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Retail Financial Services - The main delivery channels reviewed

By: David J Cavell
Published: October 2008

Retail Financial Services - an overviewThis short report reviews the status and likely development of the five principal delivery channels that drive retail banking. It draws on the base of knowledge and opinion (updated where appropriate) developed for the series of reports covering delivery channels published by VRL Publishing during 2007 and 2008

This report presents best practice across the five main retail banking delivery channels.


The report includes:

  • The future of legacy channels...are exit strategies needed?
  • Understanding and effectively implementing e-Channels
  • The importance of 'tone of voice' in creating a compelling customer experience across all channels
  • The range of operational and strategic issues involved in creating a world-class channel delivery structure, including: Branding, Fraud, HR, Outsourcing and Segmentation

The branch – remains the predominant channel but can be managed better for income and cost generation. There is also much to be improved in the techniques used to manage the ongoing return from the network and its units.

Self service – this channel is still under utilised and there is much ignorance of its true potential. A strong case exists for the development of an holistic self service strategy embracing all aspects of the subject, and creating a better platform for the future.

The call centre – remains an effective channel with significant customer loyalty. However, evidence shows that real and perceived reductions in service can lead to customer dissatisfaction, loss of repeat business and attrition. There is also evidence that do-it-yourself banking through the internet is disintermediating the call centre, and certain institutions may need a medium term exit strategy.

The internet – is now well established for both consumers and business clients within the retail sector. It has never been cost justified but it is a critical component of the retail delivery mix. Cost and competitive issues should drive functionality.

The mobile banking service – the remarks made concerning the internet also apply here. Although certain functions eg: alerts, do have the potential to generate fees. Whilst it is not apparently affecting service levels, an industry consensus on the predominant technology platform has yet to emerge.

Overall, there is also a need for retail banks to decide on the tone of voice and service levels they wish to adopt, and ensure they are implemented consistently across all channels.

To purchase this report, or to request a report summary or list of case studies, call Jeannie on +44 (0) 207 563 5640 or email

Channel objectives

The principal objectives of a fully developed delivery channel are as follows:

  • to project and represent the brand (or sub brand)
  • to protect and develop the existing customer base
  • to acquire profitable new customers
  • to provide service that is a critical requirement of its location

Clearly, there is also a need to ensure that – directly or otherwise – the operator is receiving the required return on their often considerable investment in a particular channel. It is acknowledged that not all channels will be able to respond to these objectives to the same degree.

On the one hand, the four objectives do provide a framework for testing the overall effectiveness of the principal means by which the bank sells and the customer accesses its services. On the other hand, it is agreed that retail banks must now offer certain channels to their customers, seemingly regardless of their profitability, simply to retain a competitive positioning within the sector.  

The big five

1. The bank branch: Ten years on from the height of the first internet banking revolution, the branch continues to be regarded as the lead distribution channel by the majority of retail bankers. The branch comes in many forms including a range of mobile banking vehicles offering everything from mini-branch facilities to simply travelling ATMs. The much-heralded contraction of the global branch network has not taken place on the massive scale envisaged in the 1990s, even despite the ongoing consolidation within retail banking. And in many markets where bankers either threatened or executed branch reduction programmes much progress is being made to rebuild the effectiveness of this key delivery channel. Moreover, in the South Korean market – where online and mobile banking operate at world-leading standards – 2007 saw the regulators reporting a small increase in the national branch network size. Of the mature markets, only the UK has implemented major cuts to its network since the early 1990s without then making a material effort to rebuild lost infrastructure. A positive view of the role of the branch is now held by the majority of the retail banking sector, and there is nothing to suggest that this situation will change in the short-to-medium term.

2. Self service:  Self service equipment is regarded by this report as any customer activated, customer facing terminal. This definition covers a range of equipment that starts with the ubiquitous ATM, embraces many forms of automated depositories, includes terminals dedicated to specific tasks eg: statement printing, and extends to the growing population of online banking terminals that are now located within the public space of branches.

Self service typically operates within two business models. The first of these is the traditional and strategic role of such terminals as part of a bank's branch representation. The benefits derived from the deployment of self service terminals within this scenario are largely related to process efficiency and the enhancement of the branch facilities and environment. A limited number of remotely located self service facilities have been deployed within this first model to extend a bank's retail reach, perhaps taking over from a branch located previously on the same site. This report also recognises a second strategy and business model of deploying self service equipment targeted solely at generating benefits from earning interchange income or avoiding interchange costs at third party locations. However, this is considered out-of-scope and is not explored.

Other issues commented on include the advent of personalisation within self service, and the development of marketing functionality delivered through the internet. The chapter in this report covering self service closes by offering 10 action points that should sit at the heart of a well developed self service strategy.

