Banking Business and Operating Models – then and now

A recent poll by American Banker Magazine on impressions on the future of banking generated some interesting perspectives on what this future would be like and what it would entail. While there were several insights, one comment especially captured the essence of this future:

The future model of banking will center around dramatically increased simplicity delivered through a mobile device (phone, tablet, wearable technology). The result will be an experience that makes banking part of other daily activities as opposed to a standalone event.

Financial photo 2

In other words, the business signs on our banks will now read “Open 24 Hours.”

How different this is, when compared to the operational model on which banks have operated for most of the time.

Historically banks, like most organizations (retail for example) that have their roots in a pre-Internet/electronic communications era, have been designed around a ‘bricks and mortar’ physical model of operations and distribution. That is, in order to connect and interact with clients, there had to be a physical place at which the resources and capabilities needed to deliver services were housed. Customers would come to these places when they needed services. In this case, bank branches.

This consolidation and concentration of resources and capabilities was necessary for several reasons but especially because of the limitations and constraints related to the scarcity of expertise, cost and physical dimensions of the technology, volume of records and security and protection, to name a few.

Looking back, we can categorize this as the physical business operating model.

Now let’s take a step back for a minute and consider why it has taken so long for the banking industry in Canada to evolve from this model. When the physical operating model was established:

- Business was conducted during fixed hours which meshed with societal norms of a fixed pattern of activity over a 24-hour period.

- The technology of the day was paper, and paper-processing machines and related tools were the key technologies. Interaction was in-person and in the branch.

- The main item of inventory was cash and currency of physical form – paper, coins etc.

- The regulations and policies that govern financial services organizations and operations were designed to within this context.

In this physical world, management faced a number of logistical challenges. Branches had to be substantial in size and staffed based on a supply level sufficient to meet an unknown and uneven demand of customers throughout the day. Since people had to go home at the end of a work day, time-of-day procedures were put in place such as cash balancing and end-of-day close down procedures.

In order to grow, and also in response to growth in population and expansion of cities and towns, banks had to build new branches (points-of-presence) in new communities. In Canada the population has become increasingly diverse, with many newcomers fluent in languages other than English. This factor compounded staffing challenge as branches needed to provide services in multiple languages, based on branch location. In this physical model, costs to serve increase with demand and channel diversity, productivity levels are uneven and key resources under-leveraged across the operating footprint.

Customers also faced a number of logistical challenges to access services and experts. They lined up to be served. They waited for experts. If the expert that they needed was not available that day, they would have to return at a later time. In this physical model, customers directly experience the fragmented structure of the organization and are subjected to the frustrations resulting from it.

Fast forward.

The world and customer expectations have changed significantly with the arrival of the Internet and innovations in Information & Communications Technology. Competition in the financial sector is increasing, resulting in more choice. Banking is global and high speed.

In addition to the Branch Channel (Customer Access & Interaction point-of-presence), we now have Mobile, Internet, ATM and Call Centres – alternate channels through which customer access and interact with their bank.

However even with these technology advances some of the challenges and constraints of the previous operating environment continue. We have moved from the physical to the digital world, but the operating models of many banks are still rooted in the physical world.

The question now becomes: how does the banking industry evolve the distribution and operating model to catch up with society? How do we provide the services that will keep customers loyal? How do we optimize our costs to serve and continue to expand our operating footprint? And what role does technology play in that evolution?

And if you doubt the importance of digital services, consider this. One recent survey revealed that approximately half of Canadians would switch banks to receive more personalized experiences such as seamless cross-channel interactions.

This blog and ones that will follow will explore the branch, distribution and operating model transformation opportunities now possible through current and emerging technologies. In addition I will discuss the underlying factors shaping changing customer expectations and what banks need to change, and the areas with the highest potential impact.

About Geoffrey King

Geoff is the Lead for Cisco’s Business Transformation solutions for the Financial Services Industry in Canada. Geoff works with Business leaders in Retail Banking, Wealth Management and Insurance to develop initiatives that leverage Cisco’s expertise, products, services and partners to improve operating economics, deliver distinctive client experience, and drive service delivery model innovation. Geoff draws on a broad base of international leadership, business transformation and mergers and acquisition experience in large private sector organizations and private-public sector partnerships in Canada, the US, and Emerging markets. Prior to joining Cisco Canada, Geoff worked with the Toronto Financial Services Alliance, a strategic partnership composed of the major Financial Services organizations, three levels of Government, and Educational Institutions, focused on building the international reputation of the Toronto region as a vibrant and strong Top 10 Global Financial Centre. Prior to his return to Canada in 2009, Geoff was based in Barbados, where he was a member of the senior leadership team building and expanding CIBC’s Caribbean multi-line franchise, CIBC FirstCaribbean International Bank with operations across 17 countries, and in Houston Texas with Williams Communications Solutions, leading the integration of several acquisitions. M. King est le chef des solutions de transformation des activités pour le secteur des services financiers de Cisco Canada. Dans le cadre de son travail, M. King collabore avec des dirigeants d'entreprise des domaines des services bancaires au détail, des services de gestion de patrimoine et des assurances pour élaborer des initiatives qui tirent profit de l'expertise, des produits, des services et des partenaires de Cisco pour accroître la rentabilité des activités d'exploitation, offrir une expérience utilisateur distincte et favoriser l'innovation en matière de modèle de prestation de services. M. King s'appuie sur une vaste expérience de leadership international, de transformation des activités et de fusions et d'acquisitions, laquelle a été acquise au sein de grandes sociétés du secteur privé et de partenariats publics-privés au Canada, aux États-Unis et dans des marchés émergents. Avant d'entrer au service de Cisco Canada, M. King a travaillé au sein de la Toronto Financial Services Alliance – partenariat stratégique composé de grandes entreprises de services financiers, de trois paliers de gouvernement et d'établissements d'enseignement – centrée sur l'accroissement du rayonnement international de la région de Toronto à titre de centre financier fort et vibrant figurant parmi les 10 plus importants centres financiers au monde. Avant de revenir au Canada en 2009, M. King travaillait à la Barbade au sein de l'équipe de cadres supérieurs chargée de bâtir et de faire croître la CIBC FirstCaribbean International Bank, franchise multigamme de la CIBC aux Caraïbes, qui exploite des bureaux dans 17 pays. Il a aussi travaillé pour Williams Communications Solutions à Houston Texas, où il a dirigé l'intégration de plusieurs acquisitions.
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One Response to Banking Business and Operating Models – then and now

  1. Pingback: Open 24 Hours: Bringing the full Capabilities of the Bank Branch to Digital channels | Cisco Canada Blog

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