Sir Isaac Newton was still in school and yet to discover the law of gravity when in February 1659, the world’s very first cheque was written by a Mr. Vanacker for £400, payable to a Mr. Delboe drawn on London bankers Morris & Clayton. The cheque (or check, US) would go on to become one of the most important instruments for money transfer for over three centuries.
Cut to the beginning of the last decade when the cheque began going through an existential crisis. With the rise of digital banking and instant, convenient electronic payment options, the big question was why have the cumbersome process of issuing and clearing cheques to transfer funds. With digital payments rapidly creating a cashless economy, the cheque has begun heading for the exit door.
Global cheque use, Source
But there are vast populations that still rely on cheques for transferring funds, so a complete shift to a cashless/paperless economy & society is still a little away. Let’s take a quick look at a few large nations, to see where they are in phasing out cheques.
Cheque Usage in the US, the UK and Australia
There has been a noteworthy drop in cheque usage in the US and it can be ascribed to the spike in non-cash payments. In 2018, the total number of core non-cash payments was 174.2 billion (an increase of 30.6 billion from 2015). The total value of these payments was $97.04 trillion in 2018 (an increase of $10.25 trillion from the year 2015).
Total card payments, which includes both credit and debit card, also substantially grew in usage. It made up 75.3 % of the total value of payments made in 2018 (Federal Reserve). Naturally, as card payments became more popular, the usage of cheques in the US fell sharply. At the start of the century, in 2000, 42.6 billion cheque payments were made (Federal Reserve). But a decade later, it had fallen to 20 billion (The Atlantic). Today, the number has fallen further to about 14 billion and it continues to decline.
The UK meanwhile continues to use more cheques than most countries in the world. Despite having a significantly smaller population, the UK still uses a vastly greater number of cheques. In 2018, the UK used 342 million cheques (UK Finance). While this sounds like an enormous number of cheques to be cashed in a single year, it is nothing compared to the whopping 4 billion cheques that the UK cashed in 1990 (The Guardian).
Australia too has begun the process of phasing out cheques as a means of transferring funds from bank accounts. However, this is happening at a much faster rate compared to other countries. In Australia, digital payments have caused a massive decline in the total number of cheques that are being processed in the country. The total amount of payments attributed to cheques is only a tiny fraction of what it was a decade ago. Financial analysts have predicted that the total cheque value processed in Australia by 2030, will be zero (Blue Notes).
What is Fueling the Trend?
Banking is one of the oldest businesses in the world. Just like the big ideas, innovations and technology that have changed and shaped every other sector, financial services too have undergone gigantic transformations over the years.
Today, there’s a growing tribe of digital competitors offering customers excellent digital-first alternatives to traditional banking organizations. While the trend is occurring around the globe, the pace has been a bit slower in the US because the financial infrastructure is proving to be an impediment to newcomers. But despite a slower rate of growth, innovative start-ups have been successful in shaking up the transaction accounts market.
According to KPMG, investment in US fintech start-ups in 2018 was about $52.5 billion (NS Banking). With enough funds at their disposal, these mavericks have been challenging the status quo.
Many of these fintechs offer fee-free usage of their online services, which means no extra charge for overdrafts and foreign transactions. This is particularly appealing to the average American household because they have to pay about $329 in bank fees to their existing financial service providers (NS Banking), one of the key factors why many customers have welcomed the transition to digital banking.
- Simplicity, Speed, Service – More people are making the switch to digital financial services because it is easier than ever before to transact from any place, any time. Lines in bank branches are now much shorter. Making payments with cards have become virtually effortless. Customers don’t have to remember pins and they can transfer funds using their phones. Enterprise-wide digitization has made customer service more real-time, cohesive and convenient.
Digital offers best of both worlds, Source
- Cost – Cheque payments also mean additional cost and administrative time and effort. A substantial amount of time is spent locating payee addresses, calculating bank charges, postage, monitoring cheque stock and printing materials. Plus, the cost implications for returned and stopped cheques due to processing errors.
