there are still certain high involvement transactions where people feel more comfortable looking into the whites of someone’s eyes. Decisions on mortgages, college funds, large loans, investments and even a child’s first current account can be very emotive and pivotal points in people’s lives. In these instances customers will always prefer to interact with another human being rather than a machine.

You no longer need a branch to be a bank

In years gone by, to be taken seriously as a bank, potential new competitors would either have to invest a vast amount of capital in developing a branch network from scratch or do it by acquisition.  As the recent struggles in the UK have illustrated, with the divestment of TSB from Lloyds Banking Group and the upcoming divestment of Williams & Glyn from RBS, the appetite to start or acquire a sizeable branch network is minimal.

This lack of desire stems mainly from the diminished need to have a physical branch network to be considered a bank. Digital banks have a distinct advantage in terms of being able to create a banking proposition with no legacy infrastructure, issues and costs hanging around their neck. In theory this should result in a more competitive market place, with more preferable rates and products to delight the consumer.

It remains to be seen if these challenger banks succeed and proliferate. The big question is whether they can truly develop an emotional attachment with the consumer, providing critical banking products such as mortgages on a mass scale without the human interaction of a branch network. Whether they succeed or not, the imperative for traditional retail banks to ‘digitise’ remains and their future hinges on a new breed of digital CEO who lives, breathes and thinks digital.

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