Category: Channel Usage

NAB branches give paper deposit slips ‘the slip’

NAB says paper deposit slips will soon be a relic of the past across all NAB branches.

NAB customers will be spared the tedious effort of having to fill out paper deposit slips for over-the-counter transactions from tomorrow.

Executive General Manager of Retail, Bob Melrose, said paper deposit slips would be removed from NAB’s branches from Saturday 11 February 2017, with withdrawal slips to follow in March.

“We know our customers want banking to be quick and simple, which isn’t always the case when you have to muck around filling out forms,” Mr Melrose said.

“This move means we’ll be collectively saving our customers from completing these details more than six million times each year.

Customers will instead receive a printed receipt which itemises the details of their transaction. Deposit slips will still be available for some transactions such as passbook accounts and bankers will assist anyone who has questions about what this means for them.

“We’re not the first bank to take this step by any means, but we’re committed to making it easier for our customers to do their everyday banking with us.

“We have a dedicated team to identify and fix what frustrates customers the most. We know from feedback that paper deposit slips were a sticking point for many of our customers, and that’s why we are making this change.

“It also brings us in step with the more than 90 per cent of customer transactions which take place digitally,” Mr Melrose said.

Fast facts:

  • Around 12 million deposits are made in NAB branches each year
  • More than 3.2 million – or 27% – of these are currently made with paper deposit slips.
  • Around 8.2 million withdrawals are made in NAB branches each year.

More than 3.7 million – or 47% – of these are made with paper withdrawal slips.

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.

Make ATMs Great Again

From Zero Hedge.

McDonalds replacing minimum-wage workers with “Big Mac ATMs“; Coffee stores replacing low-paid barristas with robots, and now Bank of America opening branches with no workers at all.

According to Reuters, the latest trend when it comes to retail banking is to do what every other industry is doing, and eliminate paid labor entirely. In that vein, Bank of America, has opened three completely automated branches over the past month, “where customers can use ATMs and have video conferences with employees at other branches.”

Like many U.S. banks in recent years, Bank of America has been reducing its overall branch count to cut costs even as it opens new branches in select markets. New branches are typically smaller, employ more technology, and are aimed at selling mortgages, credit cards and auto loans rather than simple transactions such as cashing checks. The move is similar to a parallel shift away from active, and highly paid, management, to robotic, algo, and other generally passive, and much cheaper, forms of asset management. Only here we are talking about near-minimum wage jobs quietly going extinct.

It was not immediately clear if the robots have learned the sneakier “cross-selling” techniques from Wells Fargo, or how to churn one’s account with excess fees as per JPMorgan.

Bank of America spokeswoman Anne Pace said there is one completely automated branch in Minneapolis and one in Denver, both of which are relatively new markets for the bank’s consumer business. They are about a quarter of the size of a typical branch. The new branches were mentioned briefly Tuesday by Dean Athanasia, co-head of Bank of America’s consumer banking unit, during a question and answer session at an investor conference, but he did not provide details.

In keeping with the unstated zero net new hires policy, Athanasia said Bank of America will open 50 to 60 new branches over the next year, though Pace said the bank will also be closing branches in certain markets, so the 50 to 60 branches do not represent a net increase. Assuming all of the new branches amount to zero new jobs, then they will also represent no increase in employment either.

Bank of America opened 31 new branches in 2016.

And since this trend of anti-retrofitting of existing branchs, those with workers, for new branches without, is just starting, Bank of America – which had 4,579 financial centers at the end of 2016, compared to 4,726 in 2015 and 5,900 at the end of 2010 – is about to make American robots and ATM machines great again. It is not clear just what angry Tweet trump can shoot out to make BofA changes its mind.

The Time For Mobile-Centric Banking

Mckinsey says that Consumer adoption of digital banking channels is growing steadily across Asia–Pacific, making digital increasingly important for driving new sales and reducing costs. The branch-centric model is gradually but unmistakably giving way to the mobile-centric one.

