Digital developments to distribution in retail banking

Emerging digital distribution channels are fundamentally changing the way that customers interact with retail banks. Tech-savvy customers are using mobile and online to meet their day to day banking needs but are reserving their most complex queries for branches. Unsurprisingly, retail banks are having to radically review their distribution channel. A key question is are they responding effectively enough to meeting this rapidly changing customer need?

The new banking format

In previous years, bank transactions would happen in-branch and branch managers sought to develop strong relationships with their customers. A relatively simple business model. However advancements in technology have coincided with a sizeable shift in customer preferences. This has made the environment significantly more complex. A recent survey demonstrated that 71% of US retail bank customers[1] believed that their banking relationship was transactional rather than relationship driven. Increasingly, customers value the ability to access their banks anytime and anywhere – and they are using mobile devices to do it. Mobile banking is now the largest banking channel by volume of transactions. Estimates suggest that mobile banking users will reach 1.8bn[2] by 2019, a staggering 25% of the world’s population.

Retail banks have recognised that customers are increasingly swayed by sophisticated apps. When choosing my bank, the functionality of the app was a key requirement as much as the products provided. The sheer scale of people using banking apps suggest I’m not alone in that decision. Delivery methods are becoming as important as banking products themselves.

Mobile banking users will reach 1.8bn by 2019, a staggering 25% of the world's population

This shift has delivered real opportunities for retail banks. Retail banks can benefit from migrating transactions to digital channels, transforming their physical distribution networks and revamping their go-to-market strategies. These include lower operational costs and increased penetration of marketing strategies.

One size doesn't fit all

Despite the growing importance of mobile, many customers still value the ability to use a wide range of channels. 65% of customers interact with their banks through multiple channels[3] and they are typically reserving their most complex queries for traditional channels. As such bank branches may have to revisit their hiring, training and development strategies in order to meet increasingly complex needs.

It is now not enough to simply offer a wide range of channels. Customers increasingly expect a seamless experience across the growing number of channels available to them. Banking directors now recognise the need for a cross-channel approach with 45% saying that their digital efforts will be focused on cross-channel capabilities[4]. This will require an integrated customer service approach across distribution channels.

The new players

Emerging distribution channels are opening up the market to interesting new entrants. Some new players, such as Atom Bank, Smile and Cahoot are now entering the market with digital-only offerings.

The new entrants are not constrained to financial firms. Increasing interest in digital distribution channels is handing a unique advantage to FinTechs, and millennials are increasingly feeling their pull[5].

The scale of the challenge

Changing preferences regarding distribution channels have brought about an interesting fork in the road for retail banks. The successful banks will be those that fully understand the varied yet integrated ways that their customers wish to interact with them. Failure to grasp this will see market shares increasingly eroded by the innovative new players.

Digital distribution channels are becoming increasingly important for customers. However, customers also seek increased value from their human interactions with retail banks. Responding to this challenge will require significant focus on digital channel innovation. In addition, traditional channels will need to be redesigned to meet increasingly complex needs. This is no mean feat. However, those able to meet the challenge will reap the benefits.



[3] future of US retail banking distribution/The future of US retail-banking distribution.ashx



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