Retail Lessons to Learn In Financial Services Channel Management

05 December 2001

New Report On Channel Management Says Financial Services Companies Need To Learn Lessons From Other Retailers Financial services companies need to learn lessons about distribution techniques from other retail sectors, says a new report on Channel Management. Though most financial services companies, banks in particular, have added many new physical and virtual distribution channels in recent years they tend to be unaware of the innovations taking place in retailing generally.

Banks have talked about the need to be like retailers for many years but now the pressure is on to act like them or be driven out of business by rising costs, poor service and inefficient selling. This new report highlights the growing importance of managing distribution in all financial service companies and demonstrates how banks can learn from best practice in other retailers around the world.

Distribution accounts for between 60-80 per cent of the cost base for most banks and so it is not surprising that channel planning has risen to become their top strategic priority. But banks have been slow to understand that they must reinvent their retail proposition. Examples from other retail sectors show how an industry can reinvent itself. The cinema industry, for example, faced demise in the1980s with falling audiences and the growth of home entertainment. But by 2000 the cinema business had a new business model with multiplex facilities and adjacent leisure facilities.

Similarly, the petrol forecourt sector has realised that it has a valuable piece of real estate with tremendous throughput of customers. So, despite falling margins and a decline in the number of sites - a scenario familiar to the banking sector - the petrol companies responding by inviting in other retailers like supermarkets, fast-food outlets and ATM operator's to share their space.

Supermarkets have also realised that they need to make flexible use of their retail space. Sainsbury's, for example, has introduced the concept of the "C" store and varies its selling proposition during the day so that it may be newspapers, confectionery and tobacco displayed prominently in the early morning, changing to "top-up" shopping later in the day and "grab-and-go" meals in the evening.

Banks can learn from this experience say the authors of the report, Professor Martin Clarke, managing director of GMAP Consulting, and John Kirkbright, chief executive of K-Strat International. So far we have seen a certain amount of innovation amongst the slow-to-change banks. Abbey National has, in some branches, brought in Costa coffee shops to brighten its retail proposition. But there is much further to go and the report urges banks and other retail financial service providers to develop alliances with other retailers and give the whole process of buying financial products and services a new modern image.

Purchasers of financial services are now using a whole range of channels - the most popular for current account holders are cash machines, which are used by between 66% of customers, according to GMAP figures. But channel usage varies enormously according to area and customer type. Meanwhile, banks have had only limited success around the world in migrating customers to the use of less expensive channels. Scandinavian Banks have been amongst the most successful in migrating customers to use the Internet. Meritanordbanken, for example, has managed to migrate over 50% of its customers to using the Internet for transactions. SEB Bank in Sweden has succeeded in getting 35% of customers' bills paid via the Internet.

In the UK channel migration has been less successful. GMAP figures show that only 7% of current account holders are transacting via the Internet and just 2% are contacting or dealing with their bank through interactive TV.

The introduction of Internet and other new channels has brought about the need for banks to make branches more interesting and exciting places to visit. It is also increasingly important to link the channels together and offer an integrated service - many banks are really struggling with this. The report highlights who is making most progress and gives a practical framework for companies to follow in managing this complex area.

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