Showing posts with label Washingtom Mutual. Show all posts
Showing posts with label Washingtom Mutual. Show all posts

Wednesday, 29 January 2014

Back to the future - a return to supermarket banking or the end of banking for all?

The report on the BBC News website that Barclays is looking at potentially closing 400, or a quarter, of its UK branches which was subsequentally retracted and replaced with a statement that Barclays is 'considering closing branches to reflect the that more customers are now accessing financial services online and via mobile devices',  reflects the sensitivity the big 5 banks have to announcing branch closures and comes on the back of a statement in November 2013 that in August 2014 it is to open four branches within Asda (the UK arm of the US supermarket behemoth Walmart), closing the standalone branches in the same towns. The model of putting bank branches into supermarkets brings back memories of the wave of supermarket banking experiments that took hold in the UK at the end of the last century with the launch of Sainsbury’s Bank (backed by Bank of Scotland), Tesco Personal Financial Services (backed by Royal Bank of Scotland) and Safeway Banking (backed by Abbey National). At that time the supermarkets were seen as a serious challenger to the established banks (despite being backed by them) and the world of banking was going to fundamentally change. It was also the time of the tie-up of Abbey National with Costa Coffee to create new and destination branches – very much building on the revolutionary Occasio branches that WaMu (Washington Mutual) launched in the US.
 
So what happened to all these new visions of banking? Abbey National was taken over by Santander who quickly took the axe to the partnership with Costa, Safeway was acquired byMorrisons who closed down the financial services arm and the remains of Washington Mutual following the financial crash of 2008 were acquired by JP Morgan Chase who effectively bulldozed the Occasio branches returning to a far more business like branch format.
 
Tesco Bank (as it became) with its 6.5m customers continues to make significant investments into becoming a full service retail bank. Sainsbury’s Bank bought out the Lloyds Banking Group share (that Lloyds inherited when it took on HBoSfollowing the financial crisis) in May 2013, however it made it clear that it has no intention of becoming a full service bank and is not planning to offer mortgages or current accounts.Sainsbury’s appear to have no intention of turning its supermarkets into bank branches.
 
In the meantime Marks & Spencer launched in late 2012 M&S Bank operated by HSBC offering a fee-paying current account. With Marks & Spencer continuing to struggle with their fashion lines the retailer is increasingly being measured principally as a supermarket. The jury is still out on how successful M&S Bank but there are no indications that it has been a runaway success.
So why is Barclays trying to re-visit the supermarket banking model? The reality is that it has very little to do with wanting to be in supermarket banking and much more to do with finding a way to reduce their costs by closing their branches. Barclays will benefit from the ability to sell or end the lease on the branches and will have significantly lower costs fromhaving an in store branch than a standalone one. It is also true that this move should make it easier for customers to visit their branches. As high streets increasingly become parking unfriendly through the use of parking restrictions combined with prohibitive parking costs where parking exists bank branches are becoming harder to just pop into or even to access (Metro Bank with their drive through branch opened in the mecca that is Slough would beg to differ). Typically supermarkets have large amounts of parking which will make it easier for customers to visit their banks if they are within a supermarket. It is not only the difficulty of parking that is reducing the number of visits by retail customers to banks. The increasing comfort and acceptance by consumers of all ages of carrying out activities online and the increased penetration of smart phones and tablets means that there are increasingly few reasons for customers to visit branches – cash withdrawals, making payments, getting foreign currency, paying in money into accounts no longer require a physical visit to a manned branch. Increasingly it is only at those key life moments such as buying a house, getting married, getting a loan, opening a bank account that a visit to a bank branch is necessary and some of that is driven not by the desire to talk to someone or to get advice but by the continued legal requirement to provide a physical signature on documents.
 
For those important financial transactions such as arranging a mortgage or a loan it is highly questionable how conducive a branch within a supermarket will be to have a meaningful discussionExchanging confidential information over the sound of the tills ringing and the promotional announcements over the loudspeakers is not what customers are looking for. Neither is taking out a mortgage or a loan one of those spontaneous purchases that supermarkets rely on to increase basket size. As a mother pushes her trolley around with her two screaming toddlers in tow she is unlikely to suddenly decide that she would like to talk to her banker about a loan.
 