Deferring the development and refinement of a digital offering leaves a bank exposed to the risk of weakened relationships and lower profitability. Now is a critical moment to draw retail-banking customers toward Internet and mobile-banking channels, regardless of the general level of network connectivity in a given market.

Our annual study, the Asia–Pacific Digital and Multichannel Banking Benchmark 2016, was led by Finalta, a McKinsey Solution, and examined digital consumer-banking data collected between July 2015 and July 2016 from 41 banks. This article focuses on our findings from Australia and New Zealand, Hong Kong, Malaysia, Singapore, and Taiwan, examining consumer digital engagement, user adoption, and traffic and sales via Internet secure sites, public sites, and mobile applications.1 We detail three counterintuitive findings, and make suggestions for how banks should move forward.

Three counterintuitive findings

Consumer use of digital banking is growing steadily across all five markets (Exhibit 1). In the more developed markets of Australia and New Zealand, Hong Kong, and Singapore, growth in recent years has been concentrated in the mobile channel. Indeed, among some banks use of the secure-site channel has begun to shrink, as some customers enthusiastically shift most of their interactions to mobile banking. In emerging markets, growth is strong in both secure-site and mobile channels.

Exhibit 1
Consumer adoption of digital banking is growing steadily across all markets.

Three counterintuitive findings point to the need for banks to act aggressively to improve their use of digital channels to strengthen customer relationships.

First, banks can excel in their digital offering despite limitations in the digital maturity of the markets they serve. One measure of digital maturity is the Networked Readiness Index (NRI), published annually by the World Economic Forum. This scorecard rates how well economies are using information and communication technology. It examines 139 countries using 53 indicators, including the robustness of mobile networks, international Internet bandwidth, household and business use of digital technology, and the adequacy of legal frameworks to support and regulate digital commerce. Comparison of digital-banking adoption with the level of networked readiness reveals that a country’s level of digital maturity does not necessarily promote or inhibit the growth of a bank’s digital channels.

Singapore, for example, has the most highly developed infrastructure for digital commerce in the world. However, when it comes to digital banking, Singaporean banks trail their peers from the less-networked markets of Australia and New Zealand, where banks have been able to draw consumers to digital channels despite gaps or weaknesses in digital connectivity.

Some banks have also been successful in pushing mobile banking regardless of network limitations (Exhibit 2). While Australia and New Zealand have moderately high levels of third-generation (3G) and smartphone penetration (trailing both Hong Kong and Singapore), the banks surveyed have achieved much stronger consumer adoption of mobile channels than their peers in other markets.

Exhibit 2
Mobile banking can also grow despite a market’s limited mobile-network infrastructure.

The second key finding is that having a relatively small base of active users does not necessarily mean low traffic (Exhibit 3). Among all participating banks in our survey, banks in Malaysia report among the smallest share of customers using the secure-site channel; however, these customers tend to log on many times a month, and the typical secure-site customer interacts with the bank more than twice as often as the secure-site banking customers of participating banks in Hong Kong and Singapore.

Exhibit 3
Low channel adoption does not necessarily mean inactive users.

Third, the survey data reveal wide variations in performance across key metrics by country. In Australia and New Zealand, for example, there is wide variation in digital-channel traffic, with customers logging on with 32 percent more frequency at participating banks in the upper quartile than those in the lower quartile. In Hong Kong, digital adoption among upper quartile peers exceeds that of the lower quartile peers by ten percentage points. Participants in Singapore observe a sixteen-percentage-point gap between the upper and lower quartile peers in the proportion of sales through digital channels.2 The wide gap between best and worst in class in multiple markets points to a significant opportunity for banks to beat the competition with compelling digital offers.

What banks should do

Banks in emerging markets have an opportunity to leapfrog to digital banking. Despite gaps in technology and smartphone penetration, a number of banks have tapped into consumer segments eager to adopt digital channels. Banks in emerging markets should prepare for rapid consumer adoption of digital channels. The digital evolution in emerging markets will differ considerably from the trajectory of banks in more developed markets.

