The change of paradigm – How I changed recently my views on Branch networks

Posted: 02/12/2014 in Gospodarstvo in poslovanje, Mnenja
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This time I am writing this post with the intention to structure my thoughts related to future of the banking industry in particular related to the physical branch network. I felt I needed to put this on “paper”.

Banke1m

I am working in this industry for almost all of my professional life. All together some 21 years. I do like to position myself as a core banking professional. Why? Well my work has offered me to shape and evolve my views from very different angles. I started actually from where I still believe every banker should start his career – at the door entrance of a bank. The following years has lead me to various positions from a clerk, to card business, non resident accounts, creativity on products design, branch network expansion, process optimisation, tax and legislative implementation and enforcement, operational business and infrastructure projects, marketing and product launches, investments fund business, Core banking software development, EURO introduction, bank consultancy on software development, Core banking delivery projects, introduction of alternative banking channels, reporting, business analyses, to today’s Bid management area.  I am becoming obviously one of the “old boys” although I work for the last several years in the most top tech environment related to banking software in particular the core banking systems.

Banke2m

As I am not an IT expert and neither am I a banker, so what am I? Well I love to position myself in between these two extremes. I am the connector, the interface of the two areas where business and tech come together. You don’t thinks so, that these are two total different worlds? Please let’s do not mix banking with f. i. high speed robotic – algorithmic trading. This has nothing to do with the essence of banking.

A banker is a conservative trustworthy person concentrated how to place deposits and loans to a healthy balance. That is his core thought. All other activities are directly or indirectly related to this main goal.

An IT banking professional enables this business with a simple today’s fact. You can do that business as long the business can be put in a box. And with this I mean the IT environment. For this you need a techie.

Banke5m

But let’s get back to what I wanted to describe today here. The change of my personal paradigm – the branch network. Like I said earlier. I loved the banking business and I am a geek – loving futuristic techie gadgets. That was actually my advantage, my competitive distinction. I admit it. But I am also a conservative person with great respect to core values and symbols. And today I want to speak about the symbols lik a branch and cash. Symbols which represented more than just a financial market and the material reflection of value.

Banke6m

Years ago I was a team member of the banks first internet banking solution. Just some years before this my PC was one of the first in the bank connected to the World Wide Web and suddenly the meaning of a channel became something completely different. The window where somebody could reach me has been added into the existing structure and related to the telephone banking infrastructure which was then not quite heavily used by the banks customers. Only a few of them where actually using it. Main services were balance checking and payment orders. As the service was 90% impersonal – the customer would talk to a voice machine and his message would be recorded, there were so many problems because of bad lines, wrong account data, etc. So introduction of the electronic channel like web banking would possible move the calling users to this channel if the internet connectivity of the public would happen. Well, we do know today that this has happened. It happened actually faster than predicted, so the channel became very popular and the growth was clearly visible.

Now, I assume that banks were not prepared strategically on this. Why am I saying this? Well I felt at that time, that banks were concentrated mainly on short wins like increase of customers and how to earn from this new channel. I mean there is nothing wrong with this. But, thinking back they would need to grow into a perception what this means for the banks infrastructure like today almost 20 years later. Off course this is related to the bank’s strategy, who the target customer is and they would find conclusions how big the penetration of the direct banking would be (bank did use the term Direct Banking as a code name for Internet banking). But the fact is, today this doesn’t really matter, does it. Everybody uses internet – even my parents in the 70’s.

But although the usage of web banking solutions tremendously grew, the base understanding was like mentioned earlier – just a new channel appeared. At that time this would not be treated that the bank’s branch network would be reduced. On the contrary – to be able to acquire more customers a physical sales network would be needed regionally to address the public with the new offering. And so the branch network has increased. Surely not only for this purpose, but to acquire a new customer a branch is necessary. This was covered also with the legislation and regulation rules how to establish a business relationship between the customer and the bank.Banke3m

Let’s look at the main services what a normal internet banking application should offer:

  • Account and balance information
  • Payment transactions (domestic and international)
  • Opening of accounts, like giro, saving and term deposit accounts
  • Opening of investment products
  • Currency exchange
  • Ordering of cards and maintaining their settings
  • Blocking/deblocking
  • Opening/amending/closing of direct debits/credits
  • Opening/amending/closing of standing orders
  • Loans and overdrafts requests
  • Secure communication and placing of other orders with the bank

Maybe I have let something out, but let’s say that these are the main functionalities a normal consumer would somehow expect in there. With combination of added information’s published on a banks web page or even integrated into the web banking solution and with adequate level of comfortable security this is it.

