The Branch Lives, But The Future Is Digital
Over the past 4 weeks we have visited 4 countries across Europe, the latest being Italy. We were
enchanted, frustrated and sometimes bemused by what we found.
The world’s most advanced country 2,000 years ago, Medieval Italy is also recognised as the
source of modern day banking and finance, subsequently exported by its rapacious merchants and
clergy. Monte dei Paschi di Siena, founded in 1472, is the oldest bank in existence, but only just – in
the EBA’s recent Asset Quality Review Monte Paschi was the worst performer in the stress test with
a potential capital shortfall of EUR 2.1bn. A rights issue of EUR 3bn was subsequently made.
This was largely expected, after all many banks have ignored the inevitable need to recapitalise,
what really struck us was the sheer number of banks and branches – a recent The Economist article estimated Italy to have 680 banks and 54 bank branches per 100,000 people, compared to the European Union average of 39. Admittedly many of the branches we saw were full, of frustrated clients clutching papers as they waited in interminable queues!
Does This Matter?
For shareholders of Monte Paschi the value of their investment has fallen 50% since the stress test. Nor was this fall unique, Bank stocks across Europe were affected by fears of systemic weakness and contagion.
For Bank clients, including itinerate travellers such as us, it means that valuable time is wasted in queues and higher transaction costs incurred due to a reliance on the branch channel.
For Bank management it is a salient lesson, technology and regulation are changing the industry fast and those who do not embrace that will be valued lower. History counts for little in today’s world of discontinuous change!
The Future Is Digital
The branch has its place, not everyone has the means or willingness to conduct their
financial affairs online.
However the power of Digital banking cannot be ignored.
Recent research from Deloitte suggests that over a 5yr period US transaction volumes
exploded in Online and Mobile channels, growing from zero to 4x the size of the Branch,
where volumes have remained stable.
The Future Is Here Today
What has driven this Digital transformation? Quite simply it is a Win:Win for both parties.
Clients receive quality service 24/7/365, improved interaction makes it easier to understand and buy, cost benefits from Digital can be shared.
Banks grow their bottom line from higher sales and process efficiency, standardisation improves corporate governance, Digital allows the fast launch of new products and improves agility as conditions change. Seen another way, Digital provides 61,320 sales hours in a year (24*7*365) while branches just 10,120 hours (8*5*253) at a lower cost of sale!
As the next generation on financial technology turns raw data into business intelligence and predictive analytics make it easier to provide personalised offerings so Digital will further benefit Client and Bank alike. There is no going back, indeed innovation in currencies, payments and card technology will make it easier for travellers like us too.