While its growth has slowed as it has reached maturity, the functions available through online banking continue to increase, thus driving volumes upward. Although online sales remain at only 1% of total volume, they account for the biggest change; new accounts opened are expected to double between 2010 and 2015. Service and payments volumes through the online channel will continue to grow, albeit holding a steady pace at 86% and 13% of total transactions, respectively.

Mobile banking, just introduced to the mass market starting in 2009, is beginning to revolutionize how customers interact with their banks. Consumers’ ability to check balances from wherever they are is the driving force behind the escalating growth in mobile banking, which has an expected CAGR of 28% through 2015.  The comfort with using smartphones for financial purposes will set the stage for widespread use of mobile payments once FSIs and retailers settle on mobile payments standards. 

The growth in online and mobile banking is in direct contrast to branch volumes as published in Channel Transaction Volumes: Branch and ATM. Branch volumes along with the number of branches and tellers are steadily decreasing as consumers make the move from full-service to self-service. Online and mobile banking are picking up that activity, and adding even more, as consumers access these channels more often for basic balance inquiries, now something rarely done in the branch.

Understanding consumer usage of the financial institution’s delivery channels is a critical element in future investment decisions. We have refined the methodology for calculating and forecasting transaction volumes using an approach that incorporates both financial institution data as well as consumer preferences for bank interactions. Our research brief highlights the projected volumes for the online and mobile channels in the United States.  This is part of a series of channel volume research notes that will be published throughout 2012 and 2013.

To learn more access, Channel Transaction Volumes: Online and Mobile. 

Despite rapid channel proliferation (and expense growth), most transactions still happen in the branch—even when other channels can serve customer needs better. As cost pressures build, encouraging better use of non-branch channels will become a business mandate. But many customers will not readily embrace this change. Some may actively protest. However, as our recent channel preference analysis reveals, three barriers stand in the way of migrating transactions and relationships to multichannel models.

1) Inexperience: Customers have not been effectively educated on their options. As the above graphic shows, over 30% of customers have no experience performing basic banking tasks outside the branch. Increasing education and experience is the quickest and least expensive path to migration and more efficient use of channels. As one of our recent case studies shows, customer education through the branch is central to driving activity and transactions online.

2) Inequality: The quality of online offerings still lags the branch: Many banks are focused on simply replicating and accelerating branch capabilities through non-branch channels. Instead, banks need to focus on creating compelling experiences based on the unique strengths of the web.  Until remote channels can deliver more compelling emotional resonance with customers, banks will not see sustained growth in that direction.

3) Indifference: In some cases, personal preference will trump qualitative assessment (or, my grandmother will never bank online): Personal preference is a good news-bad news situation for banks. The bad news is that some customers, no matter how high the quality of non-branch channels or how extensive the education around their capabilities, will never leave the branch. Further bad news is that these customers are likely not to be very profitable. The good news: in our survey, this group constitutes only about 10% of respondents.

For more on the results of our channel preference survey and how customers are making channel decisions, members can download our recent study, “Channel Strategy: Replacing Consistency with Quality.”

At a time when banks can least afford to lose key customers, a growing field of non-bank financial service providers is redefining customer experience. What threat do disruptive innovators pose to banks—and more importantly, what can banks learn from new models?

In CFC’s recent customer channel preferences survey, a stark trend emerges: as customers move toward non-branch channels, engagement declines. Tech-focused customers perceive their bank as less able to provide product guidance, hard to communicate with, lacking knowledgeable staff, and not sufficiently concerned about customer well-being. In short, many banks are not connecting emotionally with tech-based customers.

Through tech-based offerings, new entrants into financial services are targeting disengaged customers by re-imagining core areas of customer experience. For an in-depth look at the following emerging models, please join our webinar next week (for U.S. and Europe) and February 1 (for Asia Pacific):

1) Superior transactional experience of highly-focused products. Banks focus on transactional products as the foundation of customer relationships—they are the bridge to share of wallet. Innovators like Simple, or Perkstreet, focus on pure play models, devoting their energy to superior experience on a highly-focused product.

2) Self-directed guidance. Bank credibility relies on in-house expertise and the ability to provide personal advice on complex products. Understanding that most tech-focused customers prefer self-service, innovators are creating sleek, easy to use platforms that combine product guidance for complex products—like long-term investments—with customer control.