However Barclays might have liked to position the opening of branches within ASDA supermarkets as for the convenience of their customers, with the review of their branch network (and the denied closing of 400 branches) with no confirmation that all closed branches will re-open in Asda stores, Barclays are making a statement of intent about the role of branches going forward.



Had the report of the potential for 400 branches being closed stood, Barclays would have been credited with the courage to be the first of major high street banks to make its intentions clear. This would have made it easier for the remainder of the big five banks to annouce their own closure plans. The other banks have hinted at their desire to close branches but none have been bold enough to say how many. They will eventually have to do this because it is an undisputable fact that less and less customers visit their branches. Many of those that visit their branches only do so because there are not currently convenient alternative ways to carry out transactions such as paying in cheques. However with the increasing penetration of smartphones with cameras built in even paying in cheques may soon no longer require a visit to a branch.



The future of branch  base banking is at a cross roads where the big five banks must decide whether they wish to continue to support customers who want to use branches or whether they should encourage those customers to move to banks that see branch banking as fundamental to what they do such as Metro Bank, Handelsbanken, Umpqua Bank (in the US) and Bendigo Bank (in Australia). It maybe that the end of the universal bank serving all segments of customers is in sight.

Tuesday, 18 September 2012

The end of the Retail experiment in Retail Banking?






With the announcement that Joe Garner, CEO of HSBC's UK retail bank and First Direct, will leave the bank early next year, following in the footsteps of Deanne Oppenheimer (Barclays), Andy Hornby (HBoS) and Helen Weir (Lloyds Banking Group)  the era of  former retailers running UK banks appears to have come to end.

The recognition that Retail Banking had lessons to learn from the retail industry was really born with the launch in 2000 of the 'Occasio' branches by Washington Mutual under Deanne Oppenheimer's leadership. These were completely novel bank branches with the screens between the tellers and the customers removed, bright open spaces which looked much more like a retail outlet than a branch. They even included areas with toys for children to play with while the parent took out a mortgage or a loan.

This concept of moving from 'branches' to 'stores' took off across the world. Abbey National (now part of Santander) openend up branches co-located with Costa Coffee outlets The thinking being that when a customer popped in for their cappuccino they might just take out a loan or open a savings account.

This model was taken even further in one bank in Puerto Rico where bank tellers were expected to take their turn operating as a barista in their branches handing out bank-branded coffees.

In Australia this concept took a uniquely Australian twist with one bank offering to wax your surf board while you did your banking.

Behind all of these radical changes to the design of  bank branches was the core retailing philosophy of the importance of footfall i.e. increasing the number of customers in the branch. The thinking behind this was that if there were more customers in a branch then this would increase sales, which is certainly true in retail.

However whilst having a coffee shop in a book store may have sold more books, with the Abbey National Costa branches it would appear that it was the sale of coffee that went up more than that of financial products.

One of the retail concepts that Joe Garner has brought to HSBC is the January Sale. For the last few years at HSBC branches loans have been offered at special deals and branches have had signs in the windows advertising the January sale. Again this is all about increasing footfall to increase product sales. In retail the usual reason for the January sales is to make room for new stock by selling off old stock at a discounted price rather than having to write off the value of the stock. That concept does not exist in retail banking. There are no old mortgages or old personal loans that are sitting around in the banks taking up branch space. Equally while in retail the January sales can result in impulse buys a loan or a mortgage is not and, never should be, an impluse purchase.

Meanwhile in The Netherlands the idea of making financial services products more physical was taken up. With one Dutch bank when a customer took out a loan they would leave the branch with a smart looking box. Quite what was in the box and what the customer would do with this 'physical' loan is still a mystery. Needless to say this experiment was quietly dropped.

