How are banks dealing with the coexistence of physical and digital channels? McKinsey Financial Services analysts Sergey Khon, David Tan, Zubin Taraporevala and Ahmed Nizam answer this question in the report “Best of both worlds: Balancing digital and physical channels”, dedicated to analysing the impact on sales caused by the emergence of digital channels in retail banking.
The pandemic caused by COVID-19 accelerated the process of bank branch closures that was already starting a few years ago. As McKinsey Financial Services analysts state, “in developed markets, banks closed 9% of their branches in 2021, the largest reduction in five years, as they re-evaluated existing approaches to sales and service”. This reduction was intended to respond to a change in customer behaviour, as clients seemed less interested in going to bank branches and much more interested in interacting with their bank through digital channels. But is this change in model really improving the sale of banking products and services, as well as the customer experience?
4% increase in digital sales, says McKinsey Financial Services
Over the past year, “more than 40 percent of core retail banking sales originated digitally”, a new high for the sector. Despite this, the report reveals an overall drop in retail banking product sales of 10%, although “digital sales increased 4 percent—not enough to compensate for a 15 percent decline in the still-larger branch channel when facilities became inaccessible during lockdowns”.
This trend has not been the same for all financial institutions. “The growth leaders in developed markets increased total sales 10 percent by generating 40 percent growth in the digital channel while holding branch sales declines to single digits. By contrast, growth laggards endured sales declines in both branch and digital, despite having experienced healthy growth of digital in previous periods”, specify McKinsey Financial Services analysts.
Disconnect between banks and their customers
Given this current situation of declining sales, it seems logical to think that the disconnect between bank and customer has persisted, and that financial institutions are not responding to customers’ demand for a greater emotional connection with their bank.
Customers are demanding a qualitative leap in their transactions, regardless of the channel they choose to communicate with their bank, according to the Capgemini Research Institute’s recent “World Retail Banking Report 2022”. The financial sector faces the challenge of balancing physical and digital management models to meet customer expectations. For Oriol Ros, Director of Corporate Development at Latinia, “banks that manage to go beyond the limits of the banking business with the aim of responding to the expectations of their customers 24 hours a day, betting on a multichannel and proactive strategy, will have better chances of successfully tackling their digital transformation process, improving their sales and customer satisfaction rates”.
McKinsey Financial Services analysts also point in this direction: “Banks that had already established momentum by building a top-flight digital consumer experience extended their lead in 2021.” Financial institutions are lagging behind in this race are advised to invest resources in the following key areas: “A full suite of digital-marketing capabilities to drive traffic, funnel optimization to improve conversion and data and advanced analytics to power personalization.”
In short, to increase sales, it is necessary to adapt to the change in trend caused by the pandemic: “Banks’ pre-COVID-19 digital investments primarily targeted customers predisposed to adopt such solutions. The focus must now shift to streamlining the sales journeys of mainstream consumers and generating new prospect traffic”, concludes the McKinsey Financial Services report.