FINANCE: Adding Value at the Retail Banking Branch
Recent Gauteng Business News
With the growing popularity of the Internet, coupled with the fact
that the branch is a high cost centre for any bank, an increasing
proportion of banking has been migrated over to the online channel in
recent years to reduce costs and improve convenience for customers.
However, this online phenomenon can never entirely replace face-to-face
interaction with banks realising that their branch networks still
remains their key selling channel, especially when it comes to more
complex products or problems. And as with any business, branches are
tasked to improve efficiency, increase customer value and reduce costs.
Measuring the performance of a branch is the first step in making the
It is vital to recognise that the branch channel is a huge consumer of cost and is the starting point for many of the 'end-to-end' new business and account servicing processes that are the 'life blood' of the bank. It is therefore surprising that, most performance measurement within this distribution channel is focused on branch sales, with little emphasis on the efficiency of branch processing.
The simple truth is that the branch is so much more than a revenue generation channel, since typically less than half of the branch staff are actually involved in direct sales. In fact, the non-sales processes that the branch is responsible for are very broad and labour intensive including counter payments, application processing, account servicing, cash management, ATM support and enquiry handling. This is not to say that sales effectiveness is not of high importance, but rather that it forms just one element of the branch operation.
An analysis of branch operations globally conducted by Compass Management Consulting (Compass MC) revealed a significant efficiency gap between top quartile performing banks and the rest of the industry with the former achieving 30 percent lower staffing levels per branch. Compass MC also established that certain global banks have successfully introduced branch efficiency measures, whilst the majority of South African banks are still lagging behind. To be more specific, it was found that South African front-office processing is primarily paper-based, cash management is inherently inefficient, transaction processing is expensive with little investment in new self-service technologies and high error rates/re-work effort are adversely impacting both the branch channel and the back-office.
Typical efficiency and effectiveness programs implemented by leading performers have reduced branch costs by up to 20% without negatively impacting revenue and include the following:
. Automated cash/cheque deposit functionality
. Teller-Assisted Units at the Counter
. Cash Recycling
. Front-office electronic application processing systems
. Re-design of branches to increase the space dedicated to sales and advice
. Online lead generation tools that utilise customer information more intelligently
So if there is potentially such a large return from investment in branch technologies, what is stopping South African banking executives from making these investments? Typically it is either the fear of implementing cost efficiency programs, such as 'self-service', that is assumed to negatively affect sales revenues or the fear that the customer won't accept change. Interestingly, we have yet to find any evidence to support these perceptions. In fact we believe the opposite is true.
For example, our analysis with top performing banks has demonstrated that customer satisfaction and customer retention actually increase as a direct result of efficiency initiatives, as counter waiting times are reduced, more staff are available for dedicated customer advice and turnaround times for application/servicing transactions are improved.
With the rapid technology advances of recent years, particularly with regards to self-service, cash recycling and application processing software, some of the largest cost reduction opportunities for any bank in the future will come from the front-office. With a well planned and balanced branch vision focusing on a strategic front-office investment program, the pay-back for banks is potentially high, both in terms of reducing costs and improving customer experience.
Therefore, a pre-requisite for developing an effective branch vision and laying the foundation for implementing an effective front-office investment program is wholly dependent on banks' ability to measure performance of 'non-sales' as well as 'sales' processes. Yet without this holistic view of branch performance many banks will either ignore the significant cost reduction opportunities available due to their lack of understanding of branch dynamics or will implement a change program that will not provide the cost savings it should have done if more supporting facts and knowledge were available.
There are three key elements to obtaining a holistic view of branch operations:
(a) Measure the efficiency and effectiveness of sales, counter transaction processing, application processing, account servicing, ATM, Cash Management and administration processes within the branch environment e.g. unit costs, productivity, turnaround times, error rates etc.
(b) Identify the interactions between the above processes as this will enable the bank to identify additional opportunities for increasing revenue, decreasing cost and improving customer satisfaction. For example, there is an undoubted relationship across counter transaction processing, ATMs and Sales. Implementing a change to one of these areas is likely to impact the others.
(c) Collect information from customers and establish how they want to interact with the bank and how their experience of the branch could be improved.
Conducting a baseline analysis at the branch level that uses available data to examine, not just measure sales, but the relationships between processes, is an important starting point for any branch efficiency program. Such an activity can highlight cost reduction opportunities, service/quality performance gaps and underscore areas where technology can effectively be applied to improve efficiency. Linked in with customer survey data, it will become a vital source of information for both developing the branch strategy and the subsequent business case for investment.
At the end of the day it is all about finding out how customers want to interact with the bank and then supplying services that meet these needs. A full understanding of the branch and the many interrelationships based on sound information will show what type of strategy is applicable based on knowledge of the customers and a vision of where the bank wishes to be in the future.
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