Is this the start of the race to redefine the banking operating model?
By Sudeepto Mukherjee, Senior Vice President, Financial Services, Publicis Sapient
HSBC’s announcement this month to “close 82 Branches and revamp its network for the digital age” is the beginning of a race for banks to adjust the way they serve their customers and lay the foundations for a new banking model that’s reflective of the shift that the pandemic has created in both consumer behaviours as well as the underlying economic environment.
Bank closures are not new. Driven by the rise in usage of digital channels and strong profit pressures, there were a staggering 3,303 bank branch closures in the UK between January 2015 and August 2019 — equivalent to 34% of the overall branch network in country, according to data from Which? However, this has usually been followed by strong criticism from both customers who have seen their services downgraded (or disappear) and employee unions who have seen job losses as a result of this action. In this backdrop, HSBC’s announcement is interesting and different in 2 important ways – it talks about HSBC’s intention to remodel their branch network to balance the needs between providing a full service for products like cash services for consumers while also investing in creating innovative ways to provide self-service offerings in other areas like payments. It also talks about avoiding any redundancies by redeploying staff.
COVID has created this new opportunity for banks, to fundamentally re-imagine their operating model to meet customer needs in a way that’s fit for purpose for this digital world and introduce new innovative services via new technologies/partners while reducing their cost to serve. We already see examples of this with Goldman Sachs diversifying its portfolio to offer services in retail via Marcus and transaction banking via GS Transaction Banking while HSBC launching HSBC Kinetic — a proposition leveraging technology to meet the unique needs of small businesses.
This is being made possible by two key factors that’s creating a once in a generation opportunity for banks. Firstly, forced by government lockdown rules, consumers have embraced digital channels where appropriate like never before. Similarly, bank employees are also a lot more equipped to serve customers from the confines of their homes as banks moved aggressively in adjusting to the pandemic by sending large percentages of their workforces home while continuing to serve customers. This change in culture within banks to look at digital as the primary channel for serving customers should not be underestimated. Institution Inertia is one of the biggest obstacles that leaders face when trying to drive change within an organisation. COVID has just made that a lot easier. Secondly the availability of new technology and tools to enable this transition is also facilitating this change. We not only see the big tech providers like Microsoft, Google, and Sales Force creating broad solutions focused on the Financial Services market but also, niche Fintechs like Form3, ForgeRock and Mambu/ThoughtMachine offering solutions in specialised areas like Payments, Security and Core Banking that are easier to develop and integrate into a bank’s digital ecosystem.
The next few years will be a pivotal moment for banks to see who can take advantage of this unique platform to build a future proof model for banking which reduces its reliance on expensive branches while continuing to deliver superior and innovative services to customers. It requires a bold vision, a focus on maintaining the momentum in changing internal culture/behaviour, a strong partnership with the leading digital product/service providers as well as a relentless focus on understanding and meeting changing customer needs. The leaders will be the ones who can leverage technology for not only automating low value transaction services but also enable the bank’s employees to be more insightful and productive by giving them the right tools and insights about the customers they serve.
We saw the 2008 financial crisis create new leaders and laggards based on the balance sheets/liability that banks held and their ability to deal with that effectively. I predict that the post-pandemic era will similarly produce new winners and a hopefully new service model that should be exciting for both consumers and the industry!
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