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Friday, August 9, 2013

Mobile and Online Banking Cannot Replace Branches

By Jay Freeman, Senior Adviser

This post is part of Gallup's ongoing series on the shifting landscape for financial institutions. It provides insights into channel optimization, emerging customer behaviors and preferences, product penetration and relationship growth, engaging the most critical affluent and business customers, and reshaping banks' overall value proposition.

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I recently read an article in one of Dubai’s local English-language news outlets touting a multinational bank’s regional launch of a new mobile banking app that promised to serve as a “virtual” branch for its customers. Shortly after, I read a separate article on The Motley Fool’s website titled “This Technology Will Save Banks a Bundle,” in which the author said, “As banks like PNC and Bank of America close branch locations, mobile banking may help them hang on to customers.”

This is dangerous thinking; here’s why:

It is true that, more and more, bank customers use the convenience of the Internet and mobile devices to make routine transactions. A recent Bank Administration Institute study found that, for checking balances, transferring funds, and even making loan payments, much of the activity has moved from the bank branch to virtual banking. The same study noted, however, that when it comes to applying for credit or opening or closing an account, customers of all stripes still prefer the branch.

Gallup found similar results in our most recent U.S. Retail Banking survey when we asked respondents who had opened an account in the last six months where that transaction had occurred. Even among those who visit a branch less than once a month, 80% chose to initiate their account opening in a branch and only 8% started by opening their account online. And when customers did open their account online, they were far less satisfied with the account opening experience -- nearly 20 percentage points less -- than were those who opened their account in a branch.

All banks want to grow, and the vast majority of growth in the industry still comes through the branch. There are certainly opportunities for banks to encourage the migration of more routine transactions to remote or digital channels. At least for now, though, digital channels don’t offer customers the kind of experience they desire for more complex, important interactions like opening an account. And for some customers, perhaps they never will.

3 comments:

Anonymous said...
August 12, 2013 at 11:06 AM  

While the argument may be valid, the title is indeed misleading. It should be "Mobile and Online Banking Have not yet Replaced Branches".

Serge Milman | Optirate said...
August 16, 2013 at 9:08 AM  

Many new accounts are opened in Bank branches for one simple reason --- customers do not have a choice. Very few Banks and Credit Unions offer the ability to open new accounts online. As such, citing this statistic as proof for utility of branches is misleading.

Further, many Banks and Credit Unions have already transitioned to a branch-less operating strategy (read more: http://bankblog.optirate.com/branchless-banking-fantasy-or-reality/ . And this is just the beginning, as many Banks and Credit Unions are realizing that Branches - which account for ~ 70% of the Banks' total cost base - are increasingly being abandoned by customers. Status quo would be epitomize insanity.

Kent White said...
September 27, 2013 at 9:43 AM  

Numerous studies point out that the reason people aren't reaching for their smartphones to establish account relationships is that banks haven't made the experience as good or better than the one consumers can get in a branch. As banks learn to create a better experience online for all aspects of banking, the online/mobile channel will dominate, as it now does for simple transactions.

Remote capture technologies and smart data mining are already creating unheard of opportunities for broadening the range of banking activities on anything with a screen. This is an outstanding and timely opportunity for institutions with smaller branch networks to invest in technological improvements that can outrun branch-heavy competitors who have a more vested interest in the legacy branch-centric model.

Henry Ford once said, "Ask my customers what they want, and they'll tell you, 'a faster horse'." When banks finally give consumers a better digital/mobile alternative to branches, the branch will be put out to pasture.

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