Retail Face to Face

5 May 2017

1 April 2011 FACE-to-FACE: A €15-20Bn MultiChAnnEl opportunity McKinsey authors Carlos Trascasa, Director, Madrid office [email protected] com Radboud Vlaar, Principal, Amsterdam office [email protected] com Victor Matarranz Sanz de Madrid, Principal, Madrid office [email protected] com Sara Gallizioli, Manager, Milan office [email protected] com Yvo Yeramian, Senior Analyst, Brussels office [email protected] com FACE-to-FACE: A €15-20Bn MultichAnnel opportunity ForEword 3

McKinsey and Efma are pleased to present this new report which shows that leading European banks are increasingly providing a sophisticated choice of electronic and face-to-face distribution channels and that their customers are impatient for more. Our joint study – comprising interviews with 3,000 consumers, an online survey of more than 150 banks, and in-depth discussions with leading European executives – reveals a complex, fast-moving retail banking sector in the throes of deep-rooted change with some players already well down the “multichannel” route and others just starting.

Retail Face to Face Essay Example

In this report, we are addressing our key findings with respect to (1) the current and future role of face-to-face channels; (2) the expected transformation journey of European banks and (3) the strategic implications for the retail banking sector. Separate sections of the report focus on the findings in key European countries. We hope that the results of this research will provide readers with fact-based information allowing them to find their route in the multichannel environment. Patrick Desmares Efma Radboud Vlaar McKinsey Carlos Trascasa McKinsey FACE-to-FACE: A €15-20Bn MultichAnnel opportunity introduCtion

Retail banking distribution is currently undergoing rapid change throughout the whole of Europe. New research shows that both banks and their customers expect face-to-face channels to focus predominantly on sales and advice in the future, while transactions will be handled almost exclusively via electronic means. The big question is not if this happens but when. The pace of the transformation, already well under way in some territories, will vary regionally and will depend on the ability of banks to remove the barriers that make customers reluctant to change, as well as the speed with which clients fully embrace online alternatives.

The banks themselves say mobile banking could be the catalyst in markets that have been slow to develop electronic habits. McKinsey estimates that, successfully executed, this transformation could yield €15–20 bn of extra earnings for European banks over the next 5 to 10 years, through a combination of cost reduction and extra income. INTRODUCTION New research jointly conducted by McKinsey and Efma shows that leading European banks are increasingly providing a sophisticated choice of electronic and face-to-face distribution channels and that their customers are impatient for more.

Our joint study – comprising interviews with 3,000 consumers, an online survey of more than 150 banks, and in-depth discussions with leading European executives – reveals a complex, fast-moving retail banking sector in the throes of deep-rooted change with some players already well down the “multichannel” route and others just starting. In this report, we will address our key findings with respect to (1) the current and future role of faceto-face channels; (2) the expected transformation journey of European banks and (3) the strategic implications for the retail banking sector.

Separate sections of the report focus on the findings in key European countries. CURRENT ROLE OF FACE-TO-FACE The report confirms that customers use face-toface channels increasingly for sales and advice and currently use remote channels for making most of their transactions. Such general trends, however, conceal a more subtle and not always intuitive picture of what is happening at a country and product level, and during different phases of the product purchase.

Spanish customers, for example, already seem quite comfortable about using direct channels to buy even complex products such as mortgages. In the Netherlands, 50% of consumers told us that they had not visited a bank branch in the previous year, against just 10–20% in France, Germany, Italy, and the UK. Even more striking is the way older people in the Netherlands (those aged 55 or above) use Internet banking more than the 20–35 generation in other European countries, respectively 67% versus 58%.

Consumers in Western Europe on average use 2. 6 channels to interact with their bank. Dutch and French consumers on average use more channels (3. 0) while Italians use the least number of channels (2. 0). Whereas the number of channels used is relatively comparable across mass market and affluent customers, younger generations (aged 20–35) use more channels than older generations (aged 55 or above) with on average 2. 9 compared to 2. 3 channels, respectively. More details at the country level are available in the specific country sections.

FUTURE ROLE OF FACE-TO-FACE Customers and the banks themselves ultimately expect distribution to become multichannel, with face-to-face channels predominantly focused on sales and advice. Our online survey of banks, plus the executive interviews, has reinforced our conviction that retail customers everywhere will one day manage the vast bulk of their transactions online, via credit and debit cards or through ATMs and mobiles. They will open standard current and savings accounts online and even handle their basic investment and insurance needs electronically.

At the same time, they will continue seeking face-to-face advice when buying more sophisticated and complex products (such as mortgages, pensions, life insurance and more advice-oriented investment and wealth-management services, see Chart 1) as well as for certain types of post-sales support. 5 ChART 1: CONsUMERs wILL CONTINUE sEEKINg FACE-TO-FACE ADvICE Consumers will continue seeking face-to-face advice whenwhEN bUyINg MORE COMpLEx pRODUCTs sUCh As such as mortgages and buying more complex products MORTgAgEs AND INvEsTMENTs investments Branches Agents/Brokers Call centre Direct channels 1

Product purchasing Current sales breakdown by channel 2010, % of sales 3 Current accounts 84 2 Savings accounts 77 Expected dominant channel 2015E, % of respondents 1 53 1 4 9 100 3 43 100 5 16 100 38 3 59 100 Investments 78 7 4 11 100 58 11 3 28 100 Mortgages 80 11 4 4 100 72 13 5 10 100 Consumer nance products 73 8 6 12 100 32 13 8 47 100 1 Internet, ATM, mobile SOURCE: Efma online survey across 150+ European banks Our research suggests that there will be significant changes in the way banks interact with their clients face-to-face.

The new role will involve the branch focusing increasingly on sales and high-quality advice, supporting clients when they have more complex or urgent requirements: • ransactions:Face-to-facewillhavealimitedrole, T as customers will use remote channels for the vast bulk of their transactions in the future, allowing interaction with their bank anywhere and at any time at a low cost. Already less than 5% of transactions in the Netherlands, for example, take place inside the branch and most of those concern cash deposits and payments.

The survey confirms our view that other countries are moving in the same direction and will ultimately reach the same destination. • omplaintsandpost-salessupport:Face-to-face C will continue to play an important role when it comes to handling complaints and post-sales support, especially at so called “moments of truth”. Clients will use call centres, branches and direct channels – depending on the urgency and complexity of their inquiry. But we expect face-toface channels to be rarely involved for simple, less ritical service inquiries such as balance enquiries (around 90% of banks we surveyed believe remote channels will be the dominant channel in the future). Enquiries for help on urgent matters – seeking replacements for lost cards or PIN codes, for example – will continue to be dealt with in person, but are expected to move increasingly towards the call centre in the future. For postsales support, renewals and complex changes (for example, for term/condition changes, or to renew product contracts) the branch is expected to retain a dominant role. Salesandadvice:Mostsaleswillcontinueto be made, and most advice provided, through branches, but remote channels will be a conduit for simple sales and lead generation. Overall, we expect remote channel sales to account for around 30% of total sales over time, something we already see in the Netherlands, though the figure could go even higher in the case of those banks that really push remote channels hard. In some countries banks and their customers disagree about what will happen in the future.