So, adding the usage of ATMs and card payments on POS (Point of Sale), applying for a loan with the dealer when buying my motorcycle I haven’t actually been in a bank’s branch for the last 4 years. And I am using 5 banks where I am using parts of their offer.  Ok, I did once, forced due to KYC (Know your customer) guidelines.

And then banks have appeared which were pure web banks, so not really looking like a spinoff of a physical bank. It took just some years to adapt to the speed of information and action to understand that a 100 years old tradition has nothing to do with the quality and safety of a bank. All safety is just an illusion or in the best case a reflection of a glimpse of a second and the only thing which stays is the brand. What does the brand stand for and can I identify myself with my acceptable risk, expectations but also price to that counterparty. And a part of the brand was the building – not even a branch, but probably a lot of folks would understand that also a HQ would have a beautiful branch with alive people offering a word of help and assistance in case of need.

Today you would probably choose a bank across various parameters and dependant to your main trigger or pain like interest rates for savings, loans, packaged offer, etc. And due to the speed of offer and banks investment in you gone after 6 months you would probably start thinking to switch. Its so easy to do this, and banks are willing to do it for you and even pay you like a hundred bucks for this.

But in any case somehow you would expect a fully functional internet banking channel as your probable primary entrance. In Germany I have mainly opened all of my accounts remotely, so not stepping into a branch. Due to years of branchless banking and face it – even if I needed assistance this was performed on the phone, I would now conclude the definite change of my today’s expectation.

Now I would clearly say that a bank does NOT NEED A BRANCH NETWORK at all.Banke1m

People working in a branch are not bankers, they do not even think like a banker should or does. They are employees of the bank and they perform tasks sometimes due to regulatory requirements and sometimes to follow tasks which the banker has delegated. Very often they are even not very well paid.

Savings and wealth – If they would be interested to become a banker, than they would understand how to become rich. And because they are not rich, there is just no justification, why they would be qualified to advise me. If banks would put bankers in a branch they might get the crowd back. Integrity, knowledge and available tools and mechanisms should produce a trusted relationship to the banker (even not to the bank) which would give me a valid reason to regularly visit him and split the potential profit.

Loans – As a consumer I must do my homework when taking a loan. And the least what the bank needs to do even if they do not directly talk to me is that the whole process and paperwork must ensure me, that there is no trap taking a loan with the institution. No small print notes at the footer or hidden clauses which do commercially impact the loan later in time.

Payments – The only reason I use the bank channel is because these are the only institutions which can execute such financial transactions. If there would be an alternative I would surely use it. Well I already do it where available with PayPal, I tunes, cards, Bit Coins, etc., but at the end you still end up with the accounts fund in a bank which need to pay for the different virtual currency.

My personal conclusion – the time has came when I can declare for myself in this region that banks branches are not needed at all. Loved to work in a branch years ago – but this romantic times are gone. A qualitative personal service/relationship (banker – customer) has evolved to a luxurious service which consumers are not willing to pay for and the impersonal relationship (customer – banks system) has reached the level of comfort with affordability that we are back to transactional banking. It was just a marketing idea that banking would evolved in a customer orientation. Banking has never before been more transactional oriented as it is now.

And let’s end here with the fact of cash. Here I still do believe in the power of cash. Not so much as before where some would say I share almost a romantic relationship to it. But mainly to the fact, that so many people have serious problems managing their personal financials. And with cash, the money, the value has a material form, something you have or you don’t have. Reflecting this difference into virtuality it’s even harder to understand and feel a credit or debit balance, where the debit balance causes additional debt, whereas cash doesn’t – its just not there. I think that this fact will hold me on the side of a “material cash” advocate.

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