A new retail report by Jones Lang LaSalle emphasises that changes across the global retail banking environment continue to be driven by political, economic and technological trends. These trends will lead to continued bank expansion in frontier markets, offsetting the search for greater efficiency in developed markets. The report, Global Retail Banking: Key Trends for Retail Estate, identifies that changes in global retail banking will be fuelled by increasing customer demand for innovation, flexible service capability and banks actively managing their brand’s presence in a retail environment.
These drivers will result in retail banks making substantial changes to their established branch networks in developed markets. As a result, Jones Lang LaSalle predict that as much as 50% of existing retail bank branches in the developed world will be obsolete by 2020, as banks assess their space requirements. However, this decline will be offset by increased numbers of retail bank branches in developing countries such as Brazil, China and India.
Key findings of the report include…
- Retail banks increased focus on “multi-channel”; with banks focussed on getting the right physical presence in the right place, supplemented by mobile and internet banking services.
- Increased customer segmentation; focussing efforts on which services to provide to whom, where and how.
- Hi-tech experimental branches; with 24-hour access to call center staff through video conferencing and other technological developments, and a move to mimicking customer-centric retail environments.
Analyzing the trends further, James Brown, Head of EMEA Retail Research & Consulting, Jones Lang LaSalle said, “Historically, a retail bank’s sole customer sales and service channel was through a large branch network. The rapid ascent of telephone, online and now mobile banking continues to accelerate change and innovation into the retail and banking industry. Whilst we are still seeing new entrants opening physical branches, our research highlights that most developed markets across America and Europe are ‘over-banked’. We predict that as a result of ‘right-sizing’ and embracing technology, 50% of retail branches in these developed markets will be obsolete in their current format by 2020. Excess branch networks won’t disappear overnight, but the trend will be one of a steady run-off as property leases expire. The challenge in this truly multi-channel world will be for global retail banks to actively manage their existing property portfolio and then to identify the right locations to maintain a presence or take new space. We will see far more emphasis on right place, right space and right price.”
Stuart Hicks, President, Banking Industry Group, Jones Lang LaSalle said, “In North America, these trends carry the potential to help banks build customer engagement. Banks are using a retail branch real estate strategy to make every consumer visit more meaningful than ever before. Leading banks are leveraging emerging technologies, physical branch improvements and sophisticated customer relationship management to ensure that while the overall number of North American branches may be declining, each branch visit builds trust and customer engagement. Each branch is becoming better equipped to sell a wider array of integrated products and services, and thus improve profits as well as customer satisfaction.”
The journey to the East is definitely an emerging trend in Asia, but will growth in Asia offset decreasing branch presence in the West? Asians are not only becoming wealthier and putting more money under management, they are also borrowing more. As a result, banks in Asia are rushing to capture market share. According to recent internal research, M&A activity among banks in Asia is on the rise. Governments are seeking to strengthen local bank competitiveness and promote the growth of regional players. A prime example is the 7.3 billion USD bid by Singapore’s DBS Group to take over PT Bank Danamon in Indonesia earlier this year.
Although large multinational bank expansion in Asia may be slowing, there is fierce competition from local banks. Global banks like HSBC, Standard Chartered and Citi face competition from regional competitors like UOB, DBS, and CIMB, not to mention about 165 local banks (not including China – which heavily controls branch develoment). Furthermore, Asian consumers are becoming wealthier and more sophisticated.
More importantly, the report highlights the importance of real estate and getting the right type of branch in the right locations. This is true in Asia’s emerging markets just as it is in the UK and US. Consumer segmentation is increasingly more important in Asia when effectively managing branch real estate. According to HSBC, there are nearly 900,0000 emerging affluent segment clients in Singapore (people with assets of S$20,000 ($16,224) to S$200,000). For Hong Kong, there are 1.25m people in this category. Across Asia, affluent segment clients are increasing at a rate of 20% per year, to a total of 86 million in 2012. To win in Asia’s competitive markets, banks will need to find out where the emerging class lives and works to capture this market. Therefore, effective consumer market sizing and targeting as well as efficient branch network optimization are key. Or as the JLL report put it, the importance of knowing which services to provide to whom, where, and how.