Learning from mBank’s branch channel investment

Learning from mBank’s branch channel investment
The recent article in Finextra, mBank to spend EUR17 million on new network of ‘Light’ branches, prompted this post. At first read, I thought this was a story about a celebrated direct bank building a branch network. Well, not exactly. About mBank mBank is no stranger to Celent. It has received two Celent Model Bank awards. In 2014, Celent recognized mBank’s digital platform redesign and in 2015, Celent recognized mBank’s Bancassurance initiative. For those unfamiliar, mBank is a Polish direct bank brand established by BRE Bank in 2000 as one of the first of its kind in the country. Thanks to the mBank’s business achievements and potential of the brand as first and the biggest internet bank in Poland, BRE Bank Group decided in 2013 to change company name to mBank. Thus mBank became a mature brand with an offer addressed to mass customers, affluent personal and private banking clients, as well as businesses, from microenterprises to the biggest corporations. Through 2014, mBank has grown to more than 4.7 million customers, 6318 FTEs, and deposits totaling $20.6 billion. It’s currently the fourth largest bank in the country. Before It’s Time Long before the Simples, GoBanks, Movens or Hello Banks of the world sought to capitalize on the shift in consumer behavior, there was mBank – serving customers where they want, when they want and through an innovative direct approach that, in its day, was one of the first of its kind. Rather than copying other financial institutions, mBank sought to deliver a best-in-class digital experience inspired from the world’s best retailers. For example: • Its Virtual Store inspired by Zappos • Advanced search functionality inspired by Google • Merchant funded rewards inspired by Cardlytics • Research and advice inspired by Amazon and Mint • Video banking inspired by Skype and Google Hangouts • Gamification and social media integration inspired by Foursquare, Like and Love In 2014, seeking further growth, mBank leveraged its new digital platform to introduce a complete digital transformation of insurance delivery to retail and SMEs, under its Bancassurance model. The platform is offered under an omnichannel environment, accessible through online, mobile, phone, video, or branch, all supported by a real-time, event-driven CRM engine. mBank enables the entire process to be handled electronically, while decision making and purchasing can be started and completed through different channels at the customers convenience. As a result of its efforts, the bank built the 5th largest insurance business in Poland aimed solely at existing checking account holders. Considering this represents only 7% of the market, the result is compelling. Starting from the overhaul of its digital delivery in 2013, and then extending into insurance services, mBank is a model for how digital can transform an institution, enabling innovative applications that can substantially grow the business. A Branch Network – Really? An undeniable digital success story, this celebrated “direct bank” wants a branch network? It already had one…sort of. Bart of the BRE bank family of brands, mBank had always been a direct bank. But in 2012, BRE bank announced it would simplify its branding and brand all its banks as mBank. That initiative effectively made mBank a universal bank franchise. In my opinion, this is itself significant – a universal bank operating in three countries adopting a direct bank’s brand for the enterprise? Imagine BBVA adopting Simple as its global brand. You get the picture – except mBank grew to many times the size of Simple. So, this isn’t really a story about a direct bank building branches. But, it is a story about a fabulously successful universal bank investing heavily in its branch network. To some, that still may seem nonsensical. mBank knows that point of sale is important and needs to be done right. Its’ new “light” branches will no doubt be right for its brand and its markets. Retailers across most all segments get this too. The latest published statistics from the US Census Bureau (November 2015) tells the story with great clarity. Despite two decades of steady growth, industrywide e-commerce comprises less than 10% of total retail sales. ecommerce trendsAs important as the digital channels are, the branch will remain central to retail delivery for some time. Celent’s Branch Transformation Research Panel gets this too. In its first survey (June 2015) we asked panelists how important branch channel transportation is. After all, the topic was virtually all talk and little action for years. But, 81% of the panel confirmed that branch channel transformation is not simply important, it is imperative. Branch Imperative Because of this, Celent intends to thoroughly research the topic over the coming year. One initiative is our Branch Transformation Research Panel. Celent is accepting additional requests for membership in panel and expects to field ongoing research through 2016 at semi-monthly intervals. To request to be on the panel, visit: http://oliverwyman.co1.qualtrics.com/SE/?SID=SV_cx9ir9zpWcRgyix .  