- Security – Even as banks are investing more in digital technologies to fortify anti-financial crime defenses, the Association for Finance Professionals’ Payments Fraud Survey, 2020 reveals that cheques are the most common payment method for payments fraud in the US and 74% of the companies impacted by payments fraud fell victim to cheque fraud. With advancements in technology, businesses are able to eliminate cheque fraud besides accelerating payments and account reconciliation.
Payment methods that were targets of attempted / actual payments fraud in 2019 (% of organization), Source
Businesses have begun using more efficient and secure AP automation processes to manage their payables and guarantee better ROI, but a few challenges remain. Migration to fully-automated processes for electronic B2B payments including AP and reconciliation remain disjointed. Smaller businesses find it challenging when financial service providers offer automated payment services only to larger corporate clients.
Given the variety, convenience, affordability and flexibility of service offerings in payments bank transfer solutions, accounting platforms and digital wallets, there is a growing preference for cloud services.
A survey of 1000 businesses in 2015 by the Cheque & Clearing Company, UK showed that more than 50% of those surveyed are still making and receiving payments by cheque.
- 30% said they have always used cheques
- 29% said managing cash flows was easier with cheques
- 25% said cheque payment was requested by the payee
- 21% said money leaves their account slowly when processed via cheques
Many businesses are using cheques to their advantage because cheques can take 5 days or more to clear. This gives ‘delaying’ advantage to smaller businesses that require making payments before having the funds to do so.
There’s also mobile cheque imaging which allows consumers and small business owners to take photos of cheques using smartphones and deposit them without having to go to the bank. This helps small businesses and consumers who don’t wish to breakup with their cheque books yet.
While the usage of cheques has fallen dramatically over the last decade, older customers and smaller businesses continue to stand by the cheque. The payments industry had said in the early 2000’s that cheques would go away by late 2018. Many had protested then saying cheques must not be phased out until there was a suitable alternative for people who are not comfortable switching to new technologies. Security issues with new technologies are a concern as many fear a clean-up of their accounts if tech-savvy fraudsters gain access to their phones or cards.
How much longer will the cheque be around?
It is only a matter of time before the cheque becomes a museum attraction.
With banks in the process of phasing out cheques while increasing the scope of digitization, businesses and individuals still reliant on cheques for making payments have no choice but to adapt.
Fortunately, digital transformation in banking has made it easier to switch from traditional channels. Interestingly, the number of older individuals and smaller businesses switching to online banking has been rising rapidly.
The ongoing pandemic situation is another critical factor that has accelerated the cheque’s departure, with a substantial number of people worldwide opting for cashless, contactless, paperless transactions.
There will still be certain pockets of economies, regions, businesses and customers who will continue to be loyal to the good old cheque till its phased out. Until then, they must have the choice to opt for payment methods that best suit their preferences and requirements, regardless of the relentless march of technology.
Technology on the other hand must be inclusive, so that it addresses these needs while ensuring fantastic customer experiences.
In the meantime, life goes on before another legend gets ready to walk into the sunset.
Association for Financial Professionals: Payments Fraud & Control Survey 2020
Blue Notes: Time to Cheque Out
The Atlantic: The Spectacular Decline of Checks
Cheque & Credit Clearing Company: Cheques Market Research
Federal Reserve: Payments Study 2019
UK Finance: Payments Market Report 2019
Trust, in-person interactions, reasonably good response levels, absence of alternative options – were some of the reasons that brought people to banks before the era of digital and banking domain monopsony.
The strategy worked well and it helped create predictable growth and profitability – until the level playing field tilted.
It is no longer just banks that are able to leverage massive data volumes and technologies to provide better financial solutions. Besides from their peers, banks are now faced with intense competition from new quarters – mainly technology giants and fintech firms – who have been gorging away large portions of what was once their bastion.
Fintech start-ups and big tech firms from the FAANG group, who have forayed into the financial services turf have convinced vast numbers of potential customers to engage with them and existing customers to switch loyalties.
Consumers expect their bank to understand their needs and deliver personalized solutions similar to how they receive from FAANG. A recent study reveals most people who are considering changing banks are open to start banking with a fintech or a big tech firm!
A big factor in the success of the new players is personalization – a keystone of their business models.
