Reinventing the bank branch for the digital age

February 25, 2020 15:10
While developing new virtual banking services is essential to attracting a younger customer base, banks should also focus on updating their existing operations to cater for those with different needs. Photo: Bloomberg

2019 was a watershed year for Hong Kong’s banking sector, with the Hong Kong Monetary Authority ushering in a new era of virtual banking by granting eight virtual banking licenses. Since then, there has been a huge amount of fanfare around how the newly minted virtual banks will transform the banking industry in Hong Kong, which for a long time has been criticized for being too slow to adapt to the digital revolution.

In response, incumbent banks in Hong Kong have been investing heavily in new technologies and refocusing towards virtual offerings in an attempt to fend off attack from the new virtual banks and target the more digitally savvy millennial population.

However, other age groups – often more tech averse – still make up a significant proportion of the population in Hong Kong. They prefer to visit a branch for their banking needs, such as applying for loans or making payments. As a result, by focusing too much of their efforts on developing virtual offerings, banks are at risk of undeserving this important demographic, and even turning the banked into the unbanked.

While developing new virtual banking services will be essential to attracting a younger customer base, banks should also focus their efforts on updating their existing operations to cater for those with different needs. Not only will this help the older population benefit from the service enhancements new technologies can bring, and enable them to become comfortable with virtual banking, it will also avoid a situation where they’re shut off from essential banking services in the future.

Banks can do this in a number of ways, but it all starts with the branch.

Reinventing the bank branch for the digital age

Compared to the UK, which has cut its branch network significantly from 11,355 in 2012 to 8,525 in 2019, the bank branch continues to remain the focal point of the banking landscape in Hong Kong, with around 1,300 branches serving a population of 7 million.

In-order to reshape these branches for the digital age, banks must focus on personalization. Simple things, such as redesigning the physical layout of the branch to create an open and bright space with comfortable waiting areas, will help customers feel at home and allow advisors to establish a personal relationship with them.

For branches with high footfall, self-service devices will be essential in enhancing the customer experience. Such devices have already proved popular in the retail and airline industries, by allowing consumers to avoid long queues and pay for goods or check-in quickly on their own. There’s benefit to the banks too – in helping reduce transaction costs and freeing up staff time to focus on providing higher value services. Self-service devices can also run on existing networks, avoiding the need for expensive infrastructure upgrades.

Turning ATMs into ITMs

Not only should banks focus their efforts on updating their branches for the digital age, they should also ensure their ATM networks are fit for purpose. This is especially the case in Hong Kong where ATMs remain king, and so have a vital role to play in making sure the older population remains banked. They can do this by turning ATMs into ITMs – interactive teller machines.

ITMs are relatively new inventions and are fast becoming one of the most transformative devices in the retail banking industry. Essentially virtual branches, they can be placed in a variety of locations, including malls, office lobbies and department stores. They provide a wide range of banking services, from account transfers, loan payments to credit card applications.

ITMs have already taken off in countries such as South Korea, where customers can now gain access to essential banking services 24 hours a day, seven days a week.

Bridging the divide

There is no doubt that the new virtual banks will be a game-changer for Hong Kong, providing new and dynamic services, and providing some much needed competition for the incumbents. But in the excitement about this digital future, the industry must not forget about that part of their customer base who may not want, or be able, to switch everything online. Banks must maintain a fine balance between developing new, virtual banking offerings and updating their current bricks and mortar operations. Failure to do so may mean the banked become unbanked – and the much heralded digital revolution failing in its aims.

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Head of Banking Solutions, FIS