Why Financial Institutions Must Overhaul Their Retail Banking Strategies

PwC’s preliminary research finds that nearly one in three current branch customers anticipate reducing their use of face-to-face channels. And the firm’s research also indicates that the percentage of customers potentially switching institutions has moved from about 3% to 8% — nearly tripling.

The second key force promoting forward momentum is competition. In light of the switching statistic, even if a bank or credit union wanted to throttle back its transformation, or simply to regroup, the market has more say over that now.

“This was a very competitive space even before COVID,” says Hoover, “and institutions need to push on the revenue side to grow their revenue base and their customer base.” That pressure plus the pressure to cut costs through automation and the growing preference for digital will all be “a tremendous motivation to continue their transformation effort.”

Earlier, Hoover used the term “brute force.” What does that mean in a banking context?

“Some institutions were able to implement and install technology solutions in less than a week, sometimes in a matter of days, especially on the Paycheck Protection Program,” she says. “But in other cases, a lot of processing was done manually and so it took repurposing staff and sometimes hiring third-party labor to make sure they were able to deliver.”

Brute force can accomplish a lot, but Hoover cautions against counting on it. “One potentially wrong lesson to take from these months of experience is that just throwing more labor hours at messy processes will get you through,” says Hoover. “I don’t think it was anybody’s ideal solution, but it was a common one. Throwing more people at a problem is not a sustainable solution.”

Having made it through a trial by COVID-19, says Hoover, institutions have to consider how to create a sustainable base going forward. One point of optimism is that, while the silos of banking have impeded progress on transformation in the past, COVID-19 was a uniting force that encouraged cooperation and collaboration. Staffers strove to do this in spite of their own issues in learning to work at home and, in some cases, their own family health issues.

“I see that focus on culture and community collaboration continuing,” says Hoover.

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Begin with a Blank Slate Before You Move Forward

PwC’s paper suggests that financial institutions find themselves with a rare gift, the closest thing you get in business to a do-over.

“So many nonstrategic and nonessential activities are already dormant,” the report states. “Don’t restart them.”

COVID-19 forced such situations on the industry temporarily, but it doesn’t mean that they can’t be permanent. The report cites one PwC client that stuck to “wet signatures” for years, never quite able to pull the trigger on going over to electronic signatures. The exigencies of the coronavirus pandemeic rolled through remaining reluctance and the transition was done in days.

The report suggests that institutions emerging from the COVID cocoon adopt a “zero-based” attitude to retail banking projects, planning and spending. This will help focus attention and spending in a time when money is going to be tighter.

“They have to prioritize their abililty to perform end-to-end processing entirely through automation, and make sure that they get the manual ‘bump’ out of that process,” says Hoover. “They have to jettison the things that are no longer working and prioritize the investments and opportunities that will drive momentum.”

Hoover believes the result of that zero-based review will be increased concentration on digitization, but not in the way some would have expected.

“We’re seeing increasing prioritization on the back office processes,” says Hoover. “That’s because that is where the pain was felt over the last six to eight weeks, as institutions had to come up with manual workarounds. These areas are less glamorous, but fixing them can be higher impact.”

As institutions move forward with digitization and innovation, Hoover warns that they must keep compliance in mind in the retail area. She says in the nation’s current social situation, institutions must prioritize consumer compliance and bias prevention. One example is the adoption of more artificial intelligence in the lending decisions. A longstanding concern is that lending AI, designed to learn as it goes, can inadvertently pick up biases as time goes on. Thus Hoover says that institutions will have to take care as adoption of new technologies proceeds.

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One of the most interesting wrinkles Hoover is seeing, as financial institutions reassess their branch footprints, is how they will run their branches. The expedient that many adopted during the height of the COVID-19 affair was the appointment-only format for in-branch visits. Hoover says a number of client institutions have talked seriously about moving to an appointment-only model, at least for the foreseeable future.

“Bankers are beginning to see themselves as professionals, much like doctors or lawyers, who operate not with walk-ins, but by appointment.”
— Alison Hoover, PwC

“They are beginning to see themselves as professionals, much like doctors or lawyers, who operate not with walk-ins, but by appointment,” says Hoover.

Making a shift like that plays into something else that came out of the COVID lockdowns: the move away from the branch as the center of the sales process.

This has been occurring for some time, but now that evolution is hastening as customer acquisition becomes more proactive —relying on accumulating and analyzing data and then acting on the intelligence. Instead of building passive digital elements like websites with digital account opening facilities, says Hoover, advanced competitors are going to be finding prospects and reaching out to them — all digitally.

This will be assisted through partnerships with fintechs, she adds, some of which sprouted during the pandemic. Many community banking institutions and some larger institutions added fintechs to the mix when they were reaching out to prospects for Paycheck Protection Program financing, for example.

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Marketers’ Heads Shouldn’t Be On the Block This Time

As this process of retail rethinking continues, against a backdrop of tougher times for consumers, businesses and financial institutions, PwC’s report has one encouraging point for financial marketers.

The report acknowledges that in such times chopping marketing expenses is typical. But today’s circumstances are very different from the past. For one thing, some large key industries, such as airlines and physical retailers, shut down their marketing as they cut back activity. This means financial marketing messages can gain a bigger slice of people’s attention — not the time to cut marketing muscle, then.

And then there’s this to consider: “Topline growth is strongly tied to marketing spend, and cutting that spend indiscriminately could cede ground to competitors that are making different choices.”