BANKING IN A DIGITAL WORLD: HOW WILL CUSTOMERS

BANKING IN A DIGITAL WORLD:
HOW WILL CUSTOMERS INTERACT
WITH YOU IN THE FUTURE
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Introduction
The societal and technological changes that have taken place in the last decade have fundamentally changed how customers
interact with their bank. The digitisation of banking means that consumers’ needs for the branch and telephone channels
of ten years ago have been greatly extended with the digital channels today. And the pace of change isn’t slowing; more
and more people are using their mobile devices to connect to the internet and manage their lives. Mobile is increasingly
taking its place as a key channel for retail financial services (RFS) either via apps or via new secure mobile-optimised sites.
The explosion of digital channels means that, in the future, while branches will still be important as brand anchors, they
won’t be needed everywhere. Those branches that remain will need to change their format, purpose and micro-location
(pitch) to stay relevant.
While we know the demand for digital channels will continue to increase, the pace of that increase isn’t going to be equal
across the country. The biggest driver of consumer channel usage is related to demographics and these clearly vary from
location to location. Branches and locations need to be assessed individually before any decision can be made regarding
the appropriate channel strategy for any market.
11,500
branches
3%
increase in UK population
2014
© CACI 2014
9%
increase in UK FS market
37%
decrease in branch sales
400%
increase in DIGITAL transactions
7,700
branches
35%
decrease in branch visits
2020
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We are predicting an enormous increase in the use
of mobile devices to manage current accounts, with
traditional desktop-based access declining by 2016 as
mobile usage becomes more widespread.
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Using CACI’s Channel Impact forecasts to Understand
Changing Consumer Behaviour
This rapid change in consumer behaviour will have a huge impact on banking in the future. To effectively predict this change
we have developed our Channel Impact forecasts.
We start with individual-level behavioural forecasts, built from historical trends on GFK’s Financial Research Survey on
channel usage since 2009. We have overlaid our individual-level financial segmentation Fresco to assess how the different
types of consumer have changed their behaviour. We have then built a series of forecasts that predict how that behaviour
will continue to change through to 2020.
These forecasts were calibrated
against output from a number of
market forecasting organisations and
commentators. We then overlay this
with where people live, work and
shop, so we can assess how this will
affect local branches, whole towns,
cities and regions. The outcome is
an effective tool for optimising your
future investment across channels.
These two charts show our predicted trend in using digital channels to manage a current account across different Fresco
segments. It shows the % of users who use a) a mobile device/tablet and b) a desktop computer to manage their current
account.
The years 2009–2013 are based
on actual behaviour and the years
2015–2020 are forecasts. We are
predicting an enormous increase in
the use of mobile devices to manage
current accounts, with traditional
desktop-based access declining by
2016 as mobile usage becomes
more widespread. This trend is seen
across most segments; however it
is important to note the differences
between the older and younger
segments.
© CACI 2014
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The predicted mobile and internet usage in some of the older segments will never reach the usage seen in some of the
younger segments today. This difference is a clear indicator that considering individual consumer behaviours is essential to
getting the branch network and channel strategy right.
The forecasts show how key differences in consumer behaviours can have a huge impact on the ways in which they
interact with a bank through the branch network and other channels.
The two infographics below show the variation in channel preference for two different Fresco segments: “High Income
Professionals” and “Road to Retirement”. These segments are fairly similar in terms of their financial sophistication and
demographics, and could quite easily be two individuals who live next door to each other anywhere in the UK. However,
the stark difference between their current and predicted channel preferences will have an impact on the way banks need
to serve these high value customers.
Channel Preference
for the High Income
Professional segment
Channel Preference for
the Road to Retirement
segment
% of individuals using each channel to
manage their current accounts
Source: CACI/GFK; Channel Impact
© CACI 2014
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The infographics below highlight the difference in channel preference when managing savings investments, as well as the
predicted change in investment value. In both there is a significant decrease in the use of branches to manage savings
products and a huge increase in the use of digital, following many of the trends we’ve already explored in this paper.
Savings by Channel Forecast for the High Income Professional segment
Savings by Channel Forecast for the Road to Retirement segment
% by value of new savings accounts coming from each channel
Source: CACI Market Databases/Channel Impact
© CACI 2014
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How Many Branches Do You Need?
One of the key questions we are asked by clients is: how many branches will we need in five years’ time? One inevitable
side-effect of the technological and consumer change is branch reduction. However, this doesn’t mean it is a bad thing.
The remaining branches will be more relevant because their locations will be concentrated in the biggest centres. This
means greater choice (more brands together) and consumers can tie in a visit to the bank with a range of other activities,
therefore reducing the need to make multiple trips to different places. With 24/7 banking via digital platforms, consumers
truly have access to their finances “EEE” – that’s Everything, Everywhere and Everywhen!
Using Channel Impact we have developed a Master Score for more than 3000 individual Financial Centres to determine
the Market Opportunity for each city, town, suburb and village in the country.
Master Score is derived from a number of KPIs: Footfall (residential, workforce, shopping) – i.e. consumer choice; Value (£)
of total savings, mortgages and loans held by the visiting footfall; Volume of new accounts opened in-branch.
Cumulative ranking of Master Score, 2014
Source: CACI Financial Footprint/Channel Impact
© CACI 2014
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We rank each centre based on its Master Score and the chart above shows the cumulative score (1st + 2nd + 3rd +
4th etc.). The steep curve on the left side of the chart means larger centres have a disproportionate share of the Market
Opportunity. The flat curve towards the right shows that there is a large “tail” of very small centres (typically suburbs,
smaller towns and villages).
