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Bank strategies are fundamentally flawed

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For half a millennia, retail banks have worked on the basis of physical distribution.  For half a century, that model has been challenged to move towards electronic distribution.  At the end of the first decade of the new millennium, we have finally reached the point where electronic distribution has matured, works and is proven.

Unfortunately, most retail banks are stuck in the twentieth century. It's time for retail banks to turn their model on its head and focus upon electronic platforms where physical distribution is the cream on the cake, rather than the other way around.

This view was prompted by a debate I was having yesterday around the future of retail banking.  The discussion went around: "so are things like Second Life and Facebook just passing fads, or are they really important to the future of retail banking?"

My response was that the question was flawed as it showed the questioner was a digital alien.


Digital aliens and digital natives are terms coined by Marc Presnky.  The people who are digital natives, Generation D, the i-Pops ... whatever you call them ... are people who don't think of the Internet.  They just get on with their lives and see online, mobile and all other digital channels as being seamlessly integrated into their world ... these folks do not think about branches, call centres, internet and so on.  They just think of these things as life.

And this is where retail bankers are getting it wrong because they are run by digital aliens or immigrants who do not get the digital life.

For example, retail banks have a historically strong branch network.

They added ATMs in the 1970's, call centres in the 1980's, the internet in the 1990's and are now adding mobile in the 2000's.  Each channel is added as an extra layer on the foundation of the branch distribution cake.

Branch networks are the foundations - electronic distribution is the cream on the cake.

This is why retail banks talk about multichannel strategies where they try to integrate their call centre channel with their internet channel; they attempt to deliver mobile banking interoperable with the call centre channel; they mess about with CRM to ensure consistency across branch and internet channels.

My problem is this: banks only have one channel.

They do not have multichannels, call centre channels, internet channels, mobile channels and so forth.  They just have an electronic channel that underscores and provides the foundation for all end points: mobile, telephone, internet and branch.

The electronic channel is based upon internet protocol (IP) technologies, as is the branch as it happens.  And this is the big change.  Just as I referenced that mobile telephony is wrong as it should be IP telephony, banks should stop thinking of channels and just recognise that they are IP-enabled.  Call centre, ATMs, branch, internet, mobile ... everything is IP-enabled.

Thinking this way then demonstrates the fundamental flaw in retail banking today because many banks still have everything built in layers of complexity and legacy.

The ATM, call centre and internet channels were all built as layers of cake created when the physical branch was the foundation.  The electronic channels were built as ancilliary to the core branch channel.  That is why they were often separated and have this chasm of non-integration between each other, as banks were built on a physical distribution model where electronics were layered on top.

However today, and certainly tomorrow, the population has moved to a world where the majority are digital natives.  As the Digital Generation grows up and matures, and as the world becomes one populated by digital natives, what role will there be for banks that have been built upon the basis of a physical distribution model with electronics layered on top?

It's time to turn this on its head.  It's time to think about banking as an electronic structure.  It's time to bite the bullet and admit that retail banking is not a physical distribution structure with electronic channels on top, but an electronic distribution structure with electronic and physical channels on top.

How does that change thinking?

It would mean wiping the slate clean and starting afresh.

How would we build today's bank if IP-networking is its foundation; and call centre, internet, mobile and the branch are just the cream of the cake on top?

Where would you build branches, and how would you build them, if the branches are ancillary and perfunctory to the electronic foundations?

Who would you employ, and how would you employ them, if the core differentation of the bank is its' IP-base rather than its' branch structure?

The fact is that any bank that launched today as a green field operation would think this way and, with the right leadership and implementation, it would thrash the weak competition that exists in most markets who are based upon legacy structures and legacy thinking.

Start thinking about the bank being an IP-network at its core, with layers of distribution on top and branch as the cream on the cake.

It's time for change.


Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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