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Retail banks step up to the digitalization challenge

Retail banks step up to the digitalization challenge
October 21, 2013in Technology2013-10-212013-10-21technologyen
The unstoppable wave of digitalization is threatening to transform the retail banking industry as completely as the music and book business. New pure-online players are chipping away at the profitability of traditional banks, which are burdened by legacy technology and processes.


The unstoppable wave of digitalization is threatening to transform the retail banking industry as completely as the music and book business. New pure-online players are chipping away at the profitability of traditional banks, which are burdened by legacy technology and processes. 

Retail banks are currently suffering disintermediation in key parts of the financial value chain. To succeed in this new age, they need to focus on creating new business models, adopt a “digi-local” strategy, adapt their customer service to the new digital environment and rely on an innovative IT department.


The success of digital banking services on mobiles and tablets is going to accelerate this transformation by reducing the need for physical interaction with branch advisers – which will kill the traditional branch model.


But as is well known, new threats also provide new opportunities to succeed. “Retail banks that choose to innovate in technology and business models can consolidate their positions as leaders in a new digitalized world,” says Jean-Pierre Lemaire, Chief Executive Officer of Orange Consulting. 

disruptive new players
“Sorry banks.” This is how Transferwise, a start-up in the financial London Silicon Roundabout, apologizes for bypassing the classical international currency transfers and slashing the commissions by a factor ten – one among many disruptive moves. 

But disruptive players don’t have a monopoly of innovation. Take for example traditional payment networks, such as VISA or SWIFT. One of their biggest threats is peer-to-peer or person-to-person (P2P) payments, which allow people to transfer money directly to one another without the intermediary of a bank. It is particularly suited to mobile devices because it allows consumers to easily make payments on the move through their smartphones. This requirement has spawned new competitors, perhaps most notably PayPal.

Recognizing this threat to their core business, the industry launched its own versions of P2P payments. Barclays Bank in the UK was one of the first to launch a P2P service and it has been followed by others, such as VISA. 

“We believe that branches will continue to be relevant.”
Jean Pierre Lemaire, Chief Executive Officer of Orange Consulting

P2P loans
Another challenge to retail banks’ core activity is the P2P loan. They have been around for several years, particularly in emerging economies, in the shape of microcredit. But they are also making inroads in the U.S. and Europe with organizations like Funding Circle in the UK and Prosper, promising to connect lenders and borrowers in a virtuous circle.


is there a future for the branch office?
“In addition to powering a revolution in financial services products, digitalization is also changing the public face of the retail bank,” says Jean Pierre Lemaire. “Where the branch once ruled, now retail banks need to compete with new nimble players that have no physical customer-facing presence at all. Everything can be done online.”

To compete with these new players, banks are adopting a “digi-local” strategy. One part of this is launching their own versions of online banks, fully differentiated from their branch-based brands. The other is rethinking the role of the local branch network: instead of locations where everyone can carry out all their banking, they are looking to create specialized environments for different segments of customers. 

“We believe that branches will continue to be relevant,” says Lemaire. “But there will be many different types, including flagship branches and pop-up branches derived from other industries – and all of them will be much more digital intensive.”

Other similar initiatives include hybrid bank coffee shops seen in Toronto that target the wealthy Y Generation. Banks are also looking to simply shrink the footprint and associated cost of the branch in the shape of micro-branches in the U.S. and even nano-branches in Canada.


innovation in bank branches
Banks in China have been opening what they call wealth lounges. They don’t look like branches; they look like five-star hotel lounges, where high-value customers are given personal attention. 


seamless, immersive, real-time customer experience
What does this all mean for customer service? “A future branch may look more like an Apple Store rather than a counter with seated bank tellers,” says Jean Pierre Lemaire. “However, contact centers and online channels are just as important as face-to-face contact. Customers are looking for an immersive ‘omni-channel’ experience, where they can switch seamlessly back and forth, between different channels.”

The digital experience is also increasing customer expectation about responsiveness and transparency. “Customers want to know that you are taking care of their problem, and they want a real-time status report,” says Jean Pierre Lemaire. “The good news is that customers are happy
to collaborate.”

changing face of IT
The IT department can play a leading and innovative role in the transformation of retail banking, such as by proactively supporting the development of mobile banking apps. Credit Agricole, for example, has opened a new app store that invites external developers to create apps for its customers.

However, to successfully address this new challenge, the IT department needs to break out of its legacy application development mode. Traditionally, bank applications have a lifespan of tens of years, compared to mobile applications downloaded from an app store, which have a lifespan of six to nine months,” warns Jean Pierre Lemaire. 

The IT department can help retail banks meet their digital challenges. CIOs have invaluable experience in security, which is essential in a world where most of customers’ data will reside in the device. Digitalization requires a new dialog with CXOs, and acting out of the IT box in an innovative manner. If they don’t, there is a real risk they will be disintermediated.

ultimately: change management
Digitalization is both a threat and an opportunity for retail banks. To succeed, they need to transform their branch networks to address the Internet age, and overhaul their internal processes and systems to better deliver the service and technology their customers want. More importantly, digitalization means rethinking, redesigning and refining the customer experience – and investing in change management for the bank management and staff. 

Find out more about how Orange Business Services and Orange Consulting are working with retail banks to help them make this transformation:


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