Innovations in Bank Service Marketing or How to Market a Bank
Kamery, Rob H., Pitts, Sarah T., Journal of Commercial Banking and Finance
The banking industry has changed radically in the past few years and continues to change rapidly. The projection for banking in the foreseeable future make the traditional views of banking obsolete. Individuals have shifted their personal wealth and savings from banks and thrifts to other institutions. This decline requires that banks focus on innovations that facilitate new cost effective delivery of services and attraction of customers through marketing analysis and implementation strategies. This investigation will examine these concepts and will conclude with suggestions for bank marketing success.
In 1775 there were no commercial banks in Britain's rebellious American colonies. The commercial Bank of England was almost a century old, but few colonists had any dealings with it or England's enormous funded debt. There did exist colonial institutions, both public and private, which had 'bank' in their name. Most of these institutions were so different from commercial banks that when Robert Morris, Alexander Hamilton, and the other "Founding Financiers" proposed the Bank of North America in 1781, and the Bank of New York in 1784, every aspect of banking had to be discussed repeatedly and in great detail (Wright, 1997).
Despite strong earnings the largest U.S. commercial banks are currently in the process of restructuring their retail operations. A stagnant deposit base and intense competition in the marketplace for financial services have made the overhead costs of an extensive branch network increasingly onerous. At the same time, electronic communications technology is making low-cost remote delivery of banking services more of a reality. While remote delivery provides banks the means to cut overhead in retail operation, it also enables nonbank and even nonfinancial firms to pose a credible threat to the industry's retail franchise. This threat adds urgency to this restructuring.
The main purposes of this investigation are: (1) describe the innovations that are being adopted in banking, (2) explain the integrated strategies for restructuring retail operations, and (3) review the policy issues that emerge. Banks are restructuring by developing complete customer-relationship profiles, switching over to remote electronic delivery channels (phone centers, home banking, and next-generation ATMs), relocating branches to large retail outlets, and redesigning selected branches as investment centers. To emphasize the necessity and urgency of bank restructuring plans, some banking officials maintain that they do not expect their institutions to ever build another traditional branch.
STAGNANT DEPOSIT BASE
The bank's much diminished role as holders of personal savings is the first major force prompting banks to revamp their retail operations. Deposits at banks, thrifts, and credit unions measured as a share of the household sector's financial wealth, have fallen by a little more than half during the past 21 years to 17.0% at year-end 1995. Depositories' share peaked at 38.2% at year-end 1974.
The decline in the importance of deposits in the household sector's asset holdings has accelerated during the past few years. Despite significant increases in total personal financial wealth, the dollar volume of savings and time deposits has been virtually unchanged over the past several years without adjusting for either inflation or economic growth.
COST DISADVANTAGE OF BANKS
The rapid decline of deposits in relative terms and their stagnation in absolute terms has left banks with a high cost structure for their branch operations. The disadvantage that this creates can be illustrated by breaking down the cost and revenues of a typical branch into a few major categories. A typical branch has total annual direct expenses of around $700,000, of which the largest category is staff compensation (for 12 full-time equivalent employees). …