Another recent study reveals that nearly 90% of retail banking customers say they will ‘definitely’ use a bank or credit union if they provide ‘great financial advice’. But how do you do that when you don’t know enough about a customer’s goals or priorities? Only 6% of banks say they have the capability to provide highly personalized outreach.
As high as 52% in an earlier survey said that they are willing to switch to a banking service that they haven’t used before, if it provides facilities their current bank does not offer.
Another critical factor that has customers switching to financial service providers that they have not used before, is the availability of new, exciting features.
The style and format of interactions have changed drastically and customers expect a lot more from their banks. They feel assured when the bank knows who they are, the history of their relationship with the bank, that the bank values their business, and that you can help them resolve any issue or concern they may have.
The current environment is extremely transactional. Instead of knowing their bank tellers by name, customers are more keen for superior real-time experiences (whether digital or in-person) and great deals (low / no charge maintenance fees, best rewards system for credit cards, etc).
In a period of dramatic transformations, it is vital to understand newer ways to take consumers to the pinnacle of satisfaction. There’s also the ongoing corona virus pandemic situation that has pushed interactions to digital channels in the absence of face-to-face interactions, that most banks rely on to build closer relationships.
A Segment of 1 Approach
Decades ago, businesses learnt that they could sharpen their focus and tailor products and services for specific customer segments. A segment today can be trimmed right down to an individual.
A segment of 1 approach is the coming together of 2 independent elements – information retrieval and service delivery – to become a force multiplier. On the one hand is brilliant insights about customer preferences and purchase behaviours; and on the other – a meticulous service delivery that leverages the insights for crafting a unique service package for individual customers.
The advantage is simple yet powerful. Consumers are increasingly expecting to be treated as individuals and want customized products and services delivered at that precise moment of need. Add to this, the reassurance and trust of a relationship with a brand that understands and responds quickly to their specific needs.
When crafted well and deployed effectively, innovative personalization strategies, driven by a segment of 1 approach, can achieve substantial gains.
What Have Banks Been Doing
Demographic Targeting – Most banks are already customizing content based on demographic segmentation. They combine multiple demographic points to define customer segments more narrowly. The narrower the segmentation, the more targeted and effective the outreach.
Behavioral Targeting – Data such as web activity, email clicks and campaign engagement, helps target customers better. Campaigns developed using additional information about behaviours and choices are more impactful than ‘fits-all’ campaigns. Several banks have been able to drive growth using this approach.
Psychographic Targeting – Information about attitudes, interests, values, and lifestyles requires analysis of insights from diverse external sources – web / social media data, surveys, third-party data providers – making it a bit more complex. A few banks have been using psychographic data to segment customers for sharper targeting.
What Could Be Better
While segmentation helps targeted (and to a certain extent personalized) marketing, personalization is about creating insights-driven real-time experiences. To compete and grow today, banks must have personalization as a strong new pillar in their overall growth strategy.
Customers expect their bank to understand their goals and preferences, and proactively deliver the right offers and services to help them achieve better financial well-being and are willing to share insights with their bank. This is in stark contrast to the quantity of insights most banks are willing to ask, collect, and utilize for the benefit of the consumer.
Data insights and communication technologies have become ubiquitous, affordable, and far more accessible. Banks regardless of size can harness them to deliver the level of customization that today’s customer expects.
Personalization is much more than showing the customer’s name on the bank’s web or mobile page. To be genuinely impactful, banks must personalize the entire customer journey to engage with the brand. Banks must use customer insights to map customer journeys and identify opportunities for personalization.
The starting point lies in the goldmine of insights already residing across delivery channels, but in silos. No other industry has the kind of width and depth of insights available as much as the banking industry. In fact, only a bank (as opposed to any other business) has the complete ‘soul’ of the customer and is in the best position to monetize it.
Personalization is fast becoming a point of consumer differentiation between financial institutions, fintech firms, big tech firms and non-financial players. To create deeper personalized experiences, banks can do more from the insights available, for every single interaction with each of their customers.
