The future of the branch in the digital era: An Angolan perspective
Will digital banking make the traditional bank branch obsolete? Probably not. But it is already clear that branches –as we know them today – will undergo massive change over the coming years. Indeed, we believe that the branch’s continued viability as a banking distribution strategy will require significant changes to the size and nature of the channel, making them smaller, more cost-efficient and oriented towards product sales and financial advice.
In large part, the evolving character of the bank branch is being driven by changing customer expectations. The reality is that bank customers are already enjoying customized multichannel customer experiences through online shopping on their mobile phones and increasingly expect their banks to be able to offer the same quality of experience. Simply put, banks are no longer being compared to their peers, but rather to the ‘best’ shopping experience the customer has had in their lifetime.
The problem is that banks are struggling to anticipate customer demand and take the right steps to integrate the ‘digital’ experience with the ‘physical’ experience. And this has allowed technology startups, retailers and telecommunications companies to essentially invade the banking market. Banks are being forced to move quickly in order to defend their dominant position.
This process is already well underway in international markets and – given the speed at which disruption is occurring – it’s expected that the impact on Africa’s banks is imminent. And there are increasing signs that Africa’s banks are beginning to act to structurally integrate the physical and digital experience.
Our data illustrates the change underway. In Angola, for example, the branch continues to be the dominant channel but there are important changes happening in the mix of activities. The number of customers who said they prefer the branch for their ‘transactional’ activities – such as withdrawals, transfers and payments – decreased while the number who prefer it for financial advice increased.
Combined with the fact that Angolan banking customers report an increase in the use of nonbranch channels (such as call centers and mobile banking), our data suggests that Angolan banks are facing many of the same trends as their regional and international counterparts. Given that banking customers in South Africa and Kenya report mobile banking usage rates comparable to Angola’s branch usage rates, it seems Angola is now moving through an evolution in behavioral patterns.
Against a backdrop of decreasing profitability and disappointing performance within their commercial networks, a growing number of Africa’s banks are starting to reflect on the future role of the traditional bank branch. However, before adopting some of the structural measures already underway in international markets (such as eliminating and realigning branches by migrating activities to digital channels), we believe that Angolan banks must first start by creating a solid foundation upon which to position the branch of the future.
We believe Africa’s banks should now be focused on three key areas to ensure their branch network remains relevant, efficient and cost effective in the future.
Realigning their branch locations and format to reflect customer preferences
- Optimize branch network capacity against customer preferences and behaviors (particularly in key regions and micro-markets); ensure that capacity aligns to demand.
- Redefine the branch network by reevaluating and reassessing the optimal mix of functions and services to be located in the branch; consider specific network segments (such as Corporate or Affluent) and potential functionality options (such as auto-stop or full service).
Strengthening branch commercial activity
- Develop a clear understanding of branch operations, identifying transactional and administrative activities in order to develop strategies for ‘migrating’ these activities from branches to alternative channels or centralized services; retask the freed-up resources to sales.
- Automate as many of the branch processes as possible with a focus on enhancing business efficiency by improving the interaction and reducing the sales cycle within the branch.
- Integrate the analytical activities of marketing with the relationship experience of the commercial network to enhance the quality of leads available to the branches.
- Strengthen branch management and performance through the adoption of management and performance measurement tools.
Preparing the foundation for digital conversion
- Create simple and targeted products for digital channels that encourage migration of segments of control.
- Monitor and correct the leakage of commercial presales interactions, sales and service opportunities with a view to improving future commercial migration.
Our experience suggests that the integration of ‘physical’ and ‘digital’ bank experience is inevitable. Some Angolan banks have already begun the journey of transforming their commercial networks, not only to reposition their services within the future distribution strategy, but also as a way to strengthen the profitably of their institution.
For more information:
KPMG in Angola