3. The call centre: The call centre now usually operates within retail banking as part of a multi-channel mix. There are arguably six principal business models within which it is either the predominant delivery channel or simply providing supplementary support.

The six business models within which call centres play a major role are:

  • Branch led retail banking (including building societies)
  • The domestic direct bank eg: First Direct in the United Kingdom
  • The foreign direct bank eg: ING DIRECT in ten countries
  • The postal bank eg: the Postbanks of Europe
  • The non-bank brand eg: Volkswagen of Germany
  • The credit card issuer eg: MBNA Bank in the USA.

The principal strategic issues considered within this report include:

  • The different roles that call centres perform within the retail banking business models mentioned above.
  • The extent to which service quality is critical to call centre effectiveness, and may well be a determinant of its fate.
  • The development of call centre outsourcing and whether this might gain a new momentum in the harsher economic climate of 2008 and beyond.
  • Certain business scenarios that may now justify the development of exit strategies by call centre operators, including its disintermediation by the internet.

4. The internet:

The advent of the internet has enabled customers to access their financial agreements with banks and other financial service institutions through a user-friendly online terminal and customised, secure programs. It has provided facilities that enable customers to carry out certain monetary and non-monetary transactions. And has thus provided customers with the ability to avoid the use of both branches and call centres. Call centres, where the agent acts more directly as an intermediary between the customer and the bank’s computer systems, have been particularly  affected by the accelerating take-up of internet based home banking.

The development of the internet as a banking channel has occurred in two distinct phases. The first phase arguably ran up to 2001 and saw an excited industry pursuing a multiplicity of strategies that included the establishment of internet-only banks, a rapid evolution by some telephone based direct banks to become internet led, and the development of the internet as an alternative channel within the traditional retail banking business model. Those banks operating branches went through a period when many contemplated the wholesale reduction of their networks. The second phase of development has taken place in a scenario that now recognises the current predominant role of the branch as a relationship development channel. But also sees a major service role for internet banking, evolving into a progressively more powerful sales medium.

5. Mobile banking:

The GSM Association indicates that the population of mobile phones has now grown to around 3.5 billion devices. Across the World, increasing numbers of banking institutions are seeking to leverage the new types of business opportunity that it offers. In the first instance, there is a growing enthusiasm for mobile banking services, particularly amongst the younger consumers. In addition, there is an increasing confidence amongst institutions that mobile banking will enable them to access new areas. These include both remote communities and lower value market segments. Kiwibank in New Zealand is among the institutions that also recognise the value of their mobile service to their brand. Kiwibank believes that the provision of mobile banking services makes a valuable contribution to demonstrating that it has now made the transition from an old post office institution to a modern techno-savvy retail bank.

The typical basic transaction set offered in most markets provides information about account activity and is now increasingly supplemented by the availability of functionality facilitating payments. The most sophisticated offerings also include such features as lines of credit, and contactless e-purses. Progress made here will effect the wider delivery channel strategy of retail banks. Celent estimates that by 2010 70% of call centre volume will come from mobile phones, with the implication that customer service agents will no longer be needed to deal with such transactions. This situation reflects the disintermediation of the call centre by internet banking discussed elsewhere in this report. The mobile phone is capable of interacting with self service terminals, and also reducing the requirement for customers to carry cash. However, at this stage, it is not yet possible to see the point at which these capabilities might undermine the viability of self service terminals.

Overall, the mobile banking service has embedded itself within the retail banking proposition as a component of the standard banking package. And those institutions that do not currently offer mobile banking will need to fill what will become a critical gap in their portfolio.

Whither the delivery mix?

There are five components of the delivery mix discussed in this report. The branches and call centres can be categorised as legacy channels. The ongoing viability of both is now subject to them successfully sustaining their effectiveness in the face of the challenges of newer delivery options. Each has been or is currently under direct threat of disintermediation. The new technology channels – the internet and mobile banking - have been driven into the positions of critical components of the delivery mix by a mixture of competitive pressures and growing customer demand rather than a financially based justification. The hyperbole driven argument of much lower costs transactions associated with the internet was offset by its inability to replicate the income volumes generated by the branch. Nevertheless, the new channels are now necessary to sustain the credibility and competitiveness of any retail banking proposition. The only issue that remains is how to obtain from them a significant incremental income stream with which to off-set their costs. The family of customer activated terminals that goes under the generic term of self service straddle both legacy and new technology channels. It provides greater efficiency for the former. And its terminals actually access the software that drives the internet banking suite to support customer facing kiosks in branches. Increasingly, self service terminals draw on web technology and customer relationship management software to create new levels of marketing and personalisation capabilities.

The overall position can therefore be summarised as:



Chapter 1. Overview

Chapter 2. The retail bank branch

Chapter 3. Self service banking

Chapter 4. Call centres

Chapter 5. Internet banking

Chapter 6. Mobile banking

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