Banks in highly developed markets have room to grow their active user base and digital sales. Indeed, the cost and revenue position of banks that do not act to improve their digital offering may weaken relative to peers that shift more business to digital channels. Banks in all markets should plan for this transition, especially through the integration of diverse technology platforms, the consolidation of customer data across multiple channels, and the continuous analysis of customer behavior to identify real-time needs. It is important to build services rapidly and to go live with minimally viable prototypes in order to attract early adopters—these digital enthusiasts eagerly experiment with new features and provide valuable feedback to help developers.

The significant variation of performance among countries shows great potential for banks to boost digital engagement with a dual emphasis on enrollment and cross-selling. Banks should carefully consider four best practices that often bring immediate gains by streamlining the customer’s digital experience:

  1. Deliver credentials instantaneously upon in-app enrollment. The global best practice shows that banks that issue credentials instantaneously through in-app enrollment see their mobile activity rise on average 1.5 times faster. Of the banks that provided data on functionality, more than 50 percent do not have in-app enrollment. This presents a significant value-creation opportunity.
  2. Simplify authentication processes to make them both secure and user friendly. Approximately three in five banks surveyed lack the ability to authenticate a user’s mobile device. In our experience, banks that store device information and allow users to log on simply by entering a personal identification number or fingerprint see three times more digital interaction than banks that require users to enter data via alphanumeric digits each time they log on.
  3. Implement ‘click to call’ routing to improve response times. Instead of using a voice-response system, where customers must listen to a long list of options before selecting the relevant service choice, an increasing number of mobile apps are adopting click-to-call options for each segment, enabling customers to bypass the voice-response menus. Of the banks that provided data on capability, only 30 percent in our Asia–Pacific survey offer authenticated click-to-call options. The improvement in customer service is significant, with global banks able to improve the speed of answering customer calls by up to 40 percent.
  4. Make digital sales processes intuitive and simple. Take credit cards as an example: best-practice global banks achieve average conversion rates (the ratio of page visits to applications) some 1.6 times those of Asia–Pacific banks. They do this by presenting products and features for which a customer has been prequalified through an intuitive, easy-to-read dashboard display or via tailored messages. Application forms are prefilled automatically with customer data. With intuitive and simple applications, banks in the Asia–Pacific region could increase the rate of completed applications by 22 percent, to come up to par with global best-practice banks.

Across the five markets we focused on, the branch-centric model is gradually but unmistakably giving way to the mobile-centric one. Looking at how digital-channel adoption and usage is evolving, along with the diversity of scenarios, banks have ample room to win in their target markets with a carefully tailored digital offering. Digital-savvy consumers warm quickly to well-designed and easy-to-use digital-banking channels, often shifting to the new channel in a matter of days. Banks need to act quickly to improve their customers’ digital experience or risk being left behind.

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.”

Omnichannel, not omnishambles

Good article from McKinsey on the problem of multi-channel strategy within banking. Although, I do not think they take the argument far enough. We need now to develop a “Mobile First” strategy for banking. Omnichannel is not good enough now.

Although consumers have quickly adopted digital channels for both service and sales, they aren’t abandoning traditional retail stores and call centers in their interactions with companies. Increasingly, customers expect “omnichannel” convenience that allows them to start a journey in one channel (say, a mobile app) and end it in another (by picking up the purchase in a store).

For companies, the challenge is to provide high-quality service from end to end, regardless of where the ends might be. That was the case for a regional bank that sensed that too many customers were falling into gaps between channels.

Mapping its customers’ journeys confirmed the suspicions (exhibit). Four out of five potential loan customers visited the bank’s website, but from there, their paths diverged as they sought different ways to have their questions answered. About 20 percent stayed online, another 20 percent phoned a call center, and 15 percent visited a branch, with the remainder leaving the process.

