February 2014

Business Banking and the Branch:
Seeking Re-Invention
Since the advent of major technology change in banking in the 1990s, there have been several changes in thinking about the effectiveness of the branch channel, particularly for business customers.

The debate has ebbed and flowed as major banks first cut branches, and then brought some of them back. More recently, there’s been a line of thinking that business customers want to use branches again, and will use them to access product specialists speaking to them over video conferencing from a head office, or central location.

To understand the attitude of businesses towards the branch channel, East & Partners has just run some research through its Business Banking Index program, which interviews just under 1000 businesses of all sizes, all around Australia, every two months.

In December, East interviewed 984 businesses ranging from Micro enterprises turning over between $1-5 million annual to the largest Institutional businesses turning over $725 million or more.

The businesses were asked to rate the importance of the branch channel to their banking and financial management on a scale of 1 to 5, where 1 is extremely important and 5 is not important at all.

The results should put a question mark against those banks which are pondering significant investment in their braches as a business banking channel.

Unsurprisingly, the smaller the business the more important they said the branch channel was. The average importance level for Micro businesses was 2.42 on the 1 to 5 scale, and the importance declined across SMEs and Corporate segments with the branch channel only ranked at 3.24 for importance by Institutions.
Even at an importance rating of 2.42, however, the branch is hardly essential for Micro businesses. Across much of East’s research, importance ratings come in very close to 1 for many service attributes, so at 2.42, the branch is even marginal for Micro businesses.

East then went on to ask the businesses what was the main purpose of their visit when they did go to a branch, with the results strongly corroborating the earlier finding that the branch – in its current form – lacks relevance.

Of all the businesses interviewed, 87.5 percent reported that they did not set foot in a bank branch for business banking purposes. 7.3 percent of them said they used the branch for transactions, and only 1.8 percent of the total said they were in the branch for a consultation with a relationship manager or product specialist.

The conclusion from these responses is that, in its current format, the branch channel is struggling for relevance in the business banking market, and only remains marginally relevant – in any way at all - to businesses at the smaller end of town.

Banks which are looking to invest in the branch channel to re-energise their business banking offering should take note of this, and – if they do decide to proceed and invest in branches – should somehow re-invent or re-imagine the branch and its purpose as a venue for interacting with the client.

While technology has advanced, the branch experience has remained largely the same. Despite some visionary thinking, the branch of the future is yet to arrive on the business banking landscape.

East’s research shows that if it is to have any real relevance to businesses, the branch of the future will have to be a very different place to the branch as it stands in 2014.
Channel Importance to Banking and Financial Management
  Average Rating Reported
1 — — 2 — 3 — 4 — — 5
(important)             (unimportant)
Micro (N: 254) 2.42
SME - (N: 288) 2.67
Corporate - (N: 233) 2.88
Institutional - (N: 209) 3.24
Total - (N: 984) 2.78

Source: East & Partners Business Banking Index – January 2013

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