Traditional banking – Where is it headed ?
Traditional banking is the banking we all know well, a vast branch, a row of bankers handling the large crowd show, a stern manager, mummified in a bar mitzvah suit with a matching tie.
Entering a bank branch in the past was like entering a holy hall where fates are determined, whether I can get a loan and purchase a new car or get advice on my stock portfolio.
Times are changing, progress has introduced technology, which has shortened and streamlined processes on the one hand, and streamlining on the other, is changing the face of the traditional bank branch.
These processes are taking place all over the world, at different rates, but the process is clear and leads to different banking.
This period is the transition period, traditional banking is reducing itself and is trying to adapt to the changes while changing its old and traditional DNA, to the tastes of the population and mainly according to age segmentation, economic cross-section, and occupation of the population.
Trends in traditional banking.
Required skills of service providers – bankers’ professional skills are decreasing, credit models are becoming dominant in business decision-making processes, deposit management eliminates the need for decision-making, customer portfolio analysis, etc. Except Taylor made accompanying large businesses, in small businesses, credit models eliminate the need for customer account analysis – and decisions at crossroads in the customer’s account are influenced, not to mention taken away by a rating model that is the new god in private and small business banking – according to which a thing will be launched, the model will send credit offers or will direct the bankers to proactively contact customers in order to offer credit, and God forbid if your business life has run aground, the skills that existed in the past to manage and help accompany the business have diminished, along with the demand for immediate achievements (high credit targets) – service providers/bankers will prefer to skip to the next customer, They considered selling him credit to meet their goal.
The generation gap in the
one hand is Generation Z (late 1990s onwards), a digital generation born after the Internet revolution, and digital life is an inseparable part of it – screen culture.
At the end of the two generations preceding Generation X, is the 60-90 age range, this generation is shrinking.
And in between, generations X and Y, who make up the bulk of banking customers.
Digital banks target Generation Z and Y while traditional banks cater to the entire age spectrum.
Digital banks target customers who are mature and have long passed the digitization stage, and they do not have to deal with these objections. From these customers, they will select the customers who will bring the high profit to the account – wealthy customers, those with securities portfolios, high salary recipients, etc.
Traditional banks, on the other hand, will provide care for all ages. This treatment requires the maintenance of a service delivery system of audience performance units, and bank branches spread widely, and this is the weak point in traditional banks.
Closing and merging branches as part of streamlining processes create many coping with the anger of customers who find themselves transferred between branches and sometimes even several times, which leads to dissatisfaction and customers leaving for banks that are educated to absorb them, with messages of personal, banking, and intimate service.
Entire populations of ages find themselves without a precise response to their needs because their branch is closed, and they find themselves without a satisfactory solution.
When considering the strategy of traditional banks
closing branches.
Digitization of systems.
Mechanized models for customer care.
Mechanized service.
Call centers.
They are reducing human interaction in face-to-face encounters.
Exit from expensive real estate.
The strategy is streamlining, but it can be seen that the intention is also to fine-tune the treatment of Generation Z, whose service preferences differ substantially in generations X/Yand their predecessors, and to manage a change in service tastes vis-à-vis the other generations – to begin accustoming them to a different, digital, impersonal, mechanized service mechanism that will succeed in streamlining and reducing the Bank’s personnel and bring about operational efficiency ratios, which sometimes unequivocally impairs the quality of service.
Therefore, it is not clear to the banks’ management that there is resentment from the public, which has been harmed by these moves.
The regulator is trying to manage the closure of branches. Still, its main goal is to maintain the financial strength of the banks, even at the cost of harming the elderly customers who still seek frontal care.
And even if the banks declare that frontal treatment is provided (albeit by appointment), this is a somewhat cynical claim, because the same adult is required to coordinate the meeting through the app or website or call the branch, and the call is routed to the call center, and when the answer options are such that reaching the banker for a call is one of the least accessible and last options.
So, from here to where in 5-10 years.
Traditional banking versus digital banking.
Traditional banking, in my opinion, will have to split into its core activities.
What do I mean?
Today it is managed under one large bank which includes all activities under it in divisional units.
In my opinion, there is room to have separate companies/banks.
A commercial bank.
Digital bank.
Bank for private customers – including frontal service stations.
Maintenance, logistics, and technology company – managing all the information, building credit models, service models, and marketing.
This structure will make it possible to fine-tune business activities, streamline processes, and save costs, even though on the face of it autonomous business units lead to the establishment of separate headquarters instead of a single managerial headquarters.
But the main advantage will be getting rid of expensive real estate, which is a significant burden on banks’ expenses since a bank of private customers will be able to find itself in an office building on the second or third floor like any firm that provides service.
Commercial branches are already located in relatively cheap real estate areas, on high floors, with minimal signage, and based on who knows and coordinates a meeting comes.
Gone are the days of garish signage for passersby to come in and open accounts.
Operating units will be rerouted to cheap commercial space and outside the city, Leumi chose the city of Lod to locate the logistics center and management of the Beit Lin units in the center of Tel Aviv, which was sold for a high sum.
So if I summarize the change as I envision it.
Organizational units, in my opinion based on separate companies, with consolidated balance sheets but completely independent entities, leaving cities, and converging into cheap service areas most of them not on zero floors.
On the other hand.
The digital bank shapes itself for private customers, customers who receive high salaries,
and if it stays in this place, it will lose many areas because the customer is a growing customer.
Today’s student who is loss-making in account management is
tomorrow’s soldier, and
tomorrow’s student, segments
on which the profit is simply small – if it exists at all (with all the subsidies).
But that student, will win a lucrative job, become an entrepreneur, and establish a start-up company that will issue and hence significantly extend the profitability from these is high.
You can try to fish for that wealthy client, but at this stage of his life it is much harder than investing in that student, which does require nurturing and raising and patience, but we are not known for patience, let alone strategic patience.
Digital banking must grow to more market segments, develop advanced models for micro-business market segments, and small businesses, specialize in private banking, and find the golden path between quality service and financial professionalism.
It must change the model of customer model, and dive deeper into the depth and expansion of the wallet.
For example, a professional business banker, who will accompany businesses in their place of residence, will have 100-150 such businesses connected to him, his office is his laptop and he will control the geographic area he is appointed to, accompany his core clients and acquire new ones.
Digital banking, sophisticated as it may be, if it provides service only on existing digital platforms, will not, in my opinion, succeed in increasing the market segment, expanding it, and moving from loss to profit.
In conclusion
We are in an interesting business period, on the one hand, traditional banking, like a huge ship, is trying to change its face but quite a few barriers are stopping it, and on the other hand, digital banking, as bold as it may be, is not yet deepening its grip and expanding its market segments to additional financial areas.