Exhibit
Mapping customer flows highlights pain points.

The channels’ differing performance pointed to specific problems. Ultimately, more than one-fifth of customers who visited a branch ended up getting loans. But in the online channel, less than 1 percent got a loan after almost 80 percent dropped out rather than fill in a registration form. Finally, in call centers, a mere one-tenth of 1 percent of customers received a loan—perhaps not surprising, since only 2 percent even requested an offer.

To integrate digital and traditional channels more effectively, the bank had to become more agile, with the understanding that its one-size-fits-most processes would no longer work. Complex registration forms were simplified and tailored to different types of customers. Revised policies clarified which channel took the lead when customers moved between channels. And new links between the website and the call centers enabled agents to follow up when online customers left a form incomplete. Together, these types of changes helped increase sales of current-account and personal-loan products by more than 25 percent across all channels.

 

Digital Channels Rules At NAB

NAB CIO David Boyle’s spoke at FST Media’s Future of Banking and Financial Services conference. He underscored the extent of the digital transformation underway in banking. 95 per cent of all customer interactions are through digital channels and approximately 70 per cent of customer logons in digital are through mobile devices.

Good morning everybody, it’s great to be back. It’s been two years since I last spoke to you at FST media. I’ve always found it a great conference for getting through to the core of what is important. Today, what’s important for me – as I share a little bit about what’s going on in my life – we have just launched overnight, the latest version of our Mobile Banking Application for Apple.

It’s been an incredibly exciting couple of weeks. For the last three weeks we’ve been progressively rolling out in the Android world and it’s gone so successfully we decided to launch last night with the Apple version. Already this morning, 50 000 of our customers used and logged on to the new application. It’s very exciting because at NAB, it’s all about the customer. At the heart of the One NAB plan is the customer experience. We want the customer experience to be personal, to be easy and to be supportive. And making it easy and supportive for our customers really requires a lot of engagement with customers. And we’ve got to engage with our customers where our customers are.

Most of our customers don’t walk into branches these days. 95 per cent of all customer interactions are through digital channels. So our business customer engagement location is on a train, it’s in the passenger seat of a car, it’s walking down the street, it’s sitting in a conference. We do our banking and we engage with our bank wherever we are. So we need to be living in our customers’ world.

Approximately 70 per cent of our customer logons in digital are through mobile devices now. Our customers are raising the bar. Really raising the bar around how always on they expect us to be in a digital world. There’s no nine to five in a digital world – we’ve got to be able to do everything at all times of the day. So that really raises the bar in terms of how reliable and stable technology can be. But it also raises the bar in terms of how agile and how many new features are being delivered into their hands every day. They don’t expect quarterly or six month releases. New features have to be turning up day in and day out.

There’s a lot of innovative ideas at NAB through our NAB Labs team and outside in the industry. And so how do we really engage with the right ones, and join them up with the customer and experiment with the customer involved in the process to then figure out which innovation is relevant to the customer experience, and then get laser focused on industrialising those particular innovations that are going to move the customer experience the most.

I think that’s the way, in a very crowded landscape. it’s our strategy of being customer-focused and keeping our eye on which particular innovations are going to make it easier, more personal, more supportive for our customers that enables us to focus on the ones that matter the most. So what’s fundamentally different today at NAB in the way that we’re executing these three strategic priorities for our customers is we’re changing the ‘how’ we do it. And I want to focus on two particular ‘hows’ of what we’re doing right now.

The first is DevOps and the second is on-platform innovation. When I think about DevOps and continuous integration and continuous delivery, it is one of the most fundamental changes I’ve seen in my career that really does make a difference for the customer. A DevOps approach gets that balance right for the customer of being always on and really fast at delivering things. Today’s launch of our new mobile Internet Banking app is a really good case study, and we’re nailing it.

