Among Labour’s policies for the 2017 election is that a Labour government would overturn the ‘access to banking protocol’, and potentially block banks closing some of their high street branches. This announcement comes at a time when traditional banks are looking to respond to rapidly changing consumer behaviour. In particular there is also a need for them to adapt their business models amidst a landscape of fast rising digital-only competitors and FinTech brands. Is, therefore, a policy seeking to maintain the status-quo of branch-led banking the correct one?
Labour’s arguments to support this policy are based on research from “Move Your Money” suggesting that there are lower levels of lending to small businesses in areas with recent branch closures. This is also alongside a report from “The Social Market Foundation” showing that 11% of the population in the UK (7m people) use no other banking service than their local high street branch. The implication taken from these reports being that branch closure may severely impact the local high street, damage the productivity of local businesses and reduce the ability of some vulnerable households to access basic banking services.
All of these are important considerations, yet passing laws to maintain the numbers of high street branches may not be the right solution. A more nuanced approach, allowing banks to redesign their service propositions, however high street branches may fit into this, may be more beneficial. This approach may soften these potential negative impacts as well as being beneficial for all banking customers in the long term. Such a solution requires the banks to take a more detailed look at customer needs, and the drivers of satisfaction, when interacting with their financial providers.
The ‘human touch’ in effective banking
Research from KAE shows that, for consumers, the location of the interaction with their bank is not as important as the human or personalised elements integrated into their experience. This ‘human’ interaction was the key driver for customers maintaining their use of bank branches, despite many people doing the majority of their banking through other channels. Now however, this personalisation of service has been shown to be effectively replicated outside of branches, through channels such as phone help lines, web chat and community bankers.
The results of the KAE Digital Banking Study show that share of preference for a Current Account reduces when a bank removes branches as a customer service channel; superficially supporting the Labour policy. However preference falls drastically when human interaction is entirely taken out of the proposition irrespective of the presence of a branch. This is because potential customers are more likely to think of a provider with machine-only interaction as ‘ineffective’, and less likely to think of them as ‘safe’.
NatWest and RBS’s promise to provide community bankers outside of a branch provide a model that sustains personal interaction without a branch presence. However, Lloyd’s proposed redesign of branches replacing customer service representatives with touch screens may undermine the reason why branches were attractive to consumers in the first place.
KAE’s research indicates that customer journey offering human interaction and a personalised service, through a call centre and supported by online communication channels such as web chat, would be preferred by consumers compared to interacting with a machine within a branch setting. Labour’s policy may place an obligation on the banks, which ultimately will not give consumers what they are looking for in terms of experience when interacting with their financial providers.
A focus on service redesign can lead to greater overall satisfaction
While forcing some households to conduct all of their banking outside the branch may be disruptive in the short term, forcing branches to stay open could impede innovation and investment in the development of customer experience programmes in the long term. This is supported by the latest research by KAE on customer experience, which shows that customers of First Direct (a subsidiary of HSBC who do not have any high street branches) are comparatively more satisfied with the customer experience they are receiving. This is also true for other digital-only challenger companies such as Ocado in the grocery industry and GiffGaff in the telco sector.
The success of First Direct in creating an effective customer service proposition, without high street branches, is down to the fact they have worked to optimise and refine their other customer touchpoints. First Direct’s experience managers have researched the importance of each touchpoint in driving satisfaction metrics, enabling them to invest their resources into resolving the most impactful pain points for consumers.
This firstly shows at least a small section of consumers can be completely, if not more, satisfied with a banking proposition without high street branches. More importantly however, it sets out a blueprint for traditional banks to improve their customer satisfaction. They must first research all of their current customers to understand their needs, and the true drivers of satisfaction, then redesign their customer journeys based on this feedback. This may include reducing branch numbers and investing in alternative channels. Or it may help them to maximise the use of their branches and physical assets to raise the bar again against these new market entrants.
Issues of accessibility and levels of lending to businesses do certainly need to be addressed, but this does not mean that sustaining the number of high street branches is the optimal way to do so. Provided a sufficiently detailed view of the customer experience for all customers is taken, changes and improvements to banks service propositions could negate any negative effects of bank branch closures to the wider community and increase customer satisfaction overall.