In Italy, for example, banks believe 45–70% of sales of products such as current accounts, savings and consumer finance will be online – but clients are more sceptical. 6 IMpLICATIONs The changing role of face-to-face has three significant implications: a reduction in branch density, smaller branches and more customer-centric formats and staffing, and more seamless multichannel integration. • ranchdensity. Weexpectbranchdensityin B over-branched countries in Europe to come down significantly in the long term, towards a level that is around or even below today’s EU15 average of 475 branches per million inhabitants.

Numbers will fall significantly in Southern Europe, will remain roughly stable or slightly decrease in Northern and Central Europe, and will continue to increase in Eastern Europe as the size of the banking population rapidly expands. Branch costs will fall in the wake of a restructuring which will lower the average number of FTEs per branch1 from around 6 to around 4, or a one-third reduction in the status quo. • mallerbranchesandmorecustomer-centric S formats and staffing. Branches will become much more customer-centric, focusing on 1 Average refers to average number of FTEs per branch in the six largest EU countries. elivering a high quality customer experience. The skills and capabilities of branch employees will also need to be adapted as the focus shifts towards predominantly sales and advice. The typical format in most markets is likely to be a smaller store-like outlet, even though networks will continue to use a combination of very large branches and smaller ones. • eamlessmultichannelintegration. With S most clients using multiple channels, channel integration will need to be seamless and smooth. Furthermore, in order to generate sufficient leads for the branch, banks will have to invest in new digital marketing and pricing skills.

In some markets, such as the Netherlands, this is already happening; however in most markets it is in the early stages of development. Performing this successfully will have implications for IT and governance. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity introduCtion Transformation to ‘self-? rst’ is a matter of time, more Online banking usage Percentage1, 2009 80 ‘Self-? rst’ Norway Netherlands Sweden Denmark 7 ChART 2: TRANsFORMATION TO ‘sELF-FIRsT’ Is A MATTER OF TIME, MORE driven by Internet adoption than banks’ own actions DRIvEN by INTERNET ADOpTION ThAN bANKs’ OwN ACTIONs 70 60 50 40 30 20 10 0 0 5 Brick & Mortar’ IV Mexico Turkey 7–10 years I Finland 3–5 years Switzerland Canada US Japan Luxembourg ‘Multichannel’ II United Kingdom Germany France Australia Austria Belgium 10–15 years III Brazil ‘Online adaptors’ Poland Portugal Italy Ireland Spain Slovenia South Korea Argentina Middle East Serbia Romania Russia Greece Bulgaria Czech Republic Hungary China India Colombia Macedonia 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 Internet usage Percentage1, 2009 1 Percentage of individuals that used the internet/online banking at least once in the past three months SOURCE: Eurostat, ITU, national statistics

ThE TRANsFORMATION pATh We have identified four broad clusters of banks in the European market. These range from players in markets where banks are still largely branch- and paper-based and provide mostly face-to-face sales and advice, to those at the other end that fulfil almost all transactions electronically and sell as many products as possible online. Banks are currently at different stages on this multichannel journey, stages defined more by the extent to which customers in their countries are embracing the Internet than by the banks’ own actions (see Chart 21).

Banks in the “brick and mortar” cluster, where for some banks as many as 60% of transactions are handled in the branches, are mostly in emerging markets such as the Middle East and Eastern Europe. “Online adaptors”, which have managed to move say 60–80% of transactions out of the branch and generate a small but growing share of sales outside the branch network, are typically found in Southern Europe and certain Eastern European countries. The “multichannel” cluster, whose members have begun to adjust the size and configuration of their branches, can be found in developed economies such as Belgium, France, Germany and the UK.

The fully “self-first” territories where Internet adoption has been quickest and where customers are the most enthusiastic adopters of the online and mobile channels are the Netherlands and the Scandinavian countries. There are several factors influencing the pace of the journey for banks: (i) the speed at which customers, especially the younger generation, change their behaviour and begin to increase their use of alternative channels; (ii) Internet adoption and the diffusion of new technologies (e. g. mart phones), allowing instant banking wherever and whenever customers want it; (iii) macroeconomic developments, notably the direction of interest rates, which influence the cost pressures on banks; and (iv) the impact of customer protection regulation (and the extent to which it encourages face-to-face interactions). 1 Note that differences may exist between penetration levels on chart 2 and those from our consumer research mentioned further on in this report due to methodological, scope, and timing differences. 8

ChART 3: CONsUMERs wOULD Consumers would use theUsE ThE INTERNET MORE IF whAT ThEy sEE As sECURITy Internet more if what they see as CONCERNs ARE bETTER ADDREssED security concerns are better addressed Percentage of respondents selecting option as most important to increase channel usage for purchasing Branch Simplify processes and better convenience Better pricing More personal and better service Better advice Higher skilled employees Interaction with product specialists Interaction by phone or web conference Improve security Possibility to buy all products online Find rst assistance online Others 0 0 0 6 2 5 8 6 2 9 17 15 24 21 0 0 0 4 4 45

Internet banking 16 16 SOURCE: Customer market research in 6 EU countries (3,000 respondents) NExT sTEps FOR bANKs The potential value created by the sector if it moves in this direction is estimated at €15–20 bn in Europe. This reflects both a cost reduction potential and an opportunity to deploy capacity for other activities. Those banks that adapt most quickly to customer needs, and share a part of the cost savings they make with customers, will be able to gain market share.

To do so will require banks to develop a multichannel transformation plan, manage the transformation, improve customer experience, upgrade their marketing skills and develop a mobile strategy. • evelopanagreedmultichanneltransformation D plan. This should include a blueprint, a capacity transition plan and a marketing approach that reflects the future channel mix. We have seen several banks struggle to turn their transformation plans into reality, mainly due to a lack of a shared vision among the different “channel silos” in the organisation.

Since the transformation is a balancing act between the different channels in the bank, this shared multichannel vision is critical. • anagethetransformation. Banksmustensure M – especially in those countries where a significant number of branches will disappear – that branch employees can still meet customer expectations in respect of personal, face-to-face service and advice. Migration to remote face-to-face service channels will help remaining branches cope with the additional workload.

In addition, banks must head off the threat that branch employees will feel de-motivated. They should do this by carefully communicating the new high-value services role of the branch, and by adjusting the branch incentive scheme (for example, by partially attributing direct channel sales to branches as well). They must also engage with stakeholders such as the unions, especially in Italy and Spain, and develop branch employees with the capabilities to provide a high-quality sales and advice service for customers.