3) Lifestyle as acquisition driver. Branch density has long been the main strategy for gaining new customers, but for tech-focused customers, financial lifestyle is an emerging draw. Innovators are betting that the “debanked segment”—customers who are unsatisfied with traditional banking relationships and want an alternative—will be attracted by transparent, easy to use, tech-only models that fit into their day to day activities.

4) The interchange of customer information. Payment instruments are designed for ease—whether a debit card or mobile wallet, banks treat ease of the payment itself as core to the customer experience (and thrive on the revenue they provide). Innovators, however, are trading on information, and betting that being able to provide important information to the customer about account balances or coupons just before a purchase, or recommended products just after a purchase, will create a powerful integration with the customer’s life.

For more on these trends and an in depth look at the lessons banks can learn about customer experience from new models, please join our upcoming webinar.

According to recent CFC channel preference data, over 30% of customers prefer to do either all or most of their banking online. This group—as our data shows—tends to be more educated, have higher incomes, be slightly younger, and have a strong sense of competence around financial matters. In short, it is a highly attractive segment of customers, but one that is also difficult to serve well.

In 2008, National Australia Bank decided to target the growing segment of self-service customers. To do this, NAB launched UBank—a direct banking platform offering high yields on accounts, superior website functionality, and, most importantly, almost instant, 24/7 access to customer support.

As we show in our case study, the success of UBank depends upon three key lessons:

1) Leverage the strength of the web for research, transparency and contact: The web is the default research tool for everyone, and an increasingly dominate communication tool through video and web chatting. UBank has incorporate these strengths into its online experience—enabling customers one-click connection to customer support via Skype.

2) Build products not to compete with other online banks, but to live up to the increasingly high expectations of customers’ web experiences: To serve its highly-selective target segment, UBank designs its web experience with the understanding that they are in competition with internet giants—like Google, Apple, and Amazon—for creating compelling customer experiences.

3) Challenge traditional notions of “remote” customer contact: Knowing that customer contact is a value commodity for a direct bank, UBank has radically innovated the contact center as it becomes the heart of their customer contact strategy.

View our complete case study of UBank here. For related resources, see some of our recent blog posts on the online experience, channel preference, and customer migration.

5 Profiles of Channel Use

The Role of Branch of Online Growth

Preparing for Multichannel Competition

Branch Staff Skills in a Multi-Channel World

The Cost of Reluctant Innovation

Mobile banking remains an area where there is intense interest, but clear uncertainty around where to place bets. The only certainty, more than ten years on from when the first mobile banking experiment launched: few banks are making money from their investments. Yet with mobile set to become the principal banking platform by as early as 2015, providers can ill-afford to sit back and do nothing.

To ensure your institution is not under-studied and under-invested in the battleground for tomorow’s customer, The Council will be holding an executive work-shop as part of our inagural European Financial Services Conference, Resolve in Uncertainty.

Among the key points of discussion:

• Where is the revenue opportunity in mobile? Early investments have been more about cost reduction than revenue; transferring transactional flow from the branch, on-line and call centre. In many cases, we haven’t generated revenue because we haven’t given consumers the opportunity to pay. In other cases, we’ve focused too much on pay-per-use apps. Rarely has the focus been context selling – using the information generated about customers through mobile to seamlessly offer services wherever and whenever they are needed, better connecting consumers to their money and us, their providers. What are the competing views here, and what seems to work?
• How can we compete with non-bank competitors? With provocative industry commentators talking up the possibility of Apple introducing an itunes for financial services, relegating the industry to some back-end, commodity service provision, what role is their for traditional providers as  telcos, internet giants and consumer-champions jockey for position? Should we ”go-it-alone”, partner with providers, or start-ups, or seek other commercial alliances? What relationships should we try to forge with merchants so we can offer end-to-end service – sending a location-based offer, providing instant financing through SMS, and then transaction processing through  mobile wallet-type services.
• How can we execute on the technology side? After years of technology delivering efficiency at the expense of personalization, mobile is an opportunity to reverse that trend; yet many early efforts have simply shrunk the screen on their standard on-line offering, and called this ”mobile banking”? Is mobile just another channel – somewhere we should simply replicate all our existing on-line services – or does the technology exist to build something completely different?

Please register for this free event here, and e-mail the research team at CFCResearch@executiveboard.com if you would like to propose any changes to our member-driven agenda.

