How to Move Customers Out of Branches
By Charles Wendel
American Banker, April 13, 2004

Banks considering how to move customers out of the branch and into alternative sales and service channels continue to face fundamental obstacles in how to effectively align various customer segments with optimal channels.

Banker presentations that we have seen portray a world in which high-value customers are given relationship managers, mass-market small businesses work with telephone-based relationship managers, and microbusinesses get help either through voice-response units (VRU) or online self-service. (We may have even made some of these same presentations.) In this vision the customer fits into neat boxes, and those boxes allow banks to maximize their profitability.

Customers do not like to be put into boxes. In particular, many small businesses show little sympathy for banks that try to limit their access to the sales or service channel they prefer. Moreover, our research and client experience demonstrate that virtually all customers want more than one channel, usually three, in fact.

We have further found (and bankers may be annoyed to hear this) that customers even want their banks to provide channels that they do not use. In one survey we conducted, a sizable percentage of customers who did not use online banking still wanted their banks to provide it. Similarly, though branch visits are down across all small businesses, they remain critically important to most segments.

Customers are spoiled. They do not want to choose - or allow someone to choose for them - whether they will access their banks by branch, phone, online, ATM, mail, or whatever else technology provides. Instead, customers increasingly expect multiple channels and 24/7 access at no additional cost.

From the customer's perspective, today, not all channels are of equal value or appropriateness. Banks need to evaluate the functionality of various channels, as well as their customers' receptivity to them. For instance, we have all learned that, at least for the near term, most businesses use the Internet to get information about financial products; then they complete the sale in the branch. With the exception of credit cards, the Internet is not a sales channel for most small businesses with financial services needs. On the other hand, customers are happy to go online for simple service and information needs, viewing the Internet as more efficient than a branch visit or a VRU-based phone call.

Rules of the Road

How should a bank create an optimal multichannel sales/service mix? Or to put in another way, how can it persuade customers to act the way it wants them to act?

We think there are seven elements involved in leading customers to the best - that is, the most effective and cost-efficient - channels.

Determine your segment focus. You cannot create a channel offering if you have not determined who your priority (and not-so-priority) segments are. To this day we find that many banks do not know who their small-business customers really are. One result is that all customers get the same homogenized degree of service and the same homogenized products.

Evaluate product priorities. What are the key products and services that you want to sell? "Anything to everybody" is not a good answer. Depending on your priority product focus, channel priorities will also shift. One obvious example: You probably cannot sell advisory products over the Internet.

Assess channel preferences and profitability of key segments. Too often we see value-destroying customers receiving top-level attention. The option is simple - either they receive less attention or buy more products to increase their value to a bank. Segment profitability can be done quickly and relatively cheaply by leveraging internal resources. You want to get to the level of data that is good enough for decision making.

Emphasize the traditional first. You can have great alternatives channels and destroy a relationship through poor branch service. For all but 10% to 15% of customers, online service complements other channels and is not a key driver of where they bank. We expect that to change over time, but not today. You can have the best online product, but without the best branch product you are hugely disadvantaged.

Determine what you want your channels to accomplish. To create an effective channel strategy, management must outline what they want their channels to sell or what service they want them to provide, and to whom. In a sense, banks need to develop a business case for a channel. All too often expectations are wrong (for example, that online banking will result in the mass closure of branches).

Communicate internally. The most effective tool for moving customers to alternative channels may be branch personnel. That is where many customers go for information and instruction, including help related to online banking. Branch bankers need to understand these channels and to believe that the channels provide value to their customers. They also cannot feel threatened by them or be concerned that a telephone or PC will replace their jobs.

Create customer incentives. Bankers often seem to believe "build it and they will come." Small businesses are usually much more cautious in adopting new approaches and need to see how they will benefit. This raises good questions: What is in it for them? Why should they change their natural banking pattern? If bank management cannot answer these questions and others like them, adoption rates may be low.

Alternative channels have proliferated in the past 10 years and may proliferate further. Banks need to take a proactive stance in managing and marketing these channels, both internally and externally. First, however, they need to understand their relevant appropriateness and develop strategies for their use.