Banks should take care to carry out the redesign and restructuring of the branch network at the appropriate time. Many banks have been fearful FACE-to-FACE: A €15-20Bn MultichAnnel opportunity introduCtion Banks agree mobile will become big, but there is uncertainty ThE ExACT FUTURE ROLE on the exact future role ChART 4: bANKs AgREE MObILE wILL bECOME bIg, bUT ThERE Is UNCERTAINTy ON 9 Mobile’s key role will be providing secure messaging, transactions and maybe simple sales Mobile will mainly be a platform to access the Internet

Mobile will remain a niche channel focused on transactions Mobile will be used as a payment device Mobile will take over the Internet because everyone will have a mobile Mobile will become very important both for transactions and sales SOURCE: Interviews with European bank’s executives of acting too quickly, concerned that clients might perceive a reduction in service, notably if rivals add to their branch capacity through branch network expansion or acquisitions. The financial and economic crisis has accelerated redesign and restructuring initiatives as banks strive to cut costs.

Those banks adjusting the size of their branch network should regularly monitor branch metrics such as the volume of customer traffic, number of transactions and number of sales. A prudent first step might be to reduce the number of tellers, followed by other branch staff, only closing sites when they have no further potential. This being said, they should keep a close eye on what competitors are up to. • mprovethemultichannelcustomerexperience I – Remove key barriers: Executives tell us that they are still struggling to understand their customers’ behaviour and expectations.

Banks should be aware that if they wish to join the multichannel and self-first clusters, they will need to encourage greater usage of alternative channels, for example by reducing branch proximity or introducing differentiated pricing by channel. At the same time, they must develop face-to-face opportunities for customers via alternative channels. Consumers also told us that improved convenience, simplified processes and better pricing would encourage greater use of branches, while the majority of customers said they would use the Internet more if what they see as security concerns are better addressed (see Chart 3).

Banks might not be able to match customers’ expectations on pricing given current pressures on margins, but they must invest in changing misperceptions about direct channel security if they want to encourage people in this direction. Some banks are already implementing new products and services with innovative security features. – Actively encourage use of remote channels: Banks can use several levers to change client behaviour, ranging from price incentives and education to the elimination of some services in branches (e. g. transactions).

Banks that do this successfully not only reduce costs but potentially increase customer loyalty. Our research shows that clients who use multiple channels could be twice as loyal as those who only use the branch (measured by revenues and products sold). 10 – Create a seamless multichannel sales and advice process: Our interviews with European bank executives confirmed that full and realtime integration of channels will be critical to success in the future. This challenge will require both significant IT investments as well as process and organisational changes moving from a “silo” approach to a cross-channel one.

Face-to-face will no longer be just a branch experience but one that will be available via alternative channels – created, for example, by leveraging technologies such as video chat. • pgrademarketingandsalesskills. Ina U multichannel world, pricing, marketing and product development have to be tailored to channel preferences. Retail banking markets are often characterised as “direct” or “face-toface”, but in reality they usually comprise a number of micro-segments with different needs. Banks need to add client channel preferences into their segmentation and find fresh and innovative marketing and pricing approaches.

In particular, banks need to reinvent marketing for a multichannel environment following three basic rules: (i) behave as one bank across multiple channels, making sure that branch employees are aware of what is promoted on direct channels as much as in branches; (ii) ensure that search engines and price comparison websites feature the bank’s products; and (iii) convert more “service” contacts into sales leads. Banks should also invest in digital marketing to generate leads at “events” that then trigger customers to make big financial decisions (e. g. house-or car-buying).

It may pay off to place banners on sites that are most frequently visited by target and current clients. • evelopamobilebankingstrategy. Allbanks D agree that mobile banking will become increasingly important in the future, but most have a different view of its role (see Chart 4). In Eastern Europe, for instance, banks believe that the mobile channel will accelerate the pace at which customers move to direct channels, and some banks believe that smart phones might not only increase market penetration but even replace the role of the Internet via PCs one day.

So far mainly non-banks are leading the innovation and are capturing mobile banking opportunities. Banks will need to become more innovative and create new value added mobile banking services for their customers. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity gErMAny 11 German consumers are already doing most of their transactions via direct channels. For sales and advice, clients mainly use the branch, which could be due to their unease about the security of the online channel.

Online is mainly successful for price-sensitive and younger customers as well as some niche product segments, and is important as a lead generator for the branch. CURRENT ROLE OF FACE–TO-FACE Germany is a branch-dominated multichannel market. • ranchusageinGermanyishigherthanthe B survey average, with 87% of people having visited a branch in the past year compared to 79% of the survey average. A possible key reason for this is security concerns, which consumers indicate as the main reason for not using remote channels at present.

When comparing across segments, the usage is relatively comparable between mass market and affluent customers. Comparing across age groups, branch usage among older generations is higher than younger generations (90% compared to 81%) with the difference being twice as large when compared to the survey average (see Chart 1). • TMusageishigherthanthesurveyaverage,with A 84% of consumers having used an ATM in the last year compared to 73% of the survey average. Usage is comparable across segments and higher for younger people than older generations (~90% for people aged 20–35 and 36–55 compared to ~75% for people aged 55+).

Possible drivers for the higher ATM usage are that in Germany many consumers use the ATM also to regularly print their account statements, as well as the relatively low overall card usage in Germany. • nternetbankingusageisonlyslightlyhigher I than the survey average (51% compared to 48%). Internet banking usage is substantially higher for affluent than for mass market customers (57% compared to 50%) but the difference is not as large as in some countries surveyed (e. g. France). Moreover, older generations use the Internet less than younger generations (the difference is slightly bigger than the survey average). allcentreusageislowerthanthesurveyaverage C (11% compared to 17%). However, consumers in Germany are much more likely to call their branch (28% of consumers have called the branch in the past year compared to a survey average of 16%). • obilebankingusageisslightlylowerthanthe M survey average (4% compared to 7%) – this being a little higher for affluent than for mass market customers and surprisingly comparable across age groups (5% for people aged 20–35 compared to 3% for people aged 55+). In terms of multichannel behaviour, the average number of channels used by each customer is slightly

Contributor to this article: Tamas Giorgadse, Principal, Berlin office [email protected] com 12 Branch usage ALsO INTERNET UsAgE Is sLIghTLy hIghER in Germany is higher than the European AvERAgE whILE average while also Internet usage is slightly higher Percentage of respondents using channel1 in the last 12 months at their main bank Total sample (including Germany) Visit branches ATM Internet banking Call centre/ telephone banking Call/VC with branches E-mails with branches Agents/ Brokers Mobile banking Average channels used Germany

