The New Banking Channel Network: Improving the Bottom Line through Channel Optimization

Current trends across market segments point to a difficult low-growth environment for banks, which must respond by reducing branch-based costs and reinvesting in alternative low-cost channels. Previous attempts to develop a coherent multichannel model proved unsuccessful. Customers are now ready to adopt multichannel access points to transact with banks but they must be educated about alternative channel capabilities. Banks need to adopt an integrated channel architecture and specific capabilities to support the mission of each channel.

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Leading Research

Paul Hyde Ashish Jain Kumar Kanagasabai Javier Sepulveda-Navarro

The New Banking Channel Network Improving the Bottom Line through Channel Optimization
This report was originally published before March 31, 2014, when Booz & Company became Strategy&, part of the PwC network of firms. For more information visit

Current Trends across Market Segments Point to a Difficult LowGrowth Environment for Banks

Trends 2009–2015
ƒ Future income stream hit by unemployment and flat/falling wages ƒ Demand for lending products contracting as customers seek to de-lever and increase savings rate


ƒ Income and home assets hit, but recovering as earning power more resilient and wealth diversified Mass Affluent ƒ Debt servicing capacity recovering, with balance sheet and income leading to some lending growth ƒ Strong preference for remote channels for day-to-day transactions ƒ Small businesses’ appetite for, and access to, debt will recover slowly, and banks and businesses continue to de-lever ƒ Small business profits to recover slowly, in line with the economy and consumer spending ƒ Population ages 65 and older to grow by 30% to almost 50 million by 2015 Retirees ƒ Demand increasing for investment products to supplement uncertain Social Security payments ƒ Acceptance of online delivery methods is increasing ƒ Gen Y and younger to grow from 26% to about 40% of the workforce by 2015 ƒ Rely heavily on new media (e.g., social networking, iPhone applications) in day-to-day activities
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Small Business

Gen Y


These Trends Are Creating New Pressures to Reduce Branch-Based Costs and Reinvest in Alternative Low-Cost Channels
Channel Cost Structure - Banks
Reduce Costs
10% 5% 10%

Pressures on the Branch Network ƒ Aggressive branch growth resulting in oversupply in certain markets ƒ Shifting of branch volume for servicing and transactions to virtual channels driving higher unit cost at branch

Increase Investments

ƒ 70% of the branch traffic is driven by the least profitable customers (i.e., mass market) ƒ Limited branch channel usage by younger, more affluent customers ƒ Customer expectation for ubiquitous connectivity and seamless integration across all channels




Call Center Online/Mobile


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Previous Attempts to Develop a Coherent Multichannel Model Proved Unsuccessful
1 Customer Reluctance to Migrate Transactions ƒ Strong preference by most of the customer base to interact with banks through the branch ƒ Reluctance to use alternative channels for banking needs because of lack of functionality, perceived lack of comfort and security

2 Poor Channel Alternatives

ƒ Limited functionalities offered by alternative channels for banking needs ƒ Poor customer experience in using the alternative channels (e.g., onerous voice response menus, fragmented and difficult-to-navigate online channels)

3 Customer Push Rather Than Pull

ƒ Introduction of “penalty fees” to drive customers toward the low-cost channels (i.e., stick instead of carrot) ƒ Lack of systematic education of customers on capabilities and benefits of alternative channels

4 Continued Channel Conflict ƒ Lack of channel role clarity to perform sales, servicing, and transactions ƒ Competing capabilities built across channels with limited integration, driven by siloed approach to channel management

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Today, Customers Are Ready to Adopt Multichannel Access Points to Transact with Banks
Simple Product Origination
Personal Checking Account

Complex Product Origination



Personal Loan



Savings Account



Investment Management Account



Credit Card






Would Only Obtain Face-to-Face

Might Obtain by Phone, Mail, or Internet

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With Significant Improvements in Alternative Channel Capabilities, Integrated Multichannel Strategy Is a Reality
Evolution of the Channel Network (1990–2010) 2000 1990
ƒ Emergence of online channel ƒ Basic functionality in nonbranch channels ƒ Proliferation of attractive alternative channels (e.g., new media & mobile) ƒ Increasing adoption of alternative channels by customers ƒ Push toward channel integration
Social Media Mobile Branch Customers Branch Branch Call Center ATM ATM Bank Website ATM Bank Website Call Center Online Budgeting


