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.
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.
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
Branch networks are the foundations – electronic distribution is the cream on the cake.
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.
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.
this way then demonstrates the fundamental flaw in retail banking today
because many banks still have everything built in layers of complexity
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.
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
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.