Since the heydays in investment banking seem to be over, attention is again turning to the retail side of banking to deliver steady profits and stable funding that banks need to regain the support of investors. It seems that the timing for retail banking is right to regain attention, since consumers are evidently changing their ways of interaction with retail banks through the use of mobile technology. Yet a central discussion point remains: the future of the bank branch. Will branches, who have been prematurely reported dead several times over the last decades, join the same fate as book stores, music stores and travel agents which keep on disappearing from high streets globally? Or is trust still paramount in retail banking, where people will leave their savings only with banks that have a vast network of branches symbolizing their stability? We at Four Principles believe that the branches play a vital role in retail banking and that their days are far from over. This holds true, only if retail banks focus uncompromisingly on delivering outstanding customer value through following Lean values and implementation of a continuous improvement process that improves product/service quality, service delivery lead time and reduces costs sustainably, with savings being partially passed on to its customers.
Retail banks are increasingly fighting over a higher share of wallet from their customers, with customer loyalty being the key driver for growth. Customer loyalty forms through customers’ key interactions with their retail bank, also called ‘moments of truth’. In order to constantly impress customers, for the retail bank it is not sufficient anymore to merely meet customers’ expectations, it has to continuously over deliver throughout all ‘moments of truth’. How does bringing Lean into this picture help? Lean empowers retail banks to continuously and sustainably improve their product/service quality, service delivery and cost position, while at the same time overachieving their customer expectations constantly.
Operational processes in front- & back-offices of retail banks will become more efficient through Lean implementation, resulting in freed-up time for the sales and customer service personnel to enhance service level delivery to their customers, triggering a positive impact on customer loyalty and hence increasing overall revenues and profits. Research shows that the biggest impact on customer loyalty is created through the following six ‘moments of truth’:
Flexible processes are required to deliver positive ‘moments of truth’, which can rapidly become very costly. On the other hand, customer interactions that cannot be classified as ‘moments of truth’ can be standardized to a very high extent and therefore should be delivered in the utmost cost efficient way. While the six ‘moments of truth’ are costly to deliver individually, they do not occur as frequently as the standard customer interactions, which in turn account, due to their high volumes, for the highest share of total costs. Lean addresses both sides of the spectrum through continuously and sustainably eliminating waste.
On top of the above mentioned types of waste, an insufficient error-tracking process leads to double work, when employees have to repeatedly fix the same problem over and over again without being able to identify and to tackle the root-cause of this problem and therefore eliminate it once and for all. This rework combined with no proper forecasting and a highly inflexible workforce produce long and highly volatile lead times for a mortgage customer’s service delivery.
The described waste in a retail bank’s mortgage process can usually be linked to a few common root-causes, such as human/processing errors, over dimensioned quality regulations, excessive movement between offices/departments, lack of standardization and automation of simple procedures and missing /not working interfaces between IT infrastructure and software.
In a typical retail bank’s mortgage process the total value-added time in terms of capacity is approx. between 10% to 30%, with the remainder, 70% to 90% , being waste. 50% to 60% of the waste has its root-causes in the above-mentioned common root-causes, whereas 10% to 15% are rooted in inflexibility (inflexible work schedules, high degree of specialization of resources) and the remaining 10% to 15% are rooted in variability (absenteeism, product/service demand seasonality, differences in productivity between individual employees). This means that in the best case a retail bank might work only at 30% of its total capacity, although when looking at it from the surface every employee and department appears to work extremely hard.
The above example clearly states, that there is plenty room for improvement through the application of Lean in retail banking.
In order to tackle the above-mentioned areas of waste Lean can be applied in retail banking as follows:
|Customer-to-customer mortgage application process time reduced by 65%, by reduction of data points to be filled in in branch with customers, reduced overall document complexity and signatures needed|
|Customer waiting time to be served from teller in branch reduced by 75%, by introducing new branch Lean layout reducing movement of employees/overall process time and introducing multipurpose ATMs with a higher degree of self-service functionalities)|
|First-time-right mortgage applications increased from 40% to 80%, through reduction of incomplete file submissions from front line sales staff to back office staff by introduction of clear roles and responsibilities, linked to KPIs and team’s/individual’s incentive structure|
|Resources devoted to overdraft authorization reduced by 70%, through reduction of authorization levels from 10 levels to 3 levels|
|Customer serving costs in branches reduced by 50%, through elimination of process inherent waste and thereby increasing value-added time available for customer service representatives to meet additional customers|
To learn more about Lean retail banking solutions, contact Four Principles today.