ƒ Poor channel alternatives to the branch ƒ Siloed delivery network

Customers Call Center

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However, to Make the Switch, Customers Need to Be Educated about Alternative Channel Capabilities
CASH DEPOSIT EXAMPLE 75% of customers prefer the branch to make a cash deposit1 However, 45% of those customers are not aware they could do this transaction at the ATM2

Other ATM Prefers to do cash deposits in the ATM



Not aware of ATM cash deposit capability



Prefers to do cash deposits in the Branch 75% Aware of capability, but do not use 55%

All Segments
1) Represents answer to question in survey - “In what way do you prefer to make a cash deposit?” 2) Represents answer to question in survey - “Does your bank offer you the capability to make a cash deposit at the ATM?” Source: Booz & Company proprietary research
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All Segments



An Integrated Channel Architecture Is Required to Deliver on Segment Preferences, Economics, and Product Complexity
Research Application Closing CrossSelling

Customer Service
Servicing Inquiries Problem Resolution

Transfers Payments Deposits/ Withdrawals


Online/Call Center

Online/Call Center Online Branch



All Channels





Small Business


Online/Call Center Call Center



Branch/Call Center



All Channels





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This Tailoring Will Result in a New Segment-Driven Branch Model with a Greater Focus on Sales
Mass Affluent Branch
Market Characteristics • High home ownership rate, with accessible equity • High-income area

Small Business Branch
• High business density • High proportion of business customers

Emerging Affluent

Small Business Segment

Branch Model

Wealth RM

Business Services


Business RM

Business Services

Vault Services

Imaging ATMs

Remote Product Specialists Mortgage Tax IRA

Remote Product Specialists Treasury Merchant Services

Branch Attributes

• High-end branches exuding exclusivity • Personalized service • Support need for privacy

• Extended hours • Dedicated service personnel for business clients • Integrated ATM capability

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Specific Capabilities Need to Be Developed to Support Each Channel’s Mission
Required Channel Capabilities - Examples
ƒ Single governing body managing investments across channels and ensuring alignment of channel roles to client needs ƒ Incentives for channel owners to cooperate, not compete, with each other

Channel Governance

ƒ Training and ongoing education for client-facing employees to understand client needs, enable collaboration and referrals across channels People ƒ Massive customer education campaigns to nurture better understanding of the capabilities in alternative channels ƒ Improved sales collaboration and warm handoff processes across channels Process ƒ Increased consistency and standardization of processes and policies across channels ƒ Standardized customer experience aligned to segment needs and value across channels ƒ Access to single view of customer across channels to understand current relationships and potential needs Technology ƒ Consistent information availability and customer data capture across channels ƒ Integrated channels across origination, customer service, and transaction value chain
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Implementing the New Channel Network Drives 10% to 15% Cost Savings

Fully Loaded Branch Cost Savings
(US$, in millions) EXAMPLE: Branch cost base of $700M
5 25

Channel Network Benefits ƒ 5% to 7% cost savings from reduced branch staff driven by transactional volume transfers to alternative channels


ƒ 3% to 5% cost savings from streamlined branch support services - e.g., efficiencies in the internal call center ƒ 2% to 3% cost savings from a reduction in FTE-driven technology costs - e.g., software licenses and equipment

Staff Reduction

Staff Support Services

Staff-Related Technology


Note: Based on a fully loaded RM salary of $100,000 per year. Source: Booz & Company proprietary research
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Contact Information

Chicago Ashish Jain Principal +1-312-578-4753 [email protected] New York Paul Hyde Partner +1-212-551-6069 [email protected]

Kumar Kanagasabai Principal +1-212-551-6455 [email protected] Javier Sepulveda-Navarro Senior Associate +1-212-551-6498 [email protected]

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