Another concept that has been introduced into HSBC branches is HSBC Radio. Again this is a concept brought in from retail. Fashion shops such as Top Shop have for some time had their own radio stations both to improve and extend the shopping experience as well as increasing basket size. However the reality is that retail banking customers do not want to spend any longer than they possibly can in a branch. While they are queuing to pay in cheques running adverts for loans and mortgages is no more likely to create an impluse purchase than the January sales.

A concept brought from the white goods retail sector of heavily discounting the cost of appliances such as televisions, fridges and washing machines and then making up for the discount by selling highly profitable extended warranties was brought to the retail banking sector at the height of the credit boom in the form of low interest personal loans, credit cards and mortgages along with PPI (Payment Protection Insurance). In many cases the interest rate of personal loans was below cost (due to the high wholesale loan interest rates driven up by the excess demand over supply) making it essential for the banks to sell PPI in order to make a profit.

Finally introducing the retail compensation model of low basic salaries with commission based on sales targets including large incentives to beat targets into the retail banking sector has been key to the misselling of products to customers.

There is no doubt that the way branches looked and operated needed to change. Certainly a lot of the branches today are far more attractive and appealing places than they were before the injection of retail experienced executives into the banks.

However it would appear that the retail experiment is largely over. When Chase took over Washington Mutual  it took a conscious decision to refit the Occasio stores and make them look more like traditional branches.Underpinning Chase's decision was the reality of who the users of branches are today. With the exponential increase in the use of smart phones and other ways of connecting with the internet the vast majority of personal customers do not visit branches on a regular basis. Most personal customers will not either remortgage or take out a new mortgage more than once very three years (and increasingly longer than that), therefore their need to visit a branch (and even here increasingly mortgages are taken out online) is almost never. The users of branches today tend to be small businesses and private banking customers. The open style of branches with the bank private radio playing does not work for either of those segments of customers. Those customers want, and need, a difference experience.

The last 10-15 years has seen the injection of retailing ideas into retail banking. It has had some benefits for customers, but also has had some serious downsides. What we are now seeing is a recognition that banking has always been about servicing, and focusing on the total customer experience across all possible points of contacts is the most important way to retain customers and build loyalty. It is also clear that there are industries other than retailing that excel at delivering a great customer experience that banking should learn the lessons from.

Wednesday, 17 November 2010

Burger King Banking - is it a Whopper?

Vernon W. Hill II, the founder of Metro Bank, the first new high street bank in the UK for over 100 years, likens growing Metro Bank to growing a Burger King franchise. He should know as he owns a large Burger King franchise in the US. He also successfully grew Commerce Bank in the United States to 500 'stores'. What he means by the similarity of growing a Burger King franchise is that every 'store' looks identical, operates identically, has the same level of service and operates as a retail outlet. In Metro's case some of the gimmicks are giving away free pens (Barclays has been quietly doing that for some time in their branches), free dog biscuits and cash counting machines built to look like one arm bandits.

None of this is particularly new either in the US, the UK or the rest of the world. We have seen over the last decade or so banks attempting to become more like retail outlets whether it is the Abbey experiment with branches co-located with Costa Coffee outlets, which lent heavily on the experience of Washington Mutual with its co-located branches with Starbucks or the Australian branches with their offer of waxing your board while you are doing your banking. We've also seen banks recruiting senior executives from the retail sector to drive that retailing mindset into the branches. As tax payers no one should be allowed to forget the impact of having a retailer running Halifax Bank of Scotland had on that particular bank.

The point is that on the surface it may seem that a bank branch is just like any other retailer, but it only at the surface that that analogy works. When you go into a burger king to go to buy a standard product that is entirely disposable, highly commoditised and which you own for only a very short time. For a product such as this a bright, open plan store with little or no privacy is entirely appropriate. However opening a current account or a loan or a mortgage is nothing like a burger. Buying these types of products is a  long term, for many a life time, acquisition, intensely private (sharing how much you earn or are worth continues to be one of societies taboos that simply isn't going away) and are not quick purchases. So when you sit down in an open plan office, where the people on the street outside walking past can see the screen that the banker is operating as he types in your salary or looks at your overdraft, and the person at the desk next to you is ear-wigging on your conversation don't forget to ask whether your value added account comes with fries!