It would also help banks deal with the challenge of offering clients access to banking services via an increasing number of channels, such as the internet or mobile phones.There were previously four channels by which banks communicated with clients: ATMs, branch windows, telephone and internet. In the past five years, three new channels have been added: tablets, smart phones and social networks, says Nicole Sturgill, research director at CEB TowerGroup. There have been calls for banks to share branch facilities in small towns to counter the rapid pace of branch closures, which leave older and less technologically literate people without access to bank services. At the other end of the scale, Bank of America Merrill Lynchs (BAML) strategic relationship with Abu Dhabi Commercial Bank, formed in 2011 in the UAE, gives clients of each bank access to the expertise of the other bank. Such an arrangement could provide a blueprint for the future of banking.
In a similar vein, local banks in Asia are considering entering these kinds of alliances to facilitate cross-border business among under-banked Asian medium-sized companies.
Thai bank Kasikornbank has crafted the term Asian Alliance, echoing the airline Star Alliance, to serve its domestic corporate clients, first in Thailand and then elsewhere.
The alliance includes more than 40 participating partner banks in Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, China, Japan and South Korea. A few European banks are also understood to be considering joining the alliance.
However, not everyone shares this vision of the future. We have seen the shared-services model in action with the credit unions for years but do large financial institutions have the motivation to do that? asks Sturgill.It is still a very competitive industry and these services represent a real competitive edge to many institutions.
Although such collaboration is the concept underpinning much of the global payments infrastructure in the correspondent banking system, such as BACS, a further migration to shared services on the airline model is a long way off, says Sturgill.Such an arrangement will be difficult to live with for banks that remain fierce rivals. Sturgill believes the problem of dealing with proliferating bank channels will ease over time, as an increasing number of people turn to digital channels, and fewer use personal channels such as branches and call centres.
However, banks could do a better job of communicating the implications of their choices to clients, helping guide them to use the most appropriate channels that are easiest for the banks to deliver, says Sturgill.People might want the choice between banking on the phone, the internet or a mobile device, but if they understand one choice will take 20 minutes and another will take two, that can guide their behaviour, she says. And understanding this can enable banks to make better decisions about where to focus their resources, so they offer the choice of multi-channel banking, but excel in the channel that works best for most of their clients.
Interacting with clients is just one aspect of the challenge facing banks, which at a macro level is causing many to go through an identity crisis. Banks must decide whether to follow all their clients demands and risk spreading themselves too thinly, or whether to be selective about the technologies they want to invest in and risk losing clients to other banks.Rapidly expanding regulation and a spiralling cost of compliance only makes the goal of keeping up with technological evolution less attainable for most.
Today a lot of institutions are asking themselves what kind of transaction bank they want to be, says Paul Taylor, head of regional sales, global transaction services, EMEA, at Bank of America Merrill Lynch.Around 95% of banks are satisfied with being a throughput provider, regardless of their size or location. The remaining 5% are those with the budget, appetite, distribution, facilities and expertise to keep up with client demands for multi-channel access. This inner circle of banks is not only offering fully flexible banking to its clients but to other banks. The intensity and breadth of competition requires banks to excel at everything, from providing the best possible middleware for bank information to offering a top front-end liquidity portal all this to be provided to clients who want access to every aspect of the bank, 24 hours a day.
Some banks are learning to cope with these demands by reorganizing themselves internally, for example by ensuring there are single people with strategic oversight of all banking silos, says Sturgill.
This enables them to see where there are gaps or overlaps in the banks service, and make informed judgements about how to allocate resources between different banking channels. Other banks will follow their lead, she predicts.