Branch-Banking in the US: There’s an App for That
This note argues that the traditional role of branches, to provide secure transaction processing, will be taken over by apps not so much because banks are looking to reduce teller-costs but because the digital engagement of customers (whether in-branch, on-line, or through mobile) provides the opportunity for banks to capture data and build a digital profile. This, in turn (and subject to permissions and privacy laws), is the basis for understanding customer preferences and hence designing real-time marketing campaigns around targeted and personalized ads and e-offers.
- Over 10% of households already use remote deposit capture (RDC) apps to deposit checks instead of visiting a branch, and cash withdrawals (the other main reason consumers visit) will likely decline as digital wallets including P2P capability gain adoption.
Like most retailers, banks have been disadvantaged as Google and other online players have tracked the internet activity of customers to build digital profiles. Mobile (see Exhibit) radically changes the competitive landscape for profiling because customers will interact digitally with an increasingly “smart” physical environment (web-connected through wireless technologies such as RFID, NFC, and Bluetooth) controlled by retailers and banks, not online players. In mobile, Google does not have home-field advantage over retailers and banks for digital engagement.
- Proprietary Data: Retailers and banks may partner with online players to build out a profile of their customers but the mobile-enabled digital interaction of customers with a smart and private physical infrastructure, including stores and branches, generates proprietary data.
- Changed Role of Branches: In a world where consumers choose their bank based on the proximity of a branch to home or office, the role of branches is to provide the convenience of a physical network. In a world where consumers choose their bank based on its understanding of their preferences, the role of branches (assuming customer activity is digitized through in-branch apps rather than handled manually) is to provide the proprietary core of a bank’s digital network.
The challenge for retailers, including banks, is to make sure that they, and not competitors (and particularly not online players such as GOOG and AMZN), capture, control, and protect the digital impressions made by customers through mobile interaction with a smart physical environment. This is the root of the app wars generally and digital wallet wars in particular (so that, for example, the success of MCX is a strategic imperative for participating merchants such as WMT and TGT). In promoting adoption of their mobile wallets over competition, the killer apps for banks will be personal financial management (PFM) and person-to-person (P2P) payments (where customers send money based on a recipient’s e-mail or mobile number).