The original project name for the project that went live last night was called ‘E-301’. E-301 stands for a great customer experience. E stands for a great customer experience – you always start with the customer experience. The ‘three’ is for three seconds – we want it to be really simple and quick for our customers, so they can login and get to any feature within three seconds. ‘Zero’ means zero down time, so it is always on. ‘One’ is what really drove a lot of change in terms of how we do things. One hour from finishing change to a piece of code to getting it into production.

It completely busts all of the norms that we used to have on how we went through things. It has made the biggest difference.

Last night’s launch I think is the exemplar of really pushing the boundaries with that ‘E-301’ mantra, to set a new, high bar. What we did was, we sat down with 4000 customers over the last year and progressively experimented, innovated and evolved a solution with real customers. Our customers gave us 2700 solutions on how to make it better.

We went live last night and it’s all gone smoothly. Today, we’ve already got some feedback from customers that say they would like to see a subtotal of all of their accounts at the bottom, so we’ll put that into the next release.

And this long-running, persistent team that works on a platform continuously builds new features every fortnight in perpetuity. So this is a really different approach – it’s a platform-based approach, it’s a DevOps approach and what it does is not second guess what the customer experience is about. What it does is it works with the customers and continuously delivers that better customer experience. There is a second platform that’s got very similar features that we’ve been working on for a number of years that is now live in production for our consumer bank and that’s the Personal Banking Origination Platform. We’re now starting to plug the digital and the personal banking platforms together to get that experience across a broader range of services, but we’re seeing really good benefits flow from this platform around getting decisions faster, getting times to yes faster and also driving quite a bit of productivity into some complex end-to-end processes.

We’re doing monthly releases on the PBOP platform and that gives us the ability to learn, engage with our customers and continue to build a backlog of new features and continuously evolve the new platform so that it doesn’t become a legacy system, it becomes a long running persistent team that in 10, 20 or 30 years should be continuing to evolve the customer experience.

This is what I call the ‘ever green model of technology.’ Where all of the platforms in the organisation have this long-running persistent team and an agile, consistently delivering model, then the thing that fundamentally changes – and this is where the real strategy comes to life – is our environment actually gets simpler over time.

What tends to happen with these agile platforms is demand comes to them because they are delivering fast. One of the things I’m most proud that we’ve achieved at NAB in the last 12 months is for the first time in my career operating this way. We actually finished this year with less technology than we started. So we turned off more than we added in. What it was, was continuously building more agile platforms, encouraging demand to come on platform and then naturally, you start to see more decommissioning and adding on of new.

Banks are hedging their bets on costly branch networks

From The Conversation.

Last week the Australian division of global financial institution Citibank became the first local bank to stop handling cash. The bank’s retail head said it was not a precursor to closing bank branches, but it comes as banks are stepping up their investments in technology, while at the same time looking to reduce costs. But evidence shows customers still want branches or personal interaction with bank staff.

Banks today spend a lot of time talking about technology. Their public documents are littered with terms like “simplification”, “process excellence”, “creating a footprint for a digital world”, “stepping up the pace of innovation”, “cloud based solutions”, “digital transformation”, “unparalleled digital capabilities”, “digital security”, “innovation labs”, “technology for leveraging data analytics” – it goes on and on.

It is clear the banks are highly motivated to ride the technology wave to its full extent. And they cite several compelling reasons. The first is improving the customer experience. The banks argue they can build deep customer relationships through technology improvements.

The way customers want to undertake banking is continually changing, and more and more customers want simplified solutions and to be able to do everything on digital devices. Part of the customer service improvement is heavy investment in data analytics to better understand customer profiles and the ways in which customers transact.

The second reason is to drive down costs. Customers want the cost effective solutions that smart technology can offer them, and banks want to improve their own cost to income ratios.

Security is a third factor. Customers want their money to be safe and banks need to invest in secure solutions and the prevention of cybercrime.

But what is the role of the traditional bank branch in all of this? Will increasing digital solutions lead to more branch closures? And do customers still want branch based solutions and interactions?

