A big glass front, a lounge-like atmosphere, dozens flat screens on golden walls – that’s what I saw when I recently walked into BNP Paribas’ new flagship store in Paris. I was feeling like entering the reception room of the Ritz which is just a few blocks down the street, but could not believe that I had just gotten a glimpse of what appears to be a new concept of retail banking.
Some hours of research later, this new trend makes a lot more sense to me. The reasoning behind it is the following: In a sector where the Internet has massively undermined the concept of wholesale banking, a dense network of branches has become increasingly costly. Often situated in a premium location and with a certain number of staff to pay, one might ask whether it is really worth the extra investment just to be seen. On the other hand, according to John Stumpf, CEO of Cargo Wells , “location is still the first and most important decision-maker when you choose your branch”. Hence, banks continue to extend their branch networks, sometimes swallowing up to 60% of its total cost of operations.
But there are quite a few signs that the concept is about to change or at least massively questioned at the moment. This is due to three reasons:
- Firstly, the financial crisis and record-low interest rates have had a huge impact on profits for retail banks. Together with new regulations such as the Dodd-Frank law in the US, competition has tightened up and many of the global palyers were forced to massively cut costs.
- Secondly, internet and mobile phone banking is on the rise, the latter especially in the developing world. (An interesting other blog post on that can be found here.) Studies have shown that, when using your bank account from an electronic device, transactions increase rapidly. Profits do accordingly. An example for that is JP Morgan’s Quick Deposit app that was a huge success in the States.
- Thirdly, customers themselves have evolved. They feel much more comfortable administering their money online that they were a decade ago. So, the main challenge for banks today is to lure in more customers, as the dependency on an actual physical presence seems to be sinking. The numbers do speak for themselves:
An original approach to tackle the decreasing profitability of wholesale banking comes from a country that has not necessarily been associated with successful banking recently – Spain. With roughly 43,000 banks i.e. more than one branch for every 1,000 inhabitants, its retail bank branch density is about six times higher than the UK’s. Spain is now one of the main exporters of bank management systems as they have pioneered the industry by standardizing computer systems. One click allows any employee to get an overview about all activities with a certain customer or the profitability of a certain branch. And as absurd as it may sound, but many banks today have not reached that level of coordination yet. Only by daring to implement innovative solutions in order to offer the best services to their customers can retail banks rebuild their competitive advantage.
This is what brings us back to Paris: At BNP Paribas customers are engaged into conversations about financial products when taking a cup of coffee or learn about new investment strategies via one of the numerous iPads or flat screens. The employees avoid talking of a “branch” and try to engage directly with their clients. The aim is “more proximity, more interaction, more personal contact”, according to Nathalie Martin-Sanchez, the responsible of the “concept store project”. When I walked in there, however, nobody approached me. Employees seemed shy behind their desks and rather seemed to ask themselves whether I got lost on my way to the ATM or really wanted financial advice. I felt lost within the pompous hallways and did not see any other customer. Neither did I see proximity, interaction or personal contact. While the concept was to create a social space for banking, I felt a lot more inhibited than by the normal retail bank just across the corner. There, you could at least talk to the people in the queue.
And after the crisis? 