Many branch bashers like to refer to the statistics that 90% of all banking transactions are performed on-line and that less than 20% of all retail banking customers has visited a branch during the last 12 months. Some may argue that the reduction in human touch points and the emergence of open architectures and white labeling, where banks sell each other’s products, imply that the banking services are becoming commodities. In this blog post, I will try to make predictions on the future of retail banking and the branch network by going back in history on an industry that have been trying to differentiate their commodity offerings for decades.
The oil crisis in the seventies, with the massive price hikes, had enormous ramifications on the global economies. But it is probably the most evident to the oil companies themselves in their distribution channels. The price chock altered the value propositioned provided by gas stations. Few of us remember it but in the early ages the attendants at the gas stations filled the cars as a service to their customers. The service provided was a differentiator when the oil price was low but the perceived value vanished when the oil price quadrupled in just some years. The customer needs became very basic. They wanted to be able to fill up their cars as cheaply as possible. Customer Experience and branding lost its relevance, to the dismay of companies like Esso that had been successful in the sixties with their “Put a tiger in the tank”-campaign. The increased commoditization caused a shake-out in gas stations. The number of gas stations in Sweden has decreased with more than 50% since 1973.
There are similarities to retail banking. The banks have aggressively hiked the fees for other-the-counter transactions in order to promote self-service channels. Consequently, the number of visits to the branches has decreased to the extent that banks have closed down 8% of the branches in Sweden since the eruption of the banking crisis in 1987. And we are starting to see increased price sensitivity in retail banking too. The twitter storm #sägdinränta has urged thousands of banking customers to challenge their bank on mortgages and find the bank with most favorable terms. The development is disturbing to retail banks given that mortgages, contrary to common belief, are unprofitable and used as “hook”-products to win new customers. Hence, the bank’s foundation for the business relationship to their customers is now perceived as a commodity where the best quote is reported in real time on twitter.
So, assuming that retail banking will experience increased commoditization, what can we learn from the oil industry that has been adapting to this trend since the mid-seventies? The chart below presents how the distribution of different gas station categories has evolved over time.
We recognize the self-service trend. The unmanned gas stations, labeled execution only, are now a majority of the outlets. The one-stop shops that provide all services related to the car and the driver have more or less maintained their share of gas stations. But, the secondaries, i.e. outlets that provide fuel as a complementary service to their grocery customers have vanished totally. Given the development, there are some projections or, at least, questions that can be applied to retail banking and the branch network:
- Self-service will continue to be an important channel to service customers on low value add-transactions. Given that the banks, contrary to the gas stations, provide electronic products there are reasons to believe that banks could promote their self-service offerings even more aggressively be teaching the laggards how to become self-sufficient. On-line support using video and self-service shops with service minded hosts may increase the adoption rate even further.
- The one-stop-shop, i.e. the branch, will remain but with a different purpose and lay-out. We will see an open lay-out where advisors equipped with wireless slates can mingle with customers and choose a comfortable place at their convenience.
- The interpretation of the disappearance of secondaries may be disturbing, especially given the current debate to restore the old laws from the twenties that banned banks from providing investment and commercial banking in the same entity. But it is not merely about containing risk. In a previous blog post, I questioned the economies of scope in the new normal in banking and asked whether some actors will cut the Gordian knot of compliance by focusing on selected customers and offerings. The decision from GE Money Bank to discontinue their mortgage offerings may be evidence to the trend that you go all in or exit segments.
What do you think? Assuming that you buy into the similarities, what will you do now when you are back from the future?