A new business model for retail banking is emerging, and IT has a crucial role in enabling it.
The credit crunch and the bank bailouts have made banking a headline topic, and so much of the nation's economic wellbeing is entailed that no government can sit back and watch the bank go bust. Should these big banks be statutorily broken up? Should they be restrained, kept small enough to let them die?
One essential element of free market economics should be that failed competitors go to the wall. The survival risks to banks largely inhabit their investment divisions. Backing the wrong horse in this market segment - such as dodgy debts and mortgages, derivatives whose value is immeasurable - can bring banks to their knees.
In contrast, retail banking is comparatively risk free. They just borrow your money, mark it up and lend it to me - or vice versa. Should these two business models be allowed to coexist within a single bank?
Behind these foreground stories, however, lurks a narrative affecting every person or family in the land and depending crucially on IT.
TripleIC recently conducted a study of 1000 retail bank customers, a sample carefully chosen to be nationally representative. We asked them what confidence they had in the retail banking sector. The results were quite shocking.
How can these depressing statistics be improved? The answer depends crucially on the wider use of IT and - even more importantly - on the better use of IT.
One fact that emerged clearly from our study is that
young customers have a better impression of their bank than old customers.
The reason is not far to seek - more young customers use online banking. Which would you rather do: access your bank account from your computer at home, at work, on a train - or trudge around in the rain to your local bank branch and join a queue?
And as more routine transactions are dealt with online, it's much more likely the person in front of you has a complex and time-consuming issue to resolve. Anyway, local branch managers no longer have the right to make decisions about loans.
Everything serious has to go to head office, another reason not to bother visiting your branch. When did you last do so?
As between a retail branch and online, it's no contest. As online banking becomes more popular, the very existence of bank branches becomes ever less economically viable. So service levels drop - and must continue to do so.
As more and more customers have email addresses, broadband access and smartphones, survival demands a different business model of retail banking.
In the past, the business model of the retail banks was bank-centric. Each bank saw itself as a central resource, and customers could approach the bank and inquire whether any of a range of supplier-defined services met the customer's needs.
If not, hard luck. Most people have some experience of this 'computer says no' style of banking. Incidentally, this business model also involved selling products that few customers needed, such as payment protection insurance. If the bank could make money from them, who cared whether they were actually needed?
Today our online research shows how a customer-centric business model is emerging. Banks can put more emphasis on online banking. But because more and more customers are wired, they can create genuine conversations with their customers.
Instead of their services being defined by what the bank wants to offer, they can be defined by what the customers need. The bank to customer polarity is reversed. The customer becomes the market maker of the future.
Of course, this 180-degree turn is not going to be easy for the big banks to achieve. The top management tiers of banks are often aware of what's happening and what's needed. But layers of die-hard middle management are convinced that the old bank-centric model has enough life left to see out their careers.
One major bank told us it already has a team working on customer conversations. My reply was to invite them to look at the table on page one and to read the verbatims about their bank. Their efforts may be costly but they are not working. Our survey proves that more intelligent use of IT is the key to the new business model.
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