Digital Trumps Branch

Buried in the CBA results presentation today was a series of charts which shows just how far digital has come.  Just as predicted in our Quiet Revolution Report.

Yet, as banks focus on more younger, digital users, they see a decline in satisfaction from older, less digitally aligned households. See the change in Main Financial Institution (MFI) by age bands.

… and relative needs met by age.

Yet transaction migration is well underway. CBA showed the fall in branch deposits and withdrawals…

… and ATM transactions as cash becomes less critical compared with electronic transactions.

On the other hand, point of sale transactions have risen strongly …

… as well as internet transactions.

This is the killer slide – app use, cardless cash and tap and pay volumes are rising fast. Mobile first is here.

Yet they also reported an increase in sales from smaller but reconfigured branches, with home lending applications up 13%, and reducing broker originated volumes, and a 10x increase in branch leads and 95% contact rates leading to 3x higher conversion rates.

The new branch is smaller, more tech, and focuses on customer relationships.

But transformation of banking distribution has profound consequences, in terms of economics, profitability and customer satisfaction, and there is no doubt that digital will trump branch (just watch kids with their digital devices and how naturally they use them). It just depends on how long it takes.


Which Tier 1 Banks are Leading in Digital Transformation?

New research from Juniper highlights the challenges and opportunities facing retail banks as digital migration moves fast, and branches become less relevant. “Mobile first” strategies are developing.

Juniper has analysed some of the leading Tier 1 banks from different parts of the world to evaluate their digital transformation readiness score and show their positioning to achieve the next level growth and digital innovation.

Juniper’s Readiness Index is designed to compare how these Tier 1 banks have scored based on the above mentioned target areas: relative placement of the banks in different phases does not necessarily mean that they are in anyway underperforming in terms of customers or revenue generation.

While most consumers, especially in developed markets, prefer digital banking and virtual channels, a significant proportion of consumers still prefer an in-branch session compared to an audio or video call with the customer contact centre. Juniper notes while this continued to be the case in the past 12 months, it will change as banks finalise a ‘balancing act’ between multiple channels.

This is more likely to be centred on the mobile device as banks move to a ‘mobile first’ approach, a trend supported by the scale of declining workforces and the number of physical branches, alongside increasing mobile usage across all markets.

Retail banks across the globe are struggling, with a report by the Bank of England in the UK highlighting that 30-40% of banks’ costs is concerned with running physical branches. However banks’ customers are not visiting their branches; in fact the report also found that footfall has fallen by 10% per annum.

This has been further confirmed by the decreasing number of branch visits by consumers and also the closure of physical bank branches over the past 12-24 months in other markets. In 2014, the number of US branches declined by 2% with only 2 banks amongst the top 12 (Wells Fargo and US Bancorp) increasing their branch numbers in that year.
The situation is rather different in emerging markets, such as China and India, where the number of physical banks is increasing in tandem with digital adoption. This is part of a wider trend in these markets to address a historic underdevelopment of physical banked infrastructure in rural areas and lower penetration of banked individuals. The growth in the banked population is particularly marked in India, rising from 30% of adults in 2010 to 48% by mid 2016. Nevertheless, even here, the focus is increasingly on digital expansion, especially in terms of digital wallets.

Banking and payments markets have witnessed an array of new methods of providing services. This means that banks and VCs (Venture Capitalists) are increasingly investing in technology to drive continued innovation.
Banks are investing in technology firms partnering, as well as acquiring, some of the tech-first players, alongside setting up technology hubs and development centres. In fact, as the chart below suggests VC investments in fintech start-ups reached record levels in 2015, almost $14 billion.

Meanwhile some of the more recent investment announcements by Tier 1 banks include:

  • In mid 2016, Deutsche Bank announced that it will invest €750 million ($790 million) in developing digital products and advisory services by2020; nearly €200 million ($211 million) is expected to have been invested in 2016.
  • In 2014, Spanish bank BBVA announced a $1.2 billion investment in technology projects in South America to boost its digital innovation in the market. Following that, in 2015, the bank invested $68 million in the UK-based challenger bank Atom for a 29.5% stake.
  • In 2015, Lloyds Bank first announced its plan to invest £1 billion ($1.2 billion) in digital banking capability over the next 3 years. Previously, in the UK, RBS had announced a similar level of investment into digital technology and services development. Australian bank Westpac meanwhile announced that it will increase its annual investment spend by 20% to $1.3 billion, the majority of which will be dedicated to technology, digital and simplification projects.
  • Indian bank SBI (State Bank of India) raised its IT budget in 2015 by a third to ₹4,000 crores ($580 million) as part of its strategy to improve its digital offerings. For the financial year ended March 2015, the bank had spent over ₹3,000 crore ($440 million) on technology.
  • In 2016, ING first announced its plan to invest €800 million ($845 million) in digital transformation initiatives over the next 5 years. Meanwhile, Emirates NBD announced Dh500 million ($136 million) investment over the next 3 years on digital innovation and the multichannel transformation of its processes, products and services.
  • Also in 2016, the Bank of Ireland announced its plans to invest €500 million ($588 million) in upgrades to its core IT infrastructures over the next 5 years.

REST’s ‘mobile first’ industry-first online super advice platform launched

From Australian FinTech.

REST Industry Super became the first Australian super fund to provide its 1.9 million members with ‘mobile first’ access to personalised financial advice with the launch of the REST Advice Online platform.

REST Advice Online is delivered on Midwinter’s next generation Advice Operating System (AdviceOS) and provides REST members with the ability to receive instant financial advice and make immediate changes to their super account from any mobile device.

The innovative new platform also provides live webchat and over-the-phone support from qualified advice specialists with REST. Importantly the offering is linked to the REST member’s account to enable secure straight-through processing so members can make changes to their super quickly and easily.

The digital advice offering leverages Midwinter’s Digital Advice technology which means that regardless of which method REST members choose to receive advice (phone based, web chat or self-service), it is delivered, recorded and processed from the same integrated advice system.

REST Industry Super CEO Damian Hill said that the new digital advice platform offers user friendly and convenient access to financial advice that is personalised to each member’s unique needs.

“For many Australians, investing can be a daunting task and superannuation, which is an important long-term investment, is no exception. REST Advice Online allows members to make an informed decision about how they’d like to invest their money and grow their retirement savings with confidence.

“Importantly it allows REST members to seek financial advice on their own terms in a way and at a time that best suits them – on their mobile device, via our website or over the phone.”

REST’s new Advice Online service is supported by bespoke technology enabling REST members to explore their options for simple advice related issues and receive an emailed statement of advice after being asked a series of questions and prompts about their circumstances.

Managing Director of Midwinter Julian Plummer said there is now a generation of members who don’t necessarily want the first point of advice contact to be a face to face pitch, especially if it is for simple strategies. “Members want to experience the value of advice digitally in a way that is non-threatening and is instantly accessible.

“For REST to be able to provide this digital advice at no additional charge to its members is a leap forward because they are meeting individuals where they typically spend a lot of their time – on their smart phone or device.”

Initially the new service will help members choose an appropriate investment option and will be expanded over time to encompass a range of advice options across more channels. Mr Hill said, “As custodians of Australians retirement savings we have an obligation to ensure our members are as financially prepared for retirement as possible – introducing REST Advice Online ensures we’re able to provide personalised financial advice at no additional charge to every one of our members.”