With Europe’s future teetering on the brink amid the sovereign debt crisis, executives must navigate seismic shifts in regulation, technology, and consumer behavior, many of which challenge the most foundational assumptions of the traditional branch-based sales and advisory model. Yet while there is growing acknowledgement of the need to change, there is little consensus around the type of change required, and even less on how we might go about accomplishing it.

The only certainty, almost three years on from when crisis first hit – things will not get better by themselves. The consumer confidence problem, if anything, has become more pronounced and better mobilized; new ideas have become new competitors, with Movenbank and Bank Simple ready for battle; while deteriorating economic conditions continue to render even the most imaginative cost cutting measures woefully inadequate.  

To help members build “Resolve in Uncertainty” – the confidence to make those big strategic decisions now, before it is too late – The Council is excited to announce our inaugural Financial Services Conference at the Park Lane Hotel, London. Alongside a number of high profile keynote speakers, the event will offer a series of executive work-shop sessions to drill down on the following key competitive challenges:

• Achieving High-Impact Channel Migration – Branches can no longer be the hub of all things financial. Learn how to migrate customers while preserving valuable relationships.
• Implementing Mobile Solutions – Realize opportunities the mobile channel presents for retail customers including payments and social media.
• Leveraging Social Media to Humanize the Virtual Experience – Determine how to change your firm’s strategy to meet the needs of the emerging segment of social bankers.
• Managing Operational Risk – Understand how to effectively manage capital and solvency requirements in the retail bank while taking out cost.
• Capturing the Mass Affluent Mindset – Discover how to serve the needs of the six sub-segments within this attractive yet complex group.
• Exploring Innovations in Global Payments – Learn about global payment initiatives around the world and how to leverage innovations in your business.

Register for this free event here, or visit  www.CEBTowerGroup2012.com for more information. The decisions we make today will likely determine relative market positions for many years to come.

CFC recently surveyed customers from 7 different markets on their channel behavior for their primary bank. We asked respondents to provide two basic forms of information:

• To indicate their preferred channel for research, sales, transactions, and service.
• To rate the quality of their experience for different tasks through different channels.

Through our survey, CFC has been able to create detailed profiles of different kinds of channel users and to begin to understand how channel preferences are formed and how decisions are made. Our findings (which we will share in our webinar, “Replacing Consistency with Quality,” next week) offer three important insights for managing toward sustainable channel migration:

1) The multichannel user is more myth than reality: We often imagine some idealized customer who uses the call center in the morning, the branch in the afternoon, and the web in the evening. The reality, however, is that customers tilt either toward in-person channels or toward technology—with very little balance between the two.

2) Banks should be focused on the relative quality of their channels: In-person channels receive higher overall quality ratings than remote channels for every task in our battery.  Customers perceive a quality gap between channels that, in most cases, represents the lopsided nature of bank investments toward the branch network. Until remote channels can deliver better value propositions, banks will not see sustained growth in that direction.

3) Consistency is the wrong goal—shoot for an intentional channel strategy: A cost-sensitive environment demands that customers understand the best channels for specific tasks. Costs are created when customers expect to be able to accomplish any task through any channel with the same degree of quality. Banks should be focused on clear communication around channel strengths and making sure that the “right” channel choice is obvious to customers.

For more on understanding the drivers of customer channel usage and implementing migration strategies, please register for our upcoming webinar on Channel Strategy (members in Australia and Asia, click here).

To learn about CFC’s diagnostic tool for setting priorities around multichannel strategy, please email CFCresearch@executiveboard.com.

Related Posts:

Preparing for Multichannel Competition

Branch Staff Skills in a Multi-Channel World

The Cost of Reluctant Innovation

Two years ago it seemed like every bank was introducing a mobile banking or mobile payments features to entice customers to switch transactional activities to the new channel. Over the past year, however, it has become clear that the rapid rise of a universal, mobile wallet is still 3-5 years away—at least—in most markets.  While mobile is already and will play a big role for financial services, Mobile banking faces several keys challenges:

• Mobile banking has taken a backseat to other initiatives and strategic priorities banks are facing as they reconsider their distribution models to accommodate cost pressures and changing customer behaviors.
• We’re still waiting on refined technology. In many markets, mobile wallet offerings lack infrastructure. In the US, most mobile technology relies on NFC (Near field communication), a method of communicating information wirelessly at short range that is still about a year away from being readily available on phones.
• Customers are hard to convince. Banks must work to demonstrate mobile banking’s value and ease. Customers will be reluctant to adopt mobile payments and banking that are not markedly easier than what they are already using.
• With new technology, comes new and greater cost. Implementing mobile requires a budget commitment that is already under pressure. Industry wide regulatory requirements also add fuel to the cost fire.
• Uncertain future.  The financial services industry has never been known as an innovative powerhouse. Firms may be struggling to pinpoint next steps and the lack of industry best practices on the issue does not help brainstorming efforts.