In fact, to reach 10% of the UK’s banking opportunity you only need to be in 19 different centres (mostly large city centres
like Belfast, Birmingham, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and Central London).
To reach 20% you need to be in 50 centres, 30% requires 96 centres and so on (see the table on the chart above).
Working with most of our clients, we all agree that a significant milestone is met at the 200 centres/45% coverage
junction. We suggest that these are the centres that a bank or building society MUST be in if they are to call themselves
a NATIONAL player. At present, most organisations are content with an upper limit of around 80% coverage, which in
2014 equates to 800 locations (for 81% coverage). We believe that this zone should be classified as COULD (or indeed
should) be in for national coverage and support to the primary 200 centres.
Beyond this junction the return-per-centre diminishes rapidly and this is why we call it NOT required – although each bank
and building society will have branches in this zone that are required because of local performance and commitments –
there will always be some inevitable horse-trading at the junctions between the zones.
How Many Branches Do You Need?
We can also forecast how the picture of centre usage will evolve, using a Master Score for 2020. We have more than 5
years of trend data about where and how people are buying FS products which we can use to predict how the future will
look from a town-by-town perspective.
In addition, we have access to local government forecasts for births, deaths and migration, which means we can predict
where consumers will be living in 2020. Finally, in association with Estates Gazette, we have built a property development
pipeline database. This means we can assess where people will be working and shopping (when not online) in 2020.
© CACI 2014
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The outcome is that we can age Master Score, as the following chart shows:
Cumulative ranking of Master Score, 2020
Source: CACI Financial Footprint/Channel Impact
At the left-hand side the curve steepens, but not as much as it does in the Zone 2 area. This tells us that the top 200
locations still dominate and the list of individual locations is very stable compared to 2014. The real gains are to be made
in Zone 2 where to reach 80% will require just 600 locations – down 200 from 2014 such is the pace of change and
concentration into fewer, larger centres.
© CACI 2014
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Of course with any of this, CACI always recommends overlaying your own network to make sure we sense-check any
predictions for your individual organisation. The following map shows the Zone 1 and Zone 2 centres for 2020, but
modified to ensure at least 80% coverage in all four constituent countries of the UK:
Modified to ensure 80% in each country
England: 543
Wales: 39
Scotland: 81
Northern Ireland: 20
UK TOTAL: 683
Zone 1, Zone 2 Centres, 2020
Source: CACI Financial Footprint/Channel Impact
The Zone 1 centres are concentrated around the main centres of population and commercial activity: in London and the
UK’s conurbations and largest cities. The Zone 2 centres provide a commuter-based support network around the Zone
1 centres and also provide infill, covering smaller market towns and coastal locations.
© CACI 2014
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Practical Application – What does this mean for the
Leeds Urban Market?
We expect the following changes between 2014 and 2020 in the Leeds Urban Market, based on CACI’s Channel Impact
model:
• Overall adult population will grow by 5.1% (544k–574k)
• Overall market for FS core products will grow by 9.4% (473k–518k)
• Branch-based market for FS core products will decline by 39% (182k–112k)
• Non-branch channels will account for 68% of the total market in 2020 (44% in 2014)
• Branch visits will decline by 40%
• We therefore estimate that the “need” for a branch in the Leeds Market will decline by 35%
There are currently 62 bank branches in the Leeds Urban Market (to say nothing of the 44 retail bank and building society
branches). If we applied the 35% decrease in branch usage across these bank branches, this would mean 40 bank branches
in Leeds by 2020 (assumes all change is equal across brands) – a reduction of 22 branches:
Other
Black branches = actual branches, 2014.
Grey branches = closures to deliver equivalent level of business, 2020
Source: CACI Branch Base/Channel Impact
© CACI 2014
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Getting the Branch Strategy Right
We all believe that there will be a role for the branch in 2020 and beyond: its ability to generate and retain business will
still be essential as a brand anchor on the high street. However, its location, purpose and format will have to change to
stay relevant:
• To get a new customer to sign up online is still heavily dependent on having a local branch to promote the brand
and provide the comfort of knowing a human being is nearby, if required. We know this because we can map new
account openings by channel and the strongest correlation of uptake in non-branch channels, for any brand, is still
their branch footprint.
• It does seem that you no longer need to have a branch in all of the places where your customers live, work and
shop. CACI is finding that having a branch in their principal retail domain is enough to provide customers with the
brand anchor they need. In the UK these major domains are places like Birmingham, Glasgow, Leeds, Manchester
and Newcastle.
It isn’t just a case of closing all the low-use/marginal branches, though this should be considered, but also refocusing and
reformatting the retained branch network so that it is fit for purpose. We estimate that the Big Four UK banks alone still
need to dispose of 3000 branches between them, at an estimated disposal cost of £800million, but with net cost-savings
of around £2billion – which can be reinvested into the retained estate and the digital platforms.
About the Author
Ian Goodliffe - Consulting Partner
Integrated Marketing
Ian Goodliffe is the Consulting Partner at CACI responsible for delivering branch
network and channel optimisation solutions in the Financial Services & Insurance sector.
He joined CACI in 1999, after having spent 10 years working with geography academics
at Leeds University (GMAP). Over the last 15 years he has transformed the technical
capabilities and reputation of CACI in the areas of spatial analysis and strategic locationbased optimisation solutions.
Ian’s team use spatial modelling techniques to measure how consumers interact with
an organisation; analysing customer behaviour patterns against branch location, market
opportunity and performance as well as measuring the impact of change on high
streets through economic, social and technological developments.
In the past three years Ian has led a number of projects for several leading UK and
European banks on the future of branches, cash and digital transformation.
© CACI 2014
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