When implemented well, personalization can take segmentation, targeting, monetization and customer experiences to the next level:
Unified View – a strong personalization strategy requires far deeper understanding of everything about the customer, the experiences being delivered currently, the best channels necessary for personalized interactions. This means intense focus on insights about each customer and their individual universes. It helps to have customer information accessible in a single location, for collaborative development of personalization strategies.
Omnichannel Personalization – uses multiple information sources to create a 3D view of a single consumer. Banks must connect data from campaigns and other parts of the organization to create a unified view. For example, this is useful in the case of customers who were either referred, or are part of a remarketing goal. Banks need to discover the trail and craft their next touchpoint– whether they’re online or offline. The more the strategies are based on specific personas and defined outcomes (with unique approaches for each channel), the better/higher the impact.
Synchronized Tech – Delivering personalized experiences requires multiple technology solutions working together, e.g. a bank’s contact center and CRM solution working in tandem for a richer, personalized chat interaction.
Better Findability – About 87% of consumers use popular search engines to find businesses nearby (The Financial Brand). Customers also often include the city name or even a zip code in their searches. There are also potential customers looking for a new bank when they move to a new city. The survey also shows that only 35% of banks and credit unions use location data in their campaigns. Not leveraging location-based targeting means missing out on potential opportunities.
Location Extensions – Popular search engines allow businesses to add location extensions and call extensions to text ads. This enables businesses to display their co-ordinates, phone number, and a map marker that gives directions. When this extension is enabled, the most appropriate branch locations are dynamically selected by the ad platform based on the customer’s location or search data. This option ensures a seamless experience for consumers and allows them to find branches closest to them. It also keeps business information up-to-date on major ad platforms, review sites, and mapping platforms.
Geo-targeting – Banks with multi-locational presence can create local (PPC) pay-per-click ads. They can use radius targeting to define specific areas around their branches and then drive customers in those areas to unique landing pages, to boost both relevance and personalization. Popular ad platforms offer the ability to target customers based on their physical location or even their search intent. Metrics can be determined by keywords in customers’ search terms or based on the implied location from previous searches.
Geofencing and Beacons – Mobile banking is estimated to grow to about 2 billion users this year (Juniper Research). Banks that have realized the potential of mobile banking are actively trying to connect with the young population that mostly uses mobiles for banking. Many banks are now using geofencing and beacons to deliver campaigns on mobile platforms. So that when a customer enters a particular geographical area, display ads, content, or push notifications are sent to the consumer’s device. Geofencing content is delivered within a fixed radius of the location, based on the GPS data from the customer’s phone, while campaigns that use beacons are activated when a customer nears a Bluetooth device that has detected that the customer is in the vicinity. The only prerequisite is that they work only when the customer’s GPS or Bluetooth settings are turned on.
Innovations across data sciences, predictive analytics, AI and machine learning have all enabled banks to quickly transform information to insights to personalization. AI and machine learning help automatically create efficient self-learning models in real-time, which can be used to deliver contextual ‘in the moment’ experiences with each interaction. But, despite advances in technology, most personalization expectations remain unfulfilled.
Tech giants, fintech firms, telcos, e-tailers, social media, media & entertainment leaders have all set a lofty bar for personalization. Quite naturally, consumers have raised the bar on their expectations from their banks. With customers willing to share insights with their banks to receive more personalized services, it has never been easier than now for banks to create personalized experiences.
Personalization is ‘the’ Competitive Differentiator
Customers look up to banks as vital institutions that play a key role in their financial well-being. Personalized engagements not only differentiate a bank from other banks but also from fintechs and big tech firms.
Technology advances has made it easier for banks to take advantage of the new reality. Banks can reap the benefits of personalization strategies faster than they previously did. But they will work best when deployed as an integrated segment of 1 strategy.
Eventually, it will also be possible to access a single source of insight that will enable seamless integration between back-office processes and real-time customer experiences.
From a business growth point of view, the implications are dramatic. Segment of 1 personalization will activate a radically new way to engage and satisfy existing and potential customers. As a result, competitive advantage will tilt back to the original ‘owners’ of the banking space.
