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The white-label branch

The real reasons why challenger banks like Bó and N26 fail – it has nothing to do with Covid-19, Brexit or Russian Hackers…

By Brian Holden, Global Director of Financial Services at SAS UK & Ireland

I’ve written before about how the coronavirus pandemic is making banks reconsider the value of their high-street branches. In that article, I focused mainly on how branches could act as a decentralised workplace network, reducing the need for many staff to commute into central London and the towers of Canary Wharf.

Today, let’s look at the same topic from a customer experience perspective. What kind of branch network will banks need in the future to deliver the best service to their customers and the wider community?

Customers trust in bricks and mortar

A couple of years ago, a typical answer to that question might have been that banks won’t need branches at all. Digital banking was in the ascendancy, and established banks were becoming seriously concerned about the rise of online-only challengers. Branch networks were seen as “legacy baggage,” an expensive obstacle to digital transformation.

Today, things look very different. When people are losing their jobs, shutting down their businesses, and wondering how they’re going to pay the mortgage, they want a bank that they can visit, staffed by real people whom they can talk to.

That’s why many of the challenger banks are finding themselves in a bit of trouble. Customers are moving their money back into bricks-and-mortar institutions that they feel they can trust. When their finances are precarious, they can’t afford to be cut off from their bank account by a technical glitch. Or left with no way of contacting a human being to help them with their problems.

Serving the whole community

It’s become increasingly clear that online banking just isn’t accessible for large segments of the community. Older people, for example, often aren’t comfortable with the online world. They may not know how to use a computer or smartphone. They’ve heard horror stories about falling victim to fraudsters. And many feel it’s not worth the risk to engage with online banking at all.

There’s also a worry that when banks close branches and move out of a local community, people may be more likely to seek other sources of credit – often at much higher interest rates than high-street banks would charge. This could have a damaging impact on their financial security, particularly in the COVID era, when many people who have suffered job losses or reductions in income will find themselves struggling to service their existing debts.

If everyone has access to a local branch on their high street, many of these problems evaporate. That’s the real social benefit of banks having a physical presence in the community. As banks increasingly focus on their social responsibilities in helping the country recover from the COVID crisis, local branches will play a key role in supporting not only the affluent but those who have fallen on hard times too.

Too many banks, too little differentiation?

However, although we’ve established that branches are a social good, that doesn’t necessarily mean that every bank has to have a branch on every high street.

The vast majority of the activity that takes place in branches is simple and transactional. Customers check their balance, make withdrawals, pay in cash and cheques, make payments, and so on. All of these tasks are generic enough that the process doesn’t vary much between banks. You don’t get a noticeably different or better experience when you withdraw cash from one bank’s branch than you would at another bank’s branch, for example.

Some of the in-branch processes are slightly more complex – establishing proof of identity when opening a new bank account, for example. But even then, it’s a process that all banks need to implement at their branches. And there’s no real differentiation between banks because they all need to comply with the same Know Your Customer regulations.

Finally, there are higher-level services, such as face-to-face meetings with financial advisors to discuss pensions, mortgages or investments. These are an important differentiator for banks. But since they effectively only require a meeting room, a desk, a computer with a secure internet connection, and a couple of chairs, there’s no reason why, for example, a Banking Relationship Manager necessarily needs to meet their clients at their own brand’s branch.

The white-label branch

What am I proposing, then? Well, instead of each bank paying rent, rates, bills and salaries for different buildings on the same high street, branch banking could take inspiration from co-working spaces. We could have a “white label” concept, where a single high-street location acts as a shared service centre for all banking-related activity, regardless of which bank(s) the customer holds an account with. This would not only significantly reduce overheads for the entire retail banking industry but also reduce carbon footprints and contribute to banks’ sustainability goals.

A single location could house all the apparatus required by a traditional bank branch: a secure vault with safe deposit boxes, ATMs, a row of cashiers’ windows and so on. Staff could be trained to handle all of the day-to-day transactional business of paying in, withdrawals and even KYC checks in a standardised way and pass the information securely to each bank’s back-end systems.

Then, for the higher-level services, financial advisors from any bank could simply reserve a meeting room in the building and arrange to meet their clients there. Even today, many advisors (especially mortgage specialists) are itinerant, splitting their time between several different branches in different towns instead of having a single permanent office at a “home branch.” The white label concept would simply take things one step further, with advisors from different banks co-working flexibly in whichever branch is most convenient for the customer.

Back to the future?

Banks don’t like to publicise it, but there’s already a place on most high streets that offers everyday banking services: the Post Office. Could we go back to the days when Post Offices were one of the main locations for banking transactions, especially in smaller towns and rural areas?

It’s possible, but I think that’s the wrong route to take. The Post Office already offers a wide range of nonbanking-related services, and it could be overloaded by taking on the extra responsibility. More importantly, to be truly effective, white-label banks will need banking-specific infrastructure, systems, processes and regulatory oversight, especially in areas such as security and compliance. This all points to premises that are either converted from existing local banks or newly built for the purpose.

From vision to reality?

If this all sounds like a step too far, consider this. The rise of smartphones and mobile banking means that any reasonably tech-savvy customer can already visit a white-label branch whenever they choose – simply by taking their phone out of their pocket. They can access their accounts at any of their different banks simply by tapping on the appropriate app. Why shouldn’t the same be true on the high street?

If you would like to learn more about how SAS is helping UK banks imagine what the post-COVID future should look like, whether that’s online or in-branch, feel free to reach out to me directly or find more information here.

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