ChART 1: bRANCh UsAgE IN gERMANy Is hIghER ThAN ThE EUROpEAN Delta pp 79 73 48 17 16 10 10 7 2. 6 87 84 51 11 28 6 4 4 2. 8 +8 +11 +3 -6 +12 -4 -6 -3 1 Channel usage de ned as any kind of contact with the bank (e. g. for gathering information, receiving advice, purchasing products). More than one channel possible SOURCE: Customer market research in 6 EU countries (~3,000 people interviewed) higher than the European average, at 2. 8 channels compared to 2. 6. Only French and Dutch consumers use a higher average number of channels (3. ). Older generations use fewer channels on average than younger generations (2. 5 for people aged 55+ compared to 2. 8–3. 0 for people aged 20–54). On average, affluent customers use slightly more channels than mass market ones (3. 0 compared to 2. 7). FUTURE ROLE OF FACE-TO-FACE The purchasing process is branch-centric and is expected to remain branch-centric for most products and purchasing phases in the future, with the Internet mostly a lead generator for branch sales. ransactionshavemostlymovedoutofthe T branch, except for cash handling: More specifically, our customer market research highlights that 20–75% of consumers, depending on the type of transaction, are currently mostly using branches compared to 30–70% in other European countries surveyed1. Around 60% 1 This percentage might deviate slightly when comparing the total number of transactions done via different channels rather than the percentage of respondents mostly using a certain channel. of Germans today mostly use the branch to deposit cash.

In addition, for example, around 75% of consumers mostly withdraw cash via ATMs compared to a 65–70% survey average. Furthermore, around 20% of balance enquiries in Germany are performed via the branch (the remainder via the Internet, ATMs or call centres) compared to around 30% in other countries surveyed. In the future, transactions are expected to continue to move out of the branch due to increased consumer adoption of alternative channels. Some banks, for example, have started to invest in new concepts such as small ATMs located at points of sale, or begun cooperating with retailers to provide cash back at the point of sale.

Banks strongly believe in this trend of decreased branch transactions – as confirmed by interviews with executives of German banks. The German retail banks themselves, however, have mostly not yet made significant adjustments to their branch network and format in order to adapt to the decreased workload. • alesandadviceisprimarilybranch-dominated: S Today, branches are the dominant channel throughout the purchasing process for all products – even though the importance of channels differs FACE-to-FACE: A €15-20Bn MultichAnnel opportunity gErMAny ChART 2: IN gERMANy, 55–95% OF INTERACTIONs DURINg 012 trend Delta 5–10 pp Delta > 10 pp 13 In Germany, 55–95% of interactions during ThE pURChAsINg pROCEss ARE bRANCh-bAsED the purchasing process are branch-based Product purchasing process in Germany Percentage of respondents who used branches1 Receiving advice Current account Savings account Investments Product purchasing Post-sales support 74 80 70 78 81 74 64 68 56 Mortgages Consumer nance 88 94 85 76 78 73 1 Either visit or call/e-mail branches SOURCE: Customer market research in Germany (~500 people interviewed) greatly by product.

Depending on the product and the purchasing phase, 55–95% of interactions during the process are branch-based (see Chart 2) compared to 50–70% in other European countries surveyed. Furthermore, 70–90% of consumers remain in the branch in various phases of the purchasing process (see Chart 3). Depending on the product and purchasing phase, branches are expected to remain the dominant channel for most products and purchasing phases (40–80% of people are expected to continue using the branch throughout the purchasing process), in particular for sales.

In addition the Internet is a sales channel especially for price-sensitive and younger customers as well as for some niche product segments, and acts as a successful lead generator for branches. Sales via the Internet represent a relatively small share (5–15%) and are most substantial in the areas of investments and savings. Of the clients that initiate a purchase online a higher proportion stays online, for example 40–80% for investments or 50–70% for savings (depending on the purchasing phase). For complex products such as mortgages, about 20% of consumers remain on the Internet throughout he purchasing process. More specifically for sales, the Internet is currently used especially by price-sensitive and younger customers. The Internet acts as a substantial lead generator (30–80%) for the branch for various phases of the purchasing process. For most products, the role of the Internet is expected to grow in terms of information seeking and receiving advice (see Chart 4). It is surprising to see that even for a relatively simple product such as savings, the branch represents over 80% of sales and the Internet only 15%.

This is comparable to France and Spain (respectively 12% and 19%), but lower than the UK (25%) and the Netherlands (48%). A possible reason could be the much lower comparability (e. g. in terms of fixed durations, minimum amounts) of products offered beyond traditional overnight savings accounts, for which online sales are typically higher. In addition, the traditional strength of branch-based savings and cooperative banks in this product category (representing three-quarters of all savings accounts) could be an influencing factor, as well as fears regarding online security. 4 ChART 3: ~70–90% OF gERMAN CUsTOMERs REMAIN IN ~70–90% of German customers starting the ThE bRANCh IN vARIOUs phAsEs OF ThE pROCEss xx % of customers xx xx xx xx Branch path Internet path Agent/broker path Multichannel path explAnAtion • P ercentagesinlightgrey boxesshowthepercentage ofconsumersinthatchannel foraspecificpurchasing phase(thelightgreyboxes addupto100%) P ercentagesincoloured boxesrepresentconversion betweendifferentpurchasing phases(percentageof customersmoving/remaining betweendifferentpurchasing phases) urchasing process in the branch continue in the branch throughout the process Example – Investments purchasing process in Germany Information seeking 83% Receiving advice 88% Product purchasing 69% Post-sales support Branch 52% 10% 64% 68% 8% 56% • Agent or broker 14 58% 14 87% 20 83% 21 Call centre – – – 3 Internet 16 28% 67% 18 48% 40% 9 84% 13 Others 181 100% 73% 42 100% 32 100% 72 100% 1 Lea ets, advertising, WoM, others 2 ATM, mobile banking, others SOURCE: Customer market research in Germany (~500 people interviewed)

ChART 4: ThEthe Internet INTERNET Is ExpECTED TO gROw IN TERMs The role of ROLE OF ThE is expected to grow in terms of OF INFORMATION sEEKINg AND RECEIvINg ADvICE information seeking and receiving advice Example – Current account purchasing process in Germany Percentage of respondents Information seeking Receiving advice Product purchasing Post-sales support Visit branch 62 67 67 62 78 72 60 81 Call or e-mail to branch Agent or broker Internet Others 11 2 18 71 2009– 2010 5 24 41 2012 7 9 152 2009– 2010 8 2 22 82 2012 2 9 92 2009– 2010 2 8 6 142 2012 10 3 17 102 2009– 2010 4 6 62 2012 3 Lea ets, advertising, WoM, others 2 ATM, mobile banking, others Note: Call centre not displayed as none of respondents selected this channel SOURCE: Customer market research in Germany (~500 people interviewed) FACE-to-FACE: A €15-20Bn MultichAnnel opportunity gErMAny 15 bRANCh ChARACTERIsTICs – gERMANy • ranchdensityinGermanyisslightlybelowtheEuropeanaverage,with453branchespermillion B inhabitants compared to 475. while the Nordic countries, the Netherlands and the UK have a much lower branch density, in countries such as France, belgium, Italy and spain density is much higher.

