Despite the proliferation of online and mobile banking, YouGov research has shown that the proximity of a branch to a person’s home is the top factor in selecting a bank in many parts of the developed world, cited by 33 per cent of respondents. Interestingly, a recommendation from a family member comes third after the list of services offered.

This suggests that the branch remains important to brand identity and is also a key channel for retail banks looking to attract new customers in a market where churn is traditionally notoriously low. It also illustrates why many members of a family may end up banking with the same financial institution. However, within a family unit you are likely to have a child opening their first savings account, a teenager who is addicted to his / her mobile, parents who use multiple channels, and grandparents who like the security of human interaction – whether that is in person or on the phone.

This represents a significant challenge for a bank to meet the individual and collective needs of these differing customer segments.

Segmentation, design and distribution

In recent years retail banks have invested significant time, effort and resources trying to better understand who their customers are in an effort to design the right products and services to meet the varying needs of each customer segment. However analysing the vast amount of data at their disposal is only the first step. Whilst retail banks have made significant improvements in their approach to targeted marketing and cross sales; their distribution strategy (delivering the right product, through the right channel, at the right time – consistently and efficiently) is still what many banks are striving to achieve.

Part of the challenge stems from the fact that our buying habits are changing.  Customers are now more comfortable starting a journey online or on a mobile device and then finishing in-branch or through another channel. This makes it much harder for a bank to maintain its core values and provide consistent, relevant, customer journeys. As banks fully embrace a multi-channel environment, it is critical they address this issue.

Responding to the digital explosion

Rapid developments in technology are changing the game across all industries. Within the retail space, digital transformation has become a central part of e-commerce operations, with 74 per cent of consumers purchasing goods and services online in 2014[1]. With the adoption of digital channels growing rapidly, particularly mobile, banks have been slow to react relative to other sectors, and are now playing a game of catch-up.

This in part stems from the fact that banks have historically enjoyed a privileged position where the cost of entry has tended to inhibit competition and, as a result, limited the amount of innovation that has occurred in product distribution. However, the rapid emergence of digital channels has radically changed the way in which consumers want to interact with their bank as well as enabling new, niche, competitors to enter the market. As a result, banks are having to fast forward the development of their digital strategies to meet the demands of the modern day consumer. This digital transformation does not stop at just the mobile and on-line channels, but extends into the heart of the branch environment. Banks are having to develop new customer journeys that reflect and integrate with digital services as well as restructuring the branch channel to provide value adding services that are more advisory based.

For the consumer, it’s all about choice. While the internet, telephone and mobile banking enable consumers to bank how they want, when they want, nearly three quarters (72 per cent) of consumers will still go to their local high street or shopping centre branch to access financial services[2]. When customers are looking to purchase financial products, they are reassured by the personnel interaction that a branch provides. While there is a strong demand for mobile and digital banking services, customers still want the option of leveraging other channels that better suit their needs at a point in time.

The future for high street banks

So what does the future look like? The desire of the UK government to increase competition in the market and the emergence of challenger banks will inevitably lead to a new wave of niche financial service providers targeting specific customer segments.  Whilst this isn’t necessarily new – think FirstDirect and egg– these largely digital institutions will drive new levels of customer experience through their chosen channels.

However whilst there will always be niche competition within the industry, most financial institutions face the same challenges. Firstly they need to recognise the needs and requirements of their different customer segments and then integrate their channels in order to deliver a seamless customer journey. In a market which offers true customer choice, delivering the right service to your customer, regardless of the channel, is crucial.

[1] Deloitte report 2014

[2] Deloitte 2014 report