Branch networks are declining, but at a slower pace

APRA figures show there were 5904 “points of presence” in Australia offering a branch level of service as at June 30, 2016. These figures include non-bank entities such as building societies, but the vast majority relate to bank branches.

From 2012 onwards, the number of branches has shown negative growth each year, and there has been a particularly large slide of 5% in 2016. There has been a greater percentage of closure in rural areas. According to APRA’s branch classifications, there was a reduction of 315 branches, of which 173 (-4%) was in highly accessible areas, 75 (-10%) in accessible areas, 36 (-12%) in moderately accessible areas, 25 (-17%) in moderately accessible areas, 6 (-13%) in very remote areas.

These closures need to be put into context. They are small compared to the many closures that were seen in Australia from the early nineties to the early 2000s, when ATMs and other electronic solutions were being increasingly rolled out by banks. APRA figures show a reduction of more than 2,000 branches over this period.

An Australian parliamentary report at that time put this down to banks seeking increased efficiency and reduced costs in a highly competitive global environment, fuelled by an increase in technology and electronic banking solutions.

The US, like Australia, has also shown a relatively small reduction in branches in recent times. The UK on the other hand has had a comparatively huge number of branch closures. A parliamentary report showed branch numbers have fallen from more than 20,000 in the late eighties to less than 9,000 in recent times. These closures even led to an active group called the Campaign for Community Banking Services. It spent nearly two decades trying to stop the closures but disbanded recently, believing the tide could not be stopped.

Despite bank branch closures, there’s evidence to suggest customers still want branches or some sort of personal interaction with bank staff.

A Canstar Blue 2016 survey showed that in Australia the top three drivers of bank customer satisfaction are enquiry and problem handling, fees and charges, and customer service (branch and call centre). Digital banking (mobile, website and apps) ranks only as the sixth key driver. In the UK, a study by McKinsey (2016) showed that customers still want interaction with branches, especially for more complex transactions.

But do branches still deliver value for the banks themselves? Well yes, not only do they serve to satisfy the needs of those customers who want personal interaction with their banks, these branches are also essential sales outlets for the banks. There is also generally a desire among Australian banks to retain, and even expand, the relationship manager model for business customers, in contrast to a strong move over the last two decades by many global banks towards automated business processes such as credit scoring for small businesses.

The banks in Australia have generally been reluctant to dispel further closures. And it’s clear they wish to move much further into technology-based solutions. However, there appears fairly wide acceptance among the banks that branches and personal contact still have an important role to play. This means branches are likely to keep evolving into smaller outlets focusing on sales and more complex transactions, while banks focus on other technology solutions as they evolve.

Author: Robert Powell, Associate Professor, Edith Cowan University

Mobile Moves to Majority Share of Google’s Worldwide Ad Revenues

From eMarketer.

Google, which is set to report Q3 earnings this week, now makes more ad dollars from mobile than from the desktop globally, according to eMarketer’s latest estimates of ad revenues at major publishers. But in its home market of the US, that revenue flip is still in the (very near) future.

Google Net US Ad Revenues, by Device, 2015-2018 (billions and % of total)The shift in share of Google’s US ad revenues from desktop to mobile was sharp between 2015 and 2016. Last year, eMarketer estimates, just shy of 60% of the search giant’s net US ad revenues came from desktop placements. This year, it will be almost exactly 50/50, with desktop revenues eking out a 0.6-percentage-point edge. But by 2018, more than 60% of Google’s net US ad revenues will be thanks to mobile spending.

Google is already passing this milestone this year on a worldwide basis: About 59.5% of the company’s net global ad revenues will come from mobile internet ads this year, up from about 45.8% in 2015. By 2018, nearly three-quarters of Google’s net ad revenues worldwide will come from mobile internet ad placements.

This year, Google will generate $63.11 billion in net digital ad revenues worldwide, an increase of 19.0% over last year. That represents 32.4% of the worldwide digital ad market, which this year is worth $229.25 billion.

