Academic journal article The McKinsey Quarterly

Retail Banking: Managing Competition among Your Own Channels

Academic journal article The McKinsey Quarterly

Retail Banking: Managing Competition among Your Own Channels

Article excerpt

Channels don't own customers

How far into your bank do you allow the market to penetrate? Rules of the road

The promise of lower transaction costs, increased sales productivity, and more convenient service has lured banks into setting up new electronic and product-specific channels. But they have quickly found that their delivery capabilities are outstripping the traditional branch-centered model they use to manage them. As a result, they face stubbornly high efficiency ratios, expected revenues that never materialize, and channel managers at odds with the standards by which they are measured and rewarded.

To resolve these problems, banks must adopt a new approach to the management of multiple channels. In particular, they must address four issues:

* Who owns the customer?

* How are operational issues resolved?

* How are managers measured and rewarded?

* Where does each business fit?

Customer ownership

"By all means add the new channels, but book the revenues with the branch network, where they belong."

The notion that customers can be "owned" is championed by branch managers seeking to preserve a branch-centered organization. They maintain that the branch remains the prime point of contact for sales, service, and relationship management. But their argument does not stand up to close scrutiny.

Far from staying loyal to a branch, most customers today use a number of channels [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. They graze from ATM to telephone to branch, depending on their needs at any given time. They are no more "owned" by a banking channel than they are by a TV channel. If a bank designing a multichannel organization persists in assuming that a channel can own customers, it is deluding itself about how customers use banks and the range of choices they enjoy.

Operational issues

"Maybe individual channels don't own the customer, but there has to be a single point of accountability for coherent product and channel offerings, branding, and resolution of customer service issues. Someone has to look out for the customer in this institution!"

This familiar refrain is sounded by advocates of "customer-centered" management. For them, retail banks should be organized around customer segments, and those who manage these segments should dictate what products and services are available and how they are delivered.

But this approach can be dangerous. Most delivery channels are used by several customer segments, and a channel decision made by the manager of one of them could adversely affect other segments. Say the owner of a mass-market segment directed branch tellers to encourage these customers to use ATMs. If the tellers inadvertently encouraged mass affluent customers to do the same, they might prompt unwanted defections among these customers.

Resolving operational issues such as how products and channels will be offered to target customers must be an explicit part of multichannel management design. It is also likely to require CEO involvement, for two reasons.

First, decisions on these issues help to shape a bank's customer value proposition. Will customers enjoy universal access to the full portfolio of channels, for example, or will there be incentives (or disincentives) to use certain channels?

Second, a decision that is optimal from a business unit's perspective may not be optimal for the institution as a whole. The CEO must be involved in decisions such as: can dedicated product delivery platforms, such as investment centers, develop their own brands independently of the bank's umbrella brand? Can individual channels choose to distribute other providers' products, such as mutual funds and mortgages, if they see a profit opportunity? Will the various salesforces be allowed to compete directly, or be required to collaborate?

Performance measurement and rewards

"You're not going to take away my revenues and just give them to some new channel, are you? …

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