Amid these challenges, mobile is presenting new opportunities. Mobile banking can be a tool for banks looking to further engage their customers. Mobile apps for smartphones and iPads can facilitate conversation and provide resources for customers after they leave the branch. Some apps, like Citibank’s iPad app, connect customers to banks’ twitter feeds and other service-based platforms. Google’s partnership with Sprint and Mastercard in launching Google Wallet offers customers all the benefits of credit and debit cards but consolidates all of the plastic into mobile chip technology. Presenting customers with alternative resources and educating them about the ease of use of mobile features will ultimately promote a seamless cross-channel experience and encourage efficient multichannel use amongst retail banking customers.

Mobile technology has not yet taken over the banking industry as was predicted by many. However, now banks can use it as a part of the multichannel offering and leverage the tool to engage customers while reducing expenses.

Read more about Mobile banking trends and outlooks by reading our research brief, Mobile Banking – Observations, Innovations, and Outlooks.

Where We Are Now: Checks have been in steady decline in Europe for the last decade, as the graphic on the left illustrates. The UK has already announced a target date of 2018 for the closure of all check clearing operations, and Australia and America are not far behind. In virtually all cases, rather than let checks die out on their own, authorities are proactively managing the process to avoid confusion and facilitate a smoother transition to paperless payment technologies. In turn, rather than resist the inevitable, banks are often voting in favor of aggressive cut-off dates, if not setting their own institutional dates ahead of those prescribed by national authorities, while gradually lowering check guarantee limits to discourage usage.

What Might Happen: The end of checks will clearly save banks money. They cost around $1.6 to process, approximately four times as much as electronic payments, and take well over four times as long to clear. There will be some collateral damage, particularly around older customers and small businesses that will likely resist “forced” migration, with the very real risk of government intervention in the event of any perceived financial exclusion. The real worry though is around branch traffic: fewer checks will obviously mean fewer people in branch. For an industry so dependent on in-person “reactive sales”, traditional providers will have to think quickly and carefully about an entirely new model of engagement, interaction and service delivery through alternative channels. How will they forge connections, build relationships and drive sales?

How We Can Help: To understand how to better align channel investments with evolving consumer preferences and economic realities, access Re-Thinking Channel Strategy.  For guidance on alternative sales tactics, consult our Sales Productivity Topic Centre, while The Council’s social media work provides insight on how to connect and engage with current and prospective consumers outside of the branch.  

Access to mobile communication technologies now exceeds access to basic banking services worldwide. What if an established non-FS provider introduced account and payment facilities embedded into mobile phones? What would happen to the traditional ATM infrastructure and credit and debit card providers worldwide?

We’re not quite there, but field tests have now started for Google Wallet, a new point-of-sale ecosystem that will allow users to use their smart-phone as their wallet. No longer any need for the bulk, users will be able to store their credit cards, offers, loyalty cards and gift cards on their phone, tap their device onto a Near Field Communications (NFC) reader, and automatically redeem offers and earn loyalty points. What’s more, through Google Coupon, Google is able to offer various location-based sales and special offer recommendations, creating a wallet that not only knows where are, but what you want.

Key Insight: The exact end result may be uncertain, but it seems clear Google and other major players are investing heavily in new payment systems focused on creating a personal, convenient and locally-focused customer experience.

Key features:  

• Convenient Payments: Google Wallet will turn your phone into a wireless credit card, able to “swipe and pay” wherever you see an NFC reader.   
• Security: Beyond the standard PIN system, “Secure Element”, a separate chip that stores encrypted credit card data and will “self-destruct” if tampered with. 
• Location-Based Services: A range of carefully calibrated sales and special offer suggestions based on user locations.

To learn more about the Google Wallet click here, and to understand changing customer relationships and emerging competitors check out our Transformative Forces deck. More on payment technology related innovations can be accessed through our Global Product Innovation Library.