Fallacious Thinking On Banking Channels

Alan Gemes, a VP at Booz Allen Hamilton, was quoted in Finextra as saying:

Banks are failing to capitalise on the enormous potential of key growth channels such as online and mobile sales forces, because the performance of these channels does not meet customer needs and expectations.”

What’s wrong with that statement?

No, “capitalise” is not misspelled. Instead, it contains an erroneous assumption about how consumers make financial decisions and the role of various sales and interaction channels in the execution of those decisions.

I don’t doubt for a second that consumers fail to use the Web to apply or get service because of the poor quality of online interactions.

But this online channel avoidance or abandonment has NO MATERIAL ADVERSE EFFECT on the topline results of the bank. There is no inherent growth potential from the online and mobile channels.

Growth opportunities come from some combination of: 1) increasing prices (rates, fees); 2) selling products/services to new customers; and/or 3) selling more products/services to existing customers.

The channel — whether its online , mobile, or call center or branch — does not create the growth, in and of itself. If you have a lousy product or service, improving online application capabilities will not produce growth.

And conversely, if you have a great product or service, you are not losing sales because your online application capability is subpar. Customers simply use the next most convenient channel. Would they liked to have completed the transaction online? Sure. But did they change their selection of product and provider? I have a hard time seeing my way to “yes” on that question.

Bottom line, growth is not a “channel’ issue — it’s a business strategy issue. A firm like ING Direct succeeds by offering superior rates on a narrow set of products, while providing no face-to-face support and limited human support. That works for them. Having superior (or at least acceptable) online application and support capabilities is critical to its success.

Edward Jones, on the other hand, believes (very deeply) that face-to-face interaction is paramount to building and developing deep relationships with its customers. There is no inherent “growth potential” that comes from the online or mobile channels in the context of Edward Jones’ beliefs.

The Finextra article states (in its title) that channel management is a big challenge to banks. It is — it’s because many banks don’t have a coherent business strategy. Not because they don’t have a channel strategy.

Improving the online and mobile channels to better meet customer needs and expectations may impact customer retention and service and processing costs, but in and of itself will not create growth opportunities for banks.

For further discussion of this, see Bankwatch.

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