Google continues to be by far the dominant player in worldwide search advertising. eMarketer estimates the company will capture $52.88 billion in search ad revenues in 2016, or 56.9% of the search ad market worldwide.

On the display side, Google is second to Facebook. It will generate $10.23 billion in display ad revenues worldwide this year, or 12.9% of total display spending.

YouTube Net US Ad Revenues, 2015-2018 (billions, % change and % of Google net ad revenues)YouTube net ad revenues will grow 30.5% this year to reach $5.58 billion worldwide. In the US, YouTube is the leading over-the-top (OTT) video service, with 180.1 million users this year. That represents 95.7% of OTT video service users in the US. Net ad revenues on the site will reach nearly $3 billion this year in the US, according for almost 10% of Google’s net ad revenues in the country. That share will rise slightly by the end of eMarketer’s forecast period.

“Google’s accelerating ad revenues have been driven by capitalizing on usage and marketing trends like mobile search, YouTube’s popularity and programmatic buying,” said eMarketer senior forecasting analyst Martín Utreras.

“We see data and advertising at the heart of Google’s new product offerings,” said Utreras. “The new devices are not only aimed at diversifying Google’s revenues but also at enriching Google’s advertising targeting capabilities as consumers engage and share information with Pixel, Google Assistant, Daydream View, Chromecast and other Google ecosystem devices. We see this as contributing to both device sales and advertising revenues in the future.”

Westpac closing branches as brokers take over

From The Advisor.

The big four bank has closed 173 branches over the last 12 months as it ramps up to drive more business through the third-party channel. You can read DFA research on the growth of the broker channel here.

broker-shares-dfa-sept-2016

The JP Morgan Australian Mortgage Industry Report – Volume 23, released yesterday, noted that Westpac was rationalising its branch footprint and improving systems to support the group’s multi-brand strategy.

“Over the last 12 months, Westpac have closed 173 branches (from 1,261 to 1,088) and have improved growth by increasing broker flow modestly from 47 per cent to 49 per cent,” the report said.

“The rationalisation of the distribution network (and ultimate culmination of heritage St.George and Westpac systems nearly 10 years after the merger announcement) should see a ‘cheaper cost to serve’, and allow system growth while protecting margins,” it said.

Commenting on the bank’s decision to close branches in favour of the third-party channel, JP Morgan banking analyst Scott Manning said that while the physical cost of distribution was not actually that high, Westpac’s branches were far less profitable than some of its peers’.

Digital Finance Analytics (DFA) principal Martin North, co-author of the report, highlighted that when it comes to distribution and weighing up branches against brokers, cost is not the key issue.

“It’s not so much a cost question,” Mr North explained, “but more a customer-driven issue. Customers are voting with their feet and choosing to go to mortgage brokers for their mortgage needs, which the banks are now adapting their strategies to,” he said.

“The broker channel has a big influence and we expect it to be a bigger influence going forward.”

Westpac’s decision to reduce its retail footprint follows similar measures taken by ANZ, which were highlighted in JP Morgan’s previous mortgage report back in March.

The report found that despite being the smallest of the four majors in the domestic mortgage market, ANZ has been successful in achieving the same dollar growth in mortgage balances since 2010.

“We believe a key driver of this result has been the success ANZ has had with the broker channel, with originations rising from ~40 per cent of flow to ~50 per cent of flow since 2010,” the report said.

Importantly, the report noted that ANZ has been steadily reducing its branch presence since 2011.

“ANZ is in the unique position where it has consistently grown its loan book above market for the last [few] years at the same time as it is actively reducing its branch presence and increasing its broker presence,” Mr Manning said at the time.

“That is acting as a bit of a business case potentially for other banks to follow,” he said.

“We have previously highlighted our concern for Westpac in particular where they have quite a duplication of their branch presence across different brands.”

At the release of yesterday’s report, Mr Manning said Westpac must work to remove duplications arising from its multi-brand strategy in order to streamline mortgage distribution going forward.