Financial Brand: 94% of Banking Firms Can’t Deliver on ‘Personalization Promise’
Juniper Research: Mobile banking to grow to 2B users by 2020
“Will the bank branch survive?” has been a decade long (if not more) topic of debate. In a world where digital transformation makes headlines, the debate is often relegated to the background, surfacing only when its breaking news about the downsizing of any bank’s branch network or when there’s any socio-economic turbulence like the current situation. The debate is yet to reach a consensus.
Physical branch networks worldwide are being impacted by the shift to digital transactions. However, there has also been rising customer expectations for better in-person experiences at branches shaped by other retail experiences.
Several indicators suggest that branches are very much part of the future for banks and their customers. Despite differing needs and expectations, customers regardless of age and demographics share a common desire for greater personalization and the human touch at critical financial moments.
The branch network has a positive impact on customers’ behavior and buying decisions because the physical presence helps provide a ‘trust’ dimension, even to digital-only customers, as it provides re-assurance. Also, there are several digital-savvy customers who use branch-based services very often.
A substantial number of customers globally also want human experiences to be blended with the speed and convenience of digital – instant face-time with bank representatives via mobile, for instance.
This has significant implications for bank branches. Customers prefer digital for routine transactions but expect human contact when it is required, and the fact it is readily available in the branches provide reassurance – besides reinforcing the bank’s brand. So, branches still have a vital role to play as visible, physical entities that provide positive and personalized experiences. The criticality of the branch therefore cannot simply be wished away.
Growth of Bank Branches: A quick look at the numbers
Worldwide, there are slightly more than 12 commercial bank branches per 100,000 population. However, in North America, the EU and Central Europe & Baltics the number of branches has been on the wane – from 30+ branches per 100,000 in 2009 to about 25 today. The US has had a 9% reduction in branches in the last 8 years, while in the EU there’s been a drop from 33 per 100,000 to 22.1. In the US, JP Morgan Chase and Bank of America announced plans last year to open new branches. Chase is considering opening as many as 400 new branches in 15 to 20 new markets in the next 5 years, while Bank of America said it would open more than 500 new branches over the next 4 years (Fortune), including an expansion into the major markets of Ohio. In the rest of the world, the data shows branches growing, albeit from a relatively smaller base. South Asia grew from 7.8 branches to 10.6 over the same period. (The World Bank).
Remodeling the Branch Experience
Over the years, especially during the last decade, there have been some exceptionally innovative advances with certain banks completely re-imagining the branch banking model. A few new age banks and some of the traditional large financial institutions have been leading the way by transforming the branch network into experience centers.
- Virgin Money, UK created a network of boutique customer relationship lounges to complement its branches. Developed as ‘non-salesy’ environments where customers can relax over a coffee, these lounges have been established in multiple cities. The lounges perform various roles including acquiring new customers, differentiating the Virgin Money brand and engaging with communities. They also act as a retail academy for staff training across the bank’s network. The results have been remarkable. Visitors to the lounges are over 2000 in a day, and sales has doubled in the full-service branches located near the lounges.
- Capital One, US has a flagship branch concept that incorporates free wi-fi and an in-branch café. The concept integrates digital experiences with physical presence and a human touch. A community space in the branch creates a comfortable environment for customers and the public – providing a better customer experience while increasing community engagement. The branch is completely equipped with digital tools, enabling customers and branch staff to have digitally-enabled conversations at the ‘Genius Bar’. Customers can also chat with ‘café coaches’ (onsite bank representatives) over a cup of coffee about different banking products, or they can just hang out with friends and enjoy the café’s food and free Wi-Fi. The café area attracts footfall into the branch, resulting in increased brand recall and higher sales opportunities. Tools that enable digital learning and support customers’ migration to self-service offerings are also available.
- To strengthen its position in Indian retail banking, SBI was aware that it had to engage better the millennials. SBI launched a digital banking program to remodel its branch environment and customer engagement to cater to India’s fast-growing population of young consumers. The new sub-brand called SBI InTouch, reflected the differentiated service experience. A global team helped design, build, equip and launch the new branches. SBI became the first bank in India to develop and deliver a sub-brand targeting the country’s young, digitally proficient population that began visiting the new branches in large numbers.
