Furash, Edward E., The Journal of Lending & Credit Risk Management
Competition is leading banks to ever higher levels of customer service. Banks are creating new products and delivery channels not only to retain customers and increase wallet share but also to win new customers. Customers and their banks also want integration of delivery channels. There are, however, barriers to successful integration of these channels. There is also a solution to be found in information management.
Retail financial services of all types - whether banking, mutual funds, brokerage, or insurance - are first, foremost, and, arguably, exclusively distribution businesses. Consumers do not separate financial services from the way in which they are delivered. Most retail bankers understand this situation and are placing greater emphasis on enhancing the effectiveness, efficiency, and overall value of their distribution systems.
With the rapid proliferation of delivery alternatives - traditional branches, supermarket branches, kiosks, call centers (in- and out-bound), PC banking, Internet banking, ATMs, and ALMs - has come the problem of integrating them into a system that serves customers smoothly and profitably. Consumers demonstrate strong preferences as they pick and choose among delivery options to create the system most comfortable for them. The bank is first challenged to find a way to use its delivery systems to interact with customers, gain cross-sell, maintain profitability, and track customer behavior for marketing purposes. The dilemma deepens as the bank must create and carry a diverse delivery system efficiently during the decade ahead as consumer preferences for various delivery options phase up and phase down.
When asked, bankers cite a number of barriers to creating a smoothly integrated consumer delivery system:
* Cost. Consumers prefer multiple delivery options and the freedom to mix them to fit their personal style. This is usually expensive for banks to provide, and so there is a counter-thrust to find and then promote what the consumer likes or uses most. The simple reality is that banks will have to carry multiple distribution alternatives during the next decade. Delivery system management during that period will, of necessity, engage in a constant reshaping of the system - by closing branches here, adding kiosks there, increasing direct banking and call centers, and so forth - to achieve an optimum cost structure for the consumers being targeted by the bank. There is no question that the proliferation of delivery alternatives has increased bank costs despite the successful efforts to restrain costs associated with each. This is putting even greater pressure on banks to integrate delivery channels to ensure sales and increase revenue. And as these efforts take place, the rebalancing itself is disruptive to customers and makes them more particular about service quality.
* Fragmentation. It is a rare bank today in which all the distribution systems report to one place and are "owned" by one top executive. Most often, branches, direct banking, call centers, ATMs, and PC banking report and are run separately. Although banks recognize the need to integrate delivery channels, many are organized in ways that make it impossible to do so. Some do not recognize that the organization structure itself is a barrier. Still others have structures that operate, measure, and control in ways that are antithetical to integrated channel marketing. For example, in banks that are organized by customer segment, segment managers usually must negotiate with multiple distribution systems to provide comprehensive service to the segment. These negotiations often involve complex and possibly contentious decisions, such as how to price and charge the segment for its channel use, what incentives are to be used, and so forth.
* Customer Ownership. Similarly, banks that are organized by product - in which individual business units traditionally own the customer - usually have difficulty in implementing a "full relationship" strategy. …