Why Industrializing Operations Could Save Banks

For the last few decades the global retail banking industry has undergone a radical transformation. The advent of new technologies coupled with shifting profit pools and ever-changing customer behavior has presented a whole new world -- and by extension a whole new set of challenges -- for the banking industry.

These challenges are three-fold. The first – the changing role of the branch – raises questions of the viability of this costly channel. With transaction processing and customer service increasingly provided by alternative channels, bank branches are suffering from a bit of an identity crisis. The second is the move beyond traditional retail products. Today’s customers are investing in wealth-creating products at a much earlier age while the model of using the savings account to simply cross-sell deposits, credit cards and loans has become inadequate.

[For More On the Challenges Facing Branch Networks, Check Out: Bank of America Will Close More Branches With Increasing Mobile Usage]

The third challenge is the advent of new customer segments. With Gen Y positioned to be the wealthiest generation to date, banks are struggling to understand how best to serve a demographic that relies heavily on multiple channels and mobile communication, and is much less “sticky” than the generations before them.

It hasn’t been easy for banks to adapt to this new reality. While today’s banks are increasingly developing a more customer-centric business model to integrate and improve channels, the still fragile economic recovery and increasing regulatory oversight pose as obstacles. Flat revenues and the de-leveraging of customer debt has created immense margin pressure, fueling cost reduction initiatives and inhibiting the ability to invest in a business model that builds deeper relationships with the customer.

These new challenges are calling for new, creative solutions. In the past few years, a small but growing number of banks are investing in Global Business Services or GBS, in an effort to create a more agile business. GBS is the evolution of shared services with a larger global footprint serving multiple functions – helping to streamline processes by leveraging a unified, although not always centralized, operating entity.

In short, GBS takes the tenets of industrialized operations that have existed for a while – global delivery, shared services and outsourcing – and applies it to not only standard non-core functions, but also certain judgment-related, strategic banking functions. The GBS model allows banks to standardize and automate processes in areas such as working capital management and account setup, improving banking interface, and enabling the use of data analytics to identify new and profitable customer segments while building market share and customer loyalty. If GBS is done well, organizations can enable better decisions, pursue growth and adapt to market contractions more nimbly.

For example, bank branches are leveraging GBS to move low value, “heavy-lifting” and transactional processes to alternate channels, like the Internet or mobile. Banks can transfer the responsibility for designing sales tools and campaigns, managing customer relationships and other branch tasks to a more efficient shared, industrialized model. The bank branch can then focus on sales, while leveraging the latest tools and marketing information gleaned from their newly industrialized functions.

GBS does not replace the branch network, but can allow the branch network and staff to focus on cross selling, customer acquisition and customer service while many of the operational and administrative functions could be more effectively done via a shared services center. Marketing analytics and technologies targeted at the various customer access channels are also incorporated into the GBS model, which enhances the selection and outreach to existing and prospective clients.

Some banks are using a GBS model to profile customers and segment them based on demographics, spend, and transactional and social behavior. With this insight in hand, banks are designing customized products for targeted segments, rather than applying a traditional “one size fits all” approach. They are also identifying which channels are appropriate for different segments, and providing a seamless and integrated experience across channels. In a traditional, siloed structure, none of this is possible.

Rick Seaberg is the global banking and financial services and Americas business development Leader at Genpact.