US banks are set to drastically transform their branches in an effort to turn them into financial centers for high-value sales and advice - a process already underway in Europe. Datamonitor's Christine Skouenborg explains that a key IT implication of this will be the development of a next-generation, CRM-enabled branch desktop, with IT spend expected to reach $1.4 billion by 2006.
Renewed European bank branches are expected to constitute between 33% and 40% of all branches by 2005 and European branch renewal IT expenditure is predicted to reach almost $1 billion by 2005. The rate of branch renewal is expected to be highest in the UK, France and Benelux with top-tier banks expected to be more aggressive in their rollout.
For the customer, branch renewal is likely to dramatically transform the traditional banking experience. Gone will be the glass divide. Self service stations will be made available for customers to process simple transactions. Wireless technologies will become an increasingly important part of the branch infrastructure and layout, giving staff the ability to move around freely servicing customers.
The branch takes center stage once more
Only a few years ago, the advent of the Internet and other, fully automated channels was widely believed to spell the end of branches. Once familiar with these new channels, customers were expected to favor the convenience of 24/7 access to the cheaper products they offered. Consequently, as banks poured vast amounts of money into the development of such new channels, the branch was neglected in investment terms.
Today the emerging picture is decidedly different. Not only are branches still widely used by customers, but banks are also realizing that the Internet may not lend itself to selling complex or high-value products, while branches are optimally positioned to do so. To optimize the use of branches within a multi-channel context, banks will aim to leverage the face-to-face nature of interactions, there by turning branches into sales and services centers, while automating simple transactions to the greatest extent possible.
Already Bank of America and Washington Mutual are piloting rejuvenated branches. Recently a bank on New York's 5th Avenue advertised to customers it was closed for 'fashionable' refurbishment!
Spend on US bank branch renewal to total $1.4 billion by 2006
Renewed focus on the branch will have far-reaching technology implications. In order to achieve their aim of turning branches into sales and services centers, banks will have to overcome significant legacy technology issues in the branch. In particular, banks will have to replace legacy networking and IT infrastructures and undertake desktop refresh programs in order to be able to re-engineer the core teller application. This endeavor will lead banks to migrate off legacy platforms, such as OS/2, and develop browser-based environments in branches.
The teller platform is at the core of US banks' branch renewal efforts. Banks are focused on browser-enabling the teller front end, and allowing for greater process automation, notably through automated product origination and check imaging. That said, banks' aim of turning branches into sales centers is also leading to increased investment in CRM for the tellers giving them access to all relevant sales and servicing tools, as well as to all customer data and product information.
In the long-term, there will probably be a shift in banks' focus away from the teller platform, to focus more heavily on straight through processing-enabling core processes and the introduction of self-service devices. Overall, branch renewal will be a key driver for US retail banking spending going forward, with related IT spend reaching $1.4 billion by 2006, and growing at a compound annual growth rate of 21% between 2003 and 2006.
This year will be a turning point in terms of branch renewal as banks begin to execute their refocused strategies. However it is important to understand that branch renewal is a long-term undertaking. Not only are there important technology issues to overcome, which will leave banks taking a step-by-step approach to implementing the requisite systems, but there are also significant operational issues. Banks will need to tackle low skill-sets in branches and optimize staff productivity while concentrating on how to deliver the best retail experience to the customer.