The branch network in germany has been reduced by 20% in the past decade. • ranchcostsinGermanyarecomparableintermsofFTEs(anaverageof~6. 5FTEs)tootherWestern B Europeancountries(~6FTEsonaverage). ThisislowerthanItaly(~7)andtheUK(8–9)buthigherthan Spain(4–5)andtheNetherlands(4-5). • ranchformat:MostmajorGermanbankshaveaclassicalbranchformatstrategywithsimilarbranch B layouts in all german regions. postbank is the only bank in germany with a diversified branch format strategy. Apartfromseveralpilotsofinnovativeconcepts,nomajorGermanb ankhasinvestedinlarge branch-formatrenewalprojectsinrecentyears. ualityofsalesandadvice:Consumerprotectionagencieshavevoicedconcernsaboutbankingadvice Q (especiallyinthewakeofthefinancialcrisis). Butstudiesshowthatonly1%ofallcustomersare dissatisfiedwithsalesadvice. Thevastmajorityaresatisfiedwiththeadvicetheyreceivethoughthis is because they have a very good and trusting relationship with their advisors rather than the banking industry overall. R • emotechannels:TheonlineaccountopeningprocessinGermanyisrathercomplicatedasnew customers have to run through a legitimating and identification process that has to be performed in branches.

Once the customer registers for the remote channel, the usage is simple and fast. security is the most important barrier constraining greater usage of direct channels. sTRATEgIC pRIORITIEs Banks need to consider the implications of adapting to the changing environment. • ddresssecurityconcernsregardingtheInternet: A Over 60% of consumers indicated that improved security could increase their usage of the Internet for product purchasing. The same holds true for improving their usage of call centres for purchasing, with over 40% of consumers indicating security as a key issue.

Even though the actual losses due to Internet fraud are relatively low, a large opportunity exists for banks to improve consumer perceptions and boost usage of the Internet for purchasing. • mprovethecustomerexperience:German I consumers indicated that personal service and trustworthiness are integral to their use of branches, while direct channels imply convenience and speed. Improved convenience, simplified processes and better pricing will drive customers to branches. Several banks in Germany (e. g. various cooperative banks) are already working on this, for example through innovation in IT, to improve branch processes. educecostsperbranchbyreducingthenumber R of employees per branch towards the target of ~4 FTEs. A modest further decline in branch density of up to 5% on average is expected. For commercial banks this could be even higher (up to 10–15%), while for regional savings banks the network size could be stable or decrease slightly. This decline could be a possibility to reduce cost and an opportunity to deploy capacity for other activities. To achieve this capacity adjustment in the coming years will require the development of an overarching plan, involving close co-operation between the different channels and the engagement of key stakeholders. **** In summary, German banks will need to optimise their branch footprint and density to cope with the reduced workload due to transactions moving out of the branch. At the same time, they should (i) focus on unlocking the potential of remote channels for simple sales by addressing customers’ security concerns, and (ii) adjust branch formats and enhance capabilities to provide sales and advice, which will increasingly be the main role of branches. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity FrAnCE

French consumers are among the highest users of multiple channels in Europe; however the majority of sales take place in the branch. If banks do not address the trust, security and online offering gaps perceived by their customers, the branch is expected to remain the dominant channel for most products and purchasing in the future. Financial incentives will drive banks to unlock the potential in remote channels as a way of structurally reducing their cost base and adapting their branch model to future needs.

CURRENT ROLE OF FACE-TO-FACE French customers display different channel usage compared to most other Western European countries surveyed, with the highest usage of branches as well as the highest number of channels per customer (see Chart 1) which results in a large number of touch points. • ranchusageis~10percentagepointshigherthan B in other countries (88% in France compared to 79% on average). As in the rest of Europe, younger generations and affluent customers visit branches less than older generations and mass market customers. TMusageisonaparwithotherEuropean A countries, however, mass market customers and younger generations use ATMs much more than affluent customers and older generations (the difference is ~25 percentage points in both cases). • nternetbankingusageisinlinewiththe I European average (~50%). As in the rest of Europe, younger generations and affluent customers use Internet banking more frequently than older generations and mass market customers. • allcentreusage(30%ofconsumers)ismuch C higher than the survey average (+13 percentage points) – which is also the case across customer segments as well as age groups. obilebankingpenetrationinFranceis13%(6 M percentage points above the survey average); it is much higher for affluent customers as well as people aged 20–35 (22% usage in both cases). In terms of multichannel behaviour, France, together with the Netherlands, has the highest average number of channels used per customer (3. 0 compared to the survey average of 2. 6). At the same time, each age group and segment uses more channels on average than the same age group/segment in the other Western European countries surveyed; for example, people aged 20–35 use 3. channels per customer on average, compared to the survey average of 2. 9. Affluent customers use on average 3. 1 channels per customer compared to the survey average of 2. 7. FUTURE ROLE OF FACE-TO-FACE Contributor to this article: Sebastien Lacroix, Associate Principal, Paris office [email protected] com In the coming years, the vast bulk of transactions will take place through remote channels, but the move to “remote” sales and advice is still in its early stages. 17

French customers are more multichannel than customers OThER wEsTERN EUROpEAN COUNTRIEs in most other Western European countries Percentage of respondents using channel1 in the last 12 months at their main bank Total sample (including France) Visit branches ATM Internet banking Call centre/ telephone banking Call/VC with branches E-mails with branches Agents/ Brokers Mobile banking Average channels used France Delta pp ChART 1: FRENCh CUsTOMERs ARE MORE MULTIChANNEL ThAN CUsTOMERs IN MOsT 79 73 48 17 16 10 10 7 2. 6 3. 0 88 70 50 30 17 12 18 13 +9 -3 +2 +13 +1 +2 +8 +6 Channel usage de ned as any kind of contact with the bank (e. g. for gathering information, receiving advice, purchasing products). More than one channel possible SOURCE: Customer market research in 6 EU countries (~3,000 people interviewed) • ransactionsareexpectedtomigrateoutside T the branch: Our customer market research illustrates that for cash withdrawals, payments and balance inquiries 40–55% of consumers are currently mostly using branches compared to 30–45% in other European countries1. Branch transaction volumes are expected to decrease due to the adoption of alternative channels.

Banks strongly believe that transactions will increasingly move out of the branch: ~90% of French banks participating in our online survey told us that in 2015, direct channels will be dominant for cash withdrawals, payments and balance enquiries, and ~65% of them believe direct channels will be the main channel also for cash deposits. • Salesandadvicearepotentiallyatatippingpoint – at least for simple products: Face-to-face is currently the dominant channel in all steps of the purchasing process for all products.