- The first recorded use of a bank having a drive-up window teller was the Grand National Bank of St. Louis, Missouri in 1930. Drive-through banking has come a long way since then – banks are now using videoconferencing technology to assist self-service customers. This enables bank employees who are miles away to focus on the busiest locations while reducing costs bank-wide.
- In a community where people work around the clock, FirstCapital Bank of Texas has 24-hour video teller service 5 days a week. The bank promotes the service to customers to ‘bank during your hours, not the bankers’. BBVA has rolled out video conferencing devices at its Texas drive-throughs that function as standard ATMs and include video service features. Bank of America has been testing video-enabled ATM kiosks called ‘teller assist’ at some of their drive-up locations and within its branches. Customers can use the machines as standard ATMs or for video-chats with English or Spanish-speaking staff. Putnam County Savings Bank, a community bank in Iowa, has deployed interactive video terminals at some of their drive-up locations that have enabled the bank to lengthen the hours when tellers are on duty.
With social distancing precautions on currently, more banks that have drive-through capabilities are asking customers to drive-by. By converting branches into experience touch points (with optimal health precautions during the current phase), banks are able to provide customers with a unique experience that they will come back again for.
Reimagining branch transformation
Despite digitization, the branch remains a commercially successful channel and more importantly the axis around which the distribution model revolves. No other channel comes close when it comes to high-touch, in-person experiences. Discovering the optimum balance between physical and digital properties therefore is vital.
Consider these strategies –
- Merging human and tech
Customers are more receptive to using branches when banks offer digital capabilities to enhance convenience. Enhancements include extending service hours (via virtual remote services) with a representative, digital self-service screens, and ability to schedule virtual video meetings with a bank representative. These options demonstrate how digital can drive high-touch interactions with the bank, whether remotely or in-person. While the methods have been around for a while they are not as widespread, but more banks are now experimenting with them.HSBC introduced a robot in its Manhattan branch to raise the bar on experience. The robot answers customers’ basic questions and directs them to the right advisor/personnel in the branch. NatWest, UK introduced an AI-powered bot in one of its branches to answer customers’ basic queries. The bot is integrated with internet and mobile banking.
- Merging human and tech
- Investing in branch talent
With digital simplifying experiences in branches, it makes sense to step up branch workforce training for conducting high-quality interactions with customers that result in positive experiences. The account opening process, for example, underscores the need for “attentive and empathetic human interaction by frontline staff. BBVA Compass is using certifications to train its frontline staff on helping customers with their complex queries and decisions. To help answer clients’ complex questions about market trends, UBS, Switzerland trained their wealth management advisors to use the digital clone of their chief economist and chief investment officer.
- Investing in branch talent
- Omnichannel integration
Having a consistent omnichannel experience is as important or very important when selecting a primary bank. Re-imagining branches of the future involves removing the channel silos between physical and digital channels and allowing customers to seamlessly move from one channel to another. ING Bank, NL allows customers to schedule appointments at the branch via their online banking portal.
- Omnichannel integration
- Sense of community
Branch visits can go beyond transactions. They can become enjoyable social experiences to look forward to. Customers are likely to increase visits to a branch if it resembled a café, where they could plug in, hang out, or even work.
- Sense of community
- Adopting the human factor in digital channels
Digital does not mean zero personal interactions. Banks must match the branch experience, particularly empathy and responsiveness, in digital channels.
- Adopting the human factor in digital channels
Bank branches are still relevant in a digital world and play a fundamental role in strengthening the image / brand of the bank. From traditionalists (ones most reliant on traditional channels) to online embracers (those who use digital channels frequently) to digital adventurers (those most likely to use digital channels), branch satisfaction has a higher influence on overall satisfaction when compared to satisfaction with digital channels.
Re-configuring the conventional branch model driven by the growing demand for a differentiated experience, is a good sign. While the jury may still be out on the future of branches, the one thing that is certain for the road ahead is – a renewed commitment to a whole new concept of branch banking and its integration into the bank’s larger omni-channel strategy.