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Banks set to invest in branches to drive revenue growth

Today Ovum, the global analyst house, announces the role of bank branches has changed*. The shift of transactions to digital channels has heightened the importance of face-to-face interactions as customers increasingly come to branches to resolve complex enquiries. On top of this, with the commoditisation of banking products, the customer experience and services provided are becoming more important. This will lead to bank branches becoming sales and financial advisory centres, rather than transaction processing hubs.

Although recovery from the financial crisis is not yet complete, banks everywhere are investing in IT with the aim to drive revenue growth. In turn, this is driving a focus on customer experience. 40% of IT decision makers reported improving customer satisfaction as a very important business challenge in 2015 in ICT Enterprise Insights (ICTEI) survey for 2015**, while Ovum predicts that global IT spending by retail banks in 2015 will reach $130.8bn and increase its growth rate to 4.3% from the 3.6% experienced in 2014***. This is occurring alongside rising customer expectations, as individuals expect a consumer-centric service similar to those delivered by brands such as Apple and Uber.

“The interest in revenue creation is driving banks’ increased attention on the customer experience,” states Noora Haapajärvi, Associate Analyst, Financial Services Technology, Ovum. “This is leading to increased investment in the front office, which will lead to the front office IT market ($65.4 bn) exceeding the back office market ($65.2 bn) by 2017. This year, bank branches will account for 13% of the total IT spending by retail banks globally and 63% of the CIOs surveyed in our ICTEI survey indicated they are planning to modify their branch IT during 2015.”

Much of this has been driven by the increasing role of digital transactions. Activities like payments, balance enquiries, and inter-account transfers have moved away from branches into the digital realms. This has caused customers to only enter banks for more complex transactions. With branches historically being important drivers of new product sales, this creates a challenge and a number of banks are looking to transform their branches to sales and advisory centers as a result.

For this to happen, banks are looking to technology. 35% of the respondent banks to Ovum’s  ICT Enterprise Insights survey have increased their branch IT budgets in 2015 and, when Western Europe is excluded, the figure is about 10% higher. Banks around the world are still in the relatively early phase of their branch transformation and they continue to focus on branch and transaction costs with customer servicing technology being a top IT investment.

Noora Haapajärvi concludes: “The transformation of the branch away from transaction processing and towards sales and financial advisory centres is only just starting in a number of banks around the world. The changing role of the branch has implications for staffing, and the pressure to cope with regulation remains a key challenge for banks. In the longer term banks must plan to truly integrate their branches to the rest of the channels so as to be able to offer a consistent experience across all. The culture change needed to evolve the branch into a more customer centric financial service and sales centres will be one of the most difficult challenges in transforming the branch to a competitive advantage for banks.”