The challenges of the new neo bank

The challenges of the new neo bank
Since the launch of neo-banks like Moven, Simple, and GoBank, financial institutions in the US have been avidly monitoring their popularity. Some have written them off as non-starters; others have praised them as disruptors. In recent months, however, the neo-bank model has hit a few stumbling blocks that call into question the promise of the digital-only model, and gives credence to the sceptics. GoBank recently announced that it was going to stop allowing account opening via the mobile device. Users will now have to purchase an account opening “kit” from a store, adding significant friction to the process. Simple has experienced a number of issues related to payment scheduling, the “safe-to-spend feature,” and service outages or delays. Moven received $8 million to begin moving their app overseas in an effort to garner higher adoption. The promise of these new start-ups was a drastic improvement on customer experience, ditching traditionally stale financial services with improved digital offerings, social media integration, and a familiar/casual communication style. Yet these recent issues serve as a reality check for the neo-bank model—when your value proposition is customer experience, technical issues look 10x worse. It´s far from clear what will happen to these new market players, but Celent envisions a couple of different paths over the next few years.
  • Neo-banks are acquired and rolled into larger digital channels offerings: I wrote earlier this year about banks acquiring technology companies, thereby acting more like tech companies than traditional banks. The neo-bank model and acquisition of innovation are not that dissimilar, and BBVA´s acquisition of Simple is the conflation of both strategies. Through acquisition, BBVA is able to jump the steps of creating a culture for digital channels innovation, establishing a customer base (albeit small), and aligning internal resources required to launch a new service. There aren´t many neo-banks, but digital channels start-ups are numerous. This could be the way forward for institutions that are struggling with adapting the existing operating model to digital financial services.
  • Traditional institutions begin offering their own neo-bank, digital-only services: Fundamentally, there`s nothing truly disruptive about a neo-bank. There´s no secret algorithm, intellectual property, or disruptive idea at work, and many banks are more than capable of offering similar levels of service. Indeed some of them have already begun offering digital services through a separate digital brand. Examples globally include NAB´s UBank, ASB BankDirect, Banamex´s Blink, Hello Bank by BNP Paribas, and Customer Bancorp’s new mobile brand. With new brands, and often new platforms, these banks are testing the digital model. This should satisfy a growing number of digitally driven consumers, as well as provide a clear path for banks looking to move accounts to more digitally-focused services.
  • Neo-banks never become viable stand-alone business models, but they influence the way banks think about digital channels: Currently, most neo-banks aren´t banks–they rely on other institutions to handle the deposits, making them simple prepaid services with additional functionality. The reliance on third-parties is becoming a bottleneck for delivering the value neo-banks have come to represent. Without diversified financial offerings that encompass the entire financial need of the consumer, these “prepaid” services are pressed to create enough value to validate adoption. This is a major question when assessing viability.
There´s even a fourth scenario that could play out over a longer period of time: neo-banks become the primary way digital natives interact with financial institutions as they mature into adulthood. No matter which scenario plays out, neo-banks have undoubtedly moved the conversation around user experience and digital channels forward in a way that would not have happened otherwise. They are setting the bar high, with the big question being whether they will be able to gather the adoption needed to make their services sustainable. What do you think? Will the concept of neo-banks have a place within traditional banking?

Why ‘Branch of the Future’ must be a Priority

Why ‘Branch of the Future’ must be a Priority
Bank Innovation published a piece written by Brett King this week entitled, Can we Stop Talking about the ‘Branch of the Future’? In the article, King cites the industry’s use of the “branch of the future” terminology as evidence of “one of the key hang-ups that banks have over changing distribution models”. In other words, an inordinate amount of effort expended to “save” an obsolete delivery model. He argues that pursuing a “branch of the future” strategy, banks avoid the real work of improving customer engagement via digital channels. I think that’s nonsense. These assertions may resonate with one heavily invested in Moven, a digital-only bank happily growing by serving a niche market. Most retail bankers know the world isn’t as simple as King asserts. The fact is, banks have more than one challenge ahead of them. Specifically: 1. Right-size the branch network. There are two important aspects to this imperative: first is to redesign the branch channel for its emerging purpose: selling and servicing, and away from its legacy — transactional delivery. The second is to reduce branch network costs (both densities and corresponding operating costs) to enable investment in digital channel development. 2. Learn how to sell and service using digital channels. Migrating low-value transactions to self-service channels is no longer adequate. Digital channels must become more self-sufficient. One important aspect involves learning how to engage customers virtually. In-person must no longer require a branch visit. 3. Catalyze growth in self-service channel usage. For the second mandate to have maximum effect, banks must influence digital channel usage. Branch transformation simply isn’t optional as King suggests. Far from it! Why is Branch Transformation Imperative? Many reasons, but two are central in my opinion: 1. Most banks serve a diverse customer base, with widely varying and continually changing engagement preferences. 2. While customers increasingly transact digitally, they PREFER to engage face-to-face. Celent separately surveyed US and Canadian consumers in the fall of 2013, finding similar results. Contrary to what some would have you believe, young adults do visit branches. Both surveys found a rather weak correlation between age and channel usage – except for the mobile channel, which displays a strong relationship between past-30 day usage and age. channel usage by age But, past 30-day usage is mostly about transactions, not necessarily engagement. The same two surveys asked respondents, “If you had an important topic you would like to discuss with a banker, how would you prefer to do so?” Responses to that question paint a very different picture – one that explains precisely why most banks derive the majority of their revenue from the branch network. Most consumers – regardless of age – prefer face-to-face interaction on important topics (at least for now). Interestingly, preference for online appointment booking was much stronger in Canada. Not surprizing, since several of the large Canadian banks have been offering (and advertising) the capability for nearly two years, while the same capability in the US is nascent. preferred engagement by age But that’s where the puck is. Where the puck is going is towards more widespread digital channel usage – and engagement – across age and income demographics. That’s why mobile channel development is the #1 retail channel priority in most North American banks. It should be. Those same banks, however, neglect the branch channel at their peril. Banks Aren’t Alone in This The Wall Street Journal published an excellent article this week that provides some much-needed perspective on the branch channel debate (Seriously, why is there still a debate?). Citing data from ShopperTrack, the article asserts a -5% CAGR in store traffic across a broad mix of retailers. Sound familiar? And, banks aren’t the only retailers enjoying the majority of sales from stores. According to the U.S. Census Bureau, online sales now make up about 6% of total retail sales and are growing at more than 15% per quarter. SIX percent! We can argue about the precision of this figure, but the reality is unavoidable – after two decades of digital commerce growth, in-store shopping still dominates. Why no debate about the “store of the future”? Probably because, unlike banks who have largely neglected the branch channel for a few decades, most stores continually invest in optimizing their retail delivery model. Moven can neglect the branch channel because it chose a delivery strategy that alienates the majority of consumers that value in-person engagement. That’s a fine strategy for a niche player. Mass market institutions don’t have that luxury.