Like all segments of retail, banks are under siege from demanding customers and new technology.
Michael Greene looks at how the banks are adapting and what this means for the property industry:
The GFC fundamentally altered the operating environment of banks, both retail and institutional, local and global. Australian retail banks did weather the global economic crisis better than their overseas counterparts, but have not been immune and can no longer rely on the strong year-on-year growth they enjoyed pre-GFC.
In addition, there are other change forces impacting the industry including technology, a more discerning customer and a need for a re-brand following the crisis of confidence.
More discerning customers
There is somewhat of a people power revolution taking place in the sector, aided by technology development. Banks can no longer rely on customer loyalty nor inertia: their customer base is increasingly mobile.
Overall, people are more savvy regarding their finances and they will demand more from their bank. Banks are losing their ‘one-stop-shop’ status and more people will build a portfolio of financial service providers. Consumers are looking for easy finance – they want speed and easy use.
According to Edelman’s Barometer, trust in banks has fallen. Global figures show 56 percent trusted banks in 2008, falling to just 40 percent by 2012. Not surprisingly, people are looking for a higher moral code in their leaders and institutions.
Independence is another quality consumers are looking for. People increasingly want to own their finances and feel in control. This means that they will judge banks increasingly on their impartiality, quality of information, straightforward dealings and service culture.
These dynamics will accelerate the move to online banking, place a greater emphasis on service in branches and catalyse a drive to target the wealthier segments with a differentiated offer.
The role of technology
While some industries have been complacent and fallen victim to the power of the web, to a degree retail banks have successfully gone with the flow and adapted their business to take full advantage – both in terms of cost savings and marketing. Most banks have successfully launched online banking for customers and blended this channel with their bricks and mortar offer.
Neither are banks being slow to go mobile. Recognising the potential early (there are four billion mobile phones in use worldwide, of which 27 percent are now smartphones), the vast majority of Australian banks have either optimised their website for a mobile browser and/or launched a proprietary mobile app.
Despite the undoubted success of online banking, banks need to make further technology investments, such as:
Developing more specific apps: banks will develop ‘mobile everything’ for real-time access – budgets, forecasts, payments, billing, accounts and invoices
Peer-to-peer payments: using ‘bump’ technologies (i.e. touching two smartphones together to pay someone $10, say). Here ING Direct and Barclays have taken a lead
Remote Deposit Capture: i.e. depositing cheques by uploading photos of them. Chase, PNC Bank and US Bank are amongst a handful of banks currently proposing this service
Other technologies including: GPS marketing, biometrics (including face recognition), videoconferencing, touch screens, 3D barcodes, branch flat screens, digital signage, account manager kiosks, branch wireless, tablet-enabled virtual desktops.
What does this mean for branch networks?
Around the globe, we will see continued experimentation with formats and locations – getting the right mix of mobile, direct and location-based channels will be crucial. The branch focus will be on service, sales and relationship-building as transactions are pushed online or through call centres.
Whilst we are still seeing new entrants opening physical branches, our research highlights that most developed markets across America and Europe are ‘over-banked’. We predict that as a result of ‘right-sizing’ and embracing technology, a significant number of retail branches in these developed markets will be obsolete in their current format by 2020. In Australia too, the concept of a uniform branch across the country is under threat and will be replaced by more targeted channels.
Excess branch networks won’t disappear overnight, but the trend will be one of a steady run-off as property leases expire.
The challenge in this truly multi-channel world will be for retail banks to actively manage their existing property portfolio and then to identify the right locations to maintain a presence or take new space. We will see far more emphasis on right place, right space and right price. Any major growth in branches is likely to come from new entrants – either overseas banks or telcos and retailers who are looking to leverage their existing distribution networks.
We can expect the hub and spoke model to gain prominence, where premium flagship branches in big cities cater for the more sophisticated products and services, and smaller satellite branches give access to basic banking services.
More convenient banking will be a driver of branch location strategy. That is likely to mean more ATMs, more ‘kiosks’ in high traffic flow zones (transport hubs, shopping centres) and premium banks in business districts/parks. In the future, being in close proximity to the right customers will matter more than a prestigious façade. We can expect to see some banks adopt much greater flexibility concerning banks’ physical presence and ‘pop-up’ access strategies and flexi-leases will be developed. More drive-thru’ banking anyone?
Over the next decade, banks will improve the design and fitout of their properties, which often compare very unfavourably with their retail neighbours. They will deploy a higher quality of materials and workmanship and aim to deliver a more consistent, branded look and feel.
Citibank Japan, for example, launched its ‘Smart Banking’ branches in 2010, drawing inspiration from Apple stores, amongst others. Citibank has recently launched a flagship store in Sydney and has plans to roll it out across the country.
Also, expect the flagship branches of the future to offer more visible staff, released from behind counters, out on the banking floor (using versatile tablet technologies and interacting more with clients).
Swedish bank Jyske seems to want to be: ‘the best coffee shop in town that also does banking’. Another European bank is planning a progressive new fitout, aiming to bring domestic elements to the banking hall, allowing customers to feel comfortable and unpressurised. Charles Schwab, meanwhile, is trying to replicate Starbucks as a Third Place and ING has also introduced a café ambience in some branches internationally. Commonwealth Bank has taken a similar approach in its branch on the corner of Queen and Edward Streets in Brisbane.
The face of retail banking is changing and real estate will have to change with it. Key drivers of change will be the increasingly savvy and mobile customer, the game changer that is technology, and the need for re-invention in order to regain lost trust.
In part, the answer to all these challenges will come from technology and innovation. Little more than a decade ago, most retail banks feared the internet. When they finally took the plunge, the results were positive.
Now it is becoming ever clearer that the future belongs to those that are nimble and far-sighted enough to embrace future technology in all its forms. Banks will continue to require physical space, but the emphasis on bricks is diminishing; and the physical space that remains will change both in form and function. The future is undoubtedly multi-channel.
Michael Greene is regional director, tenant representation for Jones Lang LaSalle’s corporate solutions business.