Depending on the product and the purchasing phase, 50–75% of all interactions are branch-based (see Chart 2), which is in line with other European countries surveyed. The Internet currently represents around 10–20% of sales across products. 1 This percentage might deviate slightly when comparing the total number of transactions done via different channels rather than the percentage of respondents mostly using a certain channel. Customers already buy simple products, such as savings and investments, using multiple channels (see Chart 3).

The branch, for example, remains dominant for savings customers during the purchasing process (with 50–85% of people remaining in the branch throughout the process), but other channels are used at various phases in the process. More specifically, 40–50% of Internet users move to the branch during various stages of the purchasing process. 18 In France, depending on the OF INTERACTIONs ARE ThE pURChAsINg phAsE, 50–75% product and the bRANCh-bAsED purchasing phase, 50–75% of interactions are branch-based Product purchasing process in France Percentage of respondents who used branches1 Receiving advice Product purchasing

ChARTs 2: IN FRANCE, DEpENDINg ON ThE pRODUCT AND 2012 trend Delta 5–10 pp Delta > 10 pp Post-sales support Current account 62 63 61 Savings account 71 75 62 Mortgages2 48 58 60 Consumer nance 63 66 64 1 Either visit or call/e-mail branches 2 Future trend for mortgages not available SOURCE: Customer market research in France (~500 people interviewed) According to consumers, the branch is expected to remain the dominant channel throughout the purchasing process in the future. By contrast, banks seem more confident than their customers that direct channel usage will become significant. Banks expect direct channels to become more important in the product purchasing process: ~55% of banks expect direct channels to be the dominant channel for opening savings accounts and for purchasing consumer finance products, while current accounts, investments and mortgages are expected to remain mainly branch-based (see Chart 4). – Consumers, in opposition to the banks’ view, only expect to increase their usage of alternative channels selectively and told us that branches will remain their preferred channel – also for savings accounts and consumer finance products.

Between 40–80% of people, depending on the product and the stage of the purchasing process, expect to continue using the branch, with the Internet only representing a modest share. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity FrAnCE ChARTs 3: IN FRANCE ThE pURChAsINg pROCEss FOR sAvINgs Is RELATIvELy MULTIChANNEL Example – Savings purchasing process in France Information seeking 79% 19 xx xx xx xx xx % of customers Branch path Internet path Agent/broker path Multichannel path

ExplAnAtion • ercentagesinlight P greyboxesshowthe percentageofconsumers inthatchannelfora specificpurchasingphase (thelightgreyboxesadd upto100%) • ercentagesincoloured P boxesrepresent conversionbetween differentpurchasing phases(percentage ofcustomersmoving/ remainingbetween differentpurchasing phases) Receiving advice 85% Product purchasing 55% Post-sales support Branch 64% 71% 9% 75% 10% 62% Agent or broker 10 58% 6 43% 46% 5 5 Call centre 2 7 4 11 43% Internet 13 50% 19% 10 50% 35% 12 15% 30% 17 Others 111 100% 19% 50% 2 100% 40% 42 100% 47% 52 100% 1 Lea ets, advertising, WoM, others 2 ATM, mobile banking, others SOURCE: Customer market research in 6 EU countries (~3,000 people interviewed), December 2010 In France, banks expect direct channels to be dominant for savings and consumer ? nance ChART 4: IN FRANCE, bANKs ExpECT DIRECT ChANNELs TO bE DOMINANT FOR sAvINgs AND CONsUMER FINANCE Dominant channel for product sales in 2015 Percentage of respondents Current account Savings account Investments 43 86 Branches Direct channels Other channels1

BANKS ONLINE SURVEY IN FRANCE 14 57 57 29 14 Mortgages Consumer nance 71 14 14 43 57 1 Agent/broker, call centre, others SOURCE: Efma online survey across 150+ banks in Europe. 20 bRANCh ChARACTERIsTICs – FRANCE • ranchdensityinFranceishigherthantheEuropeanaverage,with705branches(includingpostal B offices)permillioninhabitantscomparedtoaEuropeanaverageof4752(+48%). Whilecountriessuchas Spain(943),Italy(786),orBelgium(772)areevenmoredense,countriessuchasGermany(453),theUK (196)ortheNetherlands(189)aremuchlessdense. ranchcostsmeasuredintermsofFTEsperbrancharelowerthantheWesternEuropeaverage, B with~5FTEsperbranchcomparedtoaWesternEuropeaverageof~6FTEs. • ranchformat:Overall,formatsandset-uparebroadlysimilaramongleadingbanks–oftena B combination of traditional branches and various specific corporate/sME centres. In recent years, most banks have invested heavily in multichannel capabilities. In addition, some banks have set up self-service branches. • emotechannels:AtsomeFrenchbanks,consumersconsideronlinetransactionstoberelatively R cumbersome.

For example, the beneficiary account number in a transfer needs to be validated by the bank. Even though this validation happens in real time at some banks, it is time-consuming at others. Thisisespeciallythecasewhenenteringanew(notpreviouslyvalidated)beneficiaryaccountnumber, which in some cases requires banks to send validation codes by post or make use of automated customer call-backs. sTRATEgIC pRIORITIEs Banks must consider the potential financial benefits as they adapt to a changing environment.

Indeed, pressure on profitability, already hit by intense competition for market share and regulatory change, could be the catalyst to drive change. New customer preferences, after all – as transactions and some sales moving out of the branch – could leave networks with a modest overcapacity of around 3%. This implies cost reduction potential and an opportunity to deploy capacity for other activities. That would add to the need to refocus the branch as part of a true multichannel approach, and thereby transform the French distribution landscape.

Banks should consider these key actions: • mprovethebranchpropositiontowardsfuture I needs while significantly reducing costs: Banks not only need to reduce the average number of people in the branches and rationalise the footprint to optimise the cost of providing branch services (which for some banks will imply a modest decrease of the branch network, and for others will imply a slight increase). They also need to start adapting the branch format and staff capabilities to their future roles.

