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Monthly Archives: May 2012

Are Bank Branches Obsolete?

Earlier this month The Economist magazine hosted a lively debate on its site about the future of branch banking.

Brett King, author of Bank 2.0, argued that bank branches are obsolete. He wrote:

“Just like the publishing and media industries, a place is simply no longer a vital, necessary component of day-to-day banking. Bankers would have no more luck getting customers back into the branch than Borders might have getting customers back into a bookstore.”

Opposing this motion, Mark Weil, head of EMEA financial services at Oliver Wyman, argued:

“Far from killing the branch, new technology is revolutionising it. It means banks can do simple transactions via the ATM, phone and internet and turn their branches into places where customers have space to talk about their big financial decisions.”

Jonathan Rosenthal, banking editor at The Economist, moderated the debate. The discussion raised important points about banking trends, customer demographics, and technology. Readers were not shy about chiming in: twice the debaters’ statements garnered about 70 comments.

But readers rendered their verdict early. About two-thirds of voters opposed the motion on the first day, and that majority barely budged in the two weeks the debate was live on the site.

That said, the back and forth was instructive, and between Mr. King and Mr. Weil’s statements and the comments of readers, one can find a wealth of information and opinions about retail banking in 2012.

Dragnet Solutions’ View

What’s our take on this question? Are bank branches really obsolete?

Branches are changing, but they’re hardly obsolete. The rise of online/mobile banking concurrent with the closing of over-abundant branches should not be construed as indicative of the demise of the branch; they are each largely driven by different business objectives. Based on our conversations with banks large and small, and based, too, on our review of market, including financial results from major financial institutions, we believe that most banks will continue to operate branches indefinitely. The technology inside branches will undoubtedly change. ATMs will evolve, and video tellers might outnumber people at certain locations. New products and services that are appropriate to provide through physical locations will emerge. But branches, in one form or another, are here to stay.

Why? Two reasons: sales and security.

Let’s start with sales. Studies show that consumers like having branches near where they live and work, and that they choose banks based in part of the proximity to branches. Mobile banking might be convenient, but lots of people still want the choice of being able to walk into a branch for a face-to-face discussion with a banker. Online-only banks won’t win these accounts. And they’ll lose an opportunity for long-term profits.

Look at the impressive results a major U.S. bank is achieving through its growing network of branches. According to its recent investor reports, this bank has 5,500 branches in the U.S. and is opening about another 150 this year. New branches break even at around 30 months. Once “seasoned,” the branch delivers $1 million on average in annual pre-tax profits. The 1,250 or so branches the bank has added since 2001 are projected to contribute roughly $1 billion in pre-tax profits over the next 8 years. Affluent customers visit them 4 times a quarter. Far from considering this channel obsolete, this bank is planning on adding more branches in the coming years.

As for security, most bankers are expecting fraud to get worse, not better, in the foreseeable future. Most banks will not want to dispense with at least an initial face-to-face initial meeting with a customer to ensure compliance and to stop fraud. If trouble strikes in the form of ID theft or other types of security breach, both bankers and customers are likely to appreciate the opportunity to talk in person to assess the situation and to rebuild trust.

Bottom line: If you build branches in the right locations and deliver the right kind of services, customers will visit branches. They’ll trust branches and use them, and branches will deliver profits to the shareholders.

Risk Management for Customer Onboarding

The customer onboarding process is fraught with risks.

First, there’s the very real risk that your latest customer is a fraudster. Financial institutions expect to be hit with more fraud this year, including credit card fraud, check fraud, and account take-overs. Every time your institution opens an account, there’s a chance—too big a chance—that the account holder isn’t who he or she says she is and will attempt to defraud your institution.

Second, there’s a chance that in your organization’s drive to grow accounts and hits sales numbers, branch staff will take shortcuts, violating company policies and jeopardizing your institution’s compliance with OFAC, CIP, and other Know Your Customer laws. For example, a banker might accept a government ID that’s expired or take some other shortcut, reasoning that the customer doesn’t seem like a fraudster and that new sales targets must be met. Unfortunately, shortcuts like this are taken all too often.

Third, there’s a risk that the institution will fumble the account opening and customer onboarding process. Names might be misspelled or other CRM data entry errors might occur. Wrong offers might be suggested, and real opportunities overlooked. That’s a pretty substantial risk. Since the majority of a customer’s lifetime sales occur in the first three months, mishandling the onboarding process can be costly.

One of the best ways to reduce these risks is to streamline and automate data collection and identity verification during customer onboarding. By deploying real-time identity verification services in branches and integrating those services with CRM systems and other account services, risk management teams enable branch staff to:

  • Quickly and accurately name, address, and birth date information from a government-issued ID, either through a magstripe reader or a 2D barcode reader
  • Automatically detect whether a card is expired or an address is out-of-date
  • Query consumer records and instantly retrieve a risk/confidence score for the customer
  • Identity fraudsters before they strike
  • Input customer data directly into a CRM system without keyboard errors
  • Automatically record the results of the identity verification process for every new account, ensuring that your institution can demonstrate compliance with all relevant internal policies and state and federal regulations
  • Streamline the account creation process, leaving bankers free to discuss the customer’s needs and possible products and services to sell them

 

To learn about how Accelerated Insight can help improve your institution’s onboarding process, please contact us.