Banks have no doubts – some 90% believe branches will, in the future, focus on strengthening customer relationships, offering a “human touch” during customer interactions and providing advice on complex products. Sales efficiency is a key challenge for retail banks striving to protect their franchise, customer base, market shares and overall revenues. Banks will also need to think about which activities will take place within branches. This means a review of relationship management skills (much more advice and service) and a repositioning of the branch. The inclusion of postal office branches in France and Italy would bring the average to 551. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity FrAnCE • etupatruemultichannelapproach:French S consumers use many different channels, but very few banks have been able to create a real end-toend multichannel journey for their customers – with common pitfalls being elements such as: – Silos/fragmented units with no integrated view on customer experience; – Uncoordinated processes resulting in “pain points” in customer cross-channel experiences (e. . promotions not consistent across channels); – Performance management which is not aligned with channel migration objectives; • nlockthepotentialofremotechannels,in U particular for sales, by addressing the security and trust issues perceived by clients: Banks will need to invest in changing customers’ misperceptions about direct channel security. From our market research, 58% of customers told us that improvement to the security of the Internet channel is the key driver that could increase their usage of online banking. **** In summary, the high pressure on banks to increase profitability means France could move in the direction of higher penetration of remote channels in the near future, for transactions and potentially also for simple sales. To move in this direction, banks will need to (i) address customers’ security concerns and enhance online features and processes, and (ii) rethink the branch format to completely integrate the branch in a multichannel customer experience that increases sales effectiveness. 21 FACE-to-FACE: A €15-20Bn MultichAnnel opportunity uK

UK consumers are still largely branch-based. Although transactions are expected increasingly to move out of the branch, branches are likely to remain the dominant channel for most products and purchasing phases in the future. Improving the efficiency and effectiveness of this face-to-face channel requires improving the perception of Internet security, unlocking the potential of remote channels, and improving the levels of customer experience. CURRENT ROLE OF FACE-TO-FACE UK consumers are still very branch-based and lag behind other European countries in terms of multichannel usage. ranchusageintheUKisslightlyhigherthan B the survey average at 82% compared to a survey average of 79%. There are no significant differences between age groups, though mass market customer branch usage is slightly higher than for affluent customers (see Chart 1). • TMusageislowerthanthesurveyaverage(68% A compared to 73%). As in other countries surveyed, mass market customers use ATMs more than affluent customers, and the 20–35 age group are much heavier users than older generations (83% compared to 60–65%). • nternetbankingusageintheUKislowerthan I the survey average (35–45%1 compared to a 48% survey average).

Affluent customers and younger customers use Internet banking more than mass market/older customers. More specifically, there is a gap of up to 25 percentage points between Internet banking use among the 20–35 age group and people aged 55 and over. • allcentreuseintheUKishigherthanthe C survey average (23% compared to 17%) with little difference between mass market and affluent customers. This channel, though, is used more frequently by younger than older generations. • obilebankinguseintheUKislowerthanthe M survey average (4% compared to 7%) and is higher for people aged 20–35 (11%) than people aged 55+ (0–3%).

In terms of multichannel behaviour, consumers on average use 2. 3 channels, compared to a survey average of 2. 6. Only Italians use fewer channels (2. 0). Although mass market and affluent customers use the same number of channels, younger generations use more channels than older generations: 2. 8 compared to 2. 0–2. 2 – roughly the same as the survey average. Contributors to this article: Hugh Harper, Principal, London office [email protected] com Marc Lien, Associate Principal, London office [email protected] com 1 Estimated based on customer market research and national statistics 3 Percentage of respondents using channel1 in the last 12 months at their main bank Total sample (including UK) Visit branches ATM Internet banking Call centre/ telephone banking Call/VC with branches E-mails with branches Agents/ Brokers Mobile banking Average channels used UK ChART 1: bRANCh Branch and callAND CALL CENTRE UsAgE IN ThE UK ARE hIghER ThAN centre usage in the UK are higher than the ThE EUROpEAN AvERAgE whILE UsAgE OF INTERNET bANKINg Is LOwER European average while usage of Internet banking is considerably lower Delta pp 79 73 48 17 16 10 10 7 2. 6 35–452 82 68 3 -5 -13/-3 +6 -7 -4 -3 -3 23 9 6 6 4 2. 3 1 Channel usage de ned as any kind of contact with the bank (e. g. for gathering information, receiving advice, purchasing products). More than one channel possible 2 Estimated based on customer market research and national statistics SOURCE: Customer market research in 6 EU countries (~3,000 people interviewed) FUTURE ROLE OF FACE-TO-FACE While customers tend to prefer remote channels for transactions, sales are still dominated by the branch. Furthermore, branches are likely to remain the dominant channel for most products and purchasing phases in the future. ransactionsaremostlyconductedthrough T remote channels: For cash withdrawals and balance enquiries, UK consumers already mostly use direct channels, but for cash deposits and payments they prefer the branch. In fact for cash deposits, consumers in the UK use the branch more than they do in any of the other European countries surveyed (80–90%, compared to around 70% in other countries2). This can be explained partly by a lower penetration of ATMs that accept cash deposits in the UK than in other countries. Banks do expect transactions increasingly to move to alternative channels. Salesprocessesisstilllargelybranch-based: The branch is expected to remain the dominant channel across most products and purchasing phases in the future: 2 This percentage might deviate slightly when comparing the total number of transactions done via different channels rather than the percentage of respondents mostly using a certain channel. – Depending on the product and the purchasing phase, 50–70% of interactions during the purchase process are branch-based (see Chart 2), which is in line with other European countries surveyed.

Around 60–70% of sales are made through the branch, while the Internet is an important channel for certain products (20–25% of sales), most notably savings accounts. Brokers are the key channel for mortgages (more than 60% of sales). – The majority of clients use only one channel and 60–90% stick with the branch at all stages of the purchasing process (see Chart 3). This is comparable to France and higher than the Netherlands or Spain but lower than Germany or Italy (where 95–100% of customers stick to the same channel). – The Internet and call centres act as lead generators (20–40%) for branch sales.

UK consumers frequently change between channels when choosing current accounts and investments, unlike the single-channel approach they tend to adopt for savings. Branches are expected to remain the dominant channel for most products and purchasing stages (50–70% of people are expected to 24 continue using the branch throughout the purchasing process). For sales and advice, the role of the branch is expected to be stable or even grow (e. g. for current accounts). The Internet is expected to become more important for those seeking information, but its role will be relatively stable at other stages of the purchasing process.

ChART 2: IN ThE UK, 50–70% OF INTERACTIONs DURINg ThE process are branch-based pURChAsINg pROCEss ARE bRANCh-bAsED Product purchasing process in the UK Percentage of respondents who used branches1 In the UK, 50–70% of interactions during the purchasing Receiving advice Product purchasing Post-sales support Current account 63 68 72 Savings account 64 67 53 Investments 71 63 55 Consumer nance 60 58 51 1 Either visit or call/e-mail branches SOURCE: Customer market research in the UK (~500 people interviewed) bRANCh ChARACTERIsTICs – UK • ranchdensityintheUKisthesecondlowestinEurope.

Thereare196branchespermillioninhabitants B comparedtotheEuropeanaverageof475. OnlytheNetherlandshasalowerbranchdensity(189per millioninhabitants). TheUK’sbranchnetworkhasshrunkby~15%inthepastdecade,andby~35% over the past 15 years. • ranchcostsintheUKintermsofFTEsperbrancharerelativelyhigh. Onaveragetherearemore B employeesperbranchthaninothercountries(e. g. 8–9FTEscomparedto4–5FTEsinSpainand6–7 FTEsinGermany). • ranchformat:Eventhoughmostbranchesstillhavetraditionalformats,somebankshavestarted B to experiment with alternative formats.

Examples include new branch formats with high automation, totally open cashier counters with no glass screens and curved queues in the waiting area. • emotechannels:Allthehighstreetbanksofferbankingthroughremotechannelssuchasthe R Internet, mobile and telephone. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity uK ChART 3: INThEUK,60–90%OFCUSTOMERSREMAININ In the UK, 60–90% of customers starting the ThE bRANCh IN vARIOUs phAsEs OF ThE pROCEss xx % of customers xx xx xx xx Branch path Internet path Agent/broker path Multichannel path 25

ExplAnAtion • ercentagesinlight P greyboxesshowthe percentageofconsumers inthatchannelfora specificpurchasingphase (thelightgreyboxesadd upto100%) • ercentagesincoloured P boxesrepresent conversionbetween differentpurchasing phases(percentage ofcustomersmoving/ remainingbetween differentpurchasing phases) process in the branch continue to use the branch throughout the entire process Information seeking 84% Example – Savings accounts purchasing process in the UK Receiving advice 91% Product purchasing 60% Post-sales support Branch 62% 64% 67% 16% 3% Agent or broker 3 4 3 1 Call centre 6 5 3 10 Internet 23 18% 64% 24 12% 83% 25 12% 55% 17 Others 71 100% 22% 66% 32 100% 22 100% 192 100% 1 Lea ets, advertising, WoM, others 2 ATM, mobile banking, others SOURCE: Customer market research in the UK (~500 people interviewed) sTRATEgIC pRIORITIEs What are the implications for UK banks in the changing environment? • mprovethecustomerexperiencetoaccelerate I the transformation: Simpler processes and greater convenience will mainly drive improved branch use, according to consumers. Some banks (e. g.

Metro Bank) are already pushing hard for a satisfying customer experience, for example by opening from 8 a. m. to 8 p. m. , Monday to Friday, and being open on Saturdays and Sundays. To underline its customer orientation, Metro Bank calls its branches “stores”. • mprovetheperceptionofsecurity:Halfof I consumers indicated that improving security represents the main driver for boosting their use of Internet banking. Even though actual losses due to Internet fraud are relatively low, there seems to be a big opportunity for banks to improve consumers’ perceptions of the safety of online banking.

Addressing these concerns would result in a meaningful increase in purchasing via the Internet. • evelopaplanhowtocapturethevaluecreation: D Banks will need to modify the role and cost of branches as transactions increasingly move elsewhere (driven by both changing customer preferences as well as cost-reduction efforts), reducing overall workload. With on average 8–9 FTEs per branch, significant cost reduction potential exists. Realising this will require an integrated plan aimed at making timely investments in developing new branch formats and optimising staff capabilities to match their new roles. **** Remote channels could be used more widely in the UK, despite the current dominance of branches, particularly for transactions such as payments and cash deposits. Even so, branches will likely remain the key channel for sales and advice. To enhance customers’ experiences in the branch – especially considering the low branch density – banks will need to unlock the potential of remote channels and adapt branch formats and capabilities to ensure an adequate service level to customers. FACE-to-FACE: A €15-20Bn MultichAnnel opportunity itAly

Consumers in Italy, who use branches more than their counterparts in any other large Western European country, may adopt alternative direct channels quite selectively in the future. While branches will most likely remain a fundamental part of the purchasing process, banks should act to unlock remote channels by simplifying their processes and upgrading their product offerings. This should both improve customer experience and boost sales effectiveness. CURRENT ROLE OF FACE-TO-FACE Italy is a branch-based market in which the adoption of alternative channels and the multichannel approach is low. ranchusageoverall(82%)isslightlyhigherthan B the survey average of 79% (see Chart 1). As in the rest of Europe, the younger generations and affluent customers visit branches less frequently than the older generations and mass market customers. The 10-percentage-point difference in branch usage between mass market and affluent customers is bigger than in the other European countries, and compares with a 4-percentagepoint difference for the survey as a whole. • TMusageismuchlowerthanthesurvey A average. In Italy, only 54% of consumers used an ATM in the past year compared to 73% for the survey as a whole.

The experience of mass market and affluent customers is similar, but older generations use ATMs less than younger people (42% for people aged 55+ compared to 60–65% for people aged 20–35 or 36–55). • nternetbankingusageinItalyismuchlowerthan I in Europe in general (28% compared to 48% for the survey as a whole). As elsewhere, the younger generation and affluent customers use Internet banking more frequently than older people and mass market customers. For example, 37% of people aged 20–35 and 38% of affluent customers use Internet banking.

At the same time, however, all age groups and segments use the Internet less than the same group/segment in the other countries surveyed. • allcentresarehardlyusedatall,withonly3% C of Italians having phoned a call centre in the past year. This is 15–20-percentage-points lower than the European average. • obilebankinginItalyreaches4%ofconsumers, M slightly below the survey average (7%). Younger as well as affluent people use mobile banking more than older generations and mass market customers. Contributors to this article: Vito Giudici, Director, Milan office [email protected] om Sara Gallizioli, Manager, Milan office [email protected] com 27 Branch usage in ItalyOF DIRECT ChANNELs Is sIgNIFICANTLy LOwER is slightly higher than the European AvERAgE, whILE UsAgE average, while usage of direct channels is signi? cantly lower Percentage of respondents using channel1 in the last 12 months at their main bank Total sample (including Italy) Visit branches ATM Internet banking Call centre/ telephone banking Call/VC with branches E-mails with branches Agents/ Brokers Mobile banking Average channels used Italy Delta pp

ChART 1: bRANCh UsAgE IN ITALy Is sLIghTLy hIghER ThAN ThE EUROpEAN ExplAnAtion • ercentagesinlight P greyboxesshowthe percentageofconsumers inthatchannelfora specificpurchasingphase (thelightgreyboxesadd upto100%) • ercentagesincoloured P boxesrepresent conversionbetween differentpurchasing phases(percentage ofcustomersmoving/ remainingbetween differentpurchasing phases) 79 73 48 17 16 10 10 7 6 7 4 3 16 28 54 82 +3 -19 -20 -14 ~ -4 -3 -3 2. 6 2. 0 1 Channel usage de ned as any kind of contact with the bank (e. g. for gathering information, receiving advice, purchasing products).

More than one channel possible SOURCE: Customer market research in 6 EU countries (~3,000 people interviewed) In Italy, IN ITALy, ANyThINg FROM of interactions ChART 2: anything from 70–95% 70–95% OF INTERACTIONs DURINgare branch-based during the process ThE pROCEss ARE bRANC

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