Cross Channel Integration and Optimization in Nigerian Banks: Post Consolidation
As the deadline for Nigerian Banks to meet the regulatory requirement of N25billion approaches, we are all anticipating with bated breath the significant transformation of the banking landscape. There is the belief by the general population that the Nigerian Banking Environment would be highly competitive fostering the need for innovation by banks.
So much has already been said and written about the new policy thrust by CBN and what it means for banking in Nigeria, one would however like to reiterate a critical issue- following post consolidation, the challenge for banks would be how to maximize returns and optimize profitability. This is already becoming obvious for example, when we look at the Return on Assets of banks with the newly required capital base. Banks would need to significantly increase their level of returns while at the same time manage their costs. To achieve this banks will have to offer innovative products and services to the market place including new ways of delivering them.
Extrapolating from the various comments by Bankers it appears there will be a strong focus on retail banking by most banks. In the past banks have not found this segment of the market profitable and one doubts that it would change significantly unless banks are able to deliver retail banking services in a very efficient manner. Banks that are able to do this will have a strong competitive edge against others and technology will play a key part in assuring or achieving this.
Already we are beginning to see the emergence of new channels or touchpoints as opposed to the traditional ‘brick-and-mortar’ (branch). By channels or touchpoints we mean Automated Teller Machines (ATMs), Internet, Point of Sale Terminal (POS), Mobile etc. More and more these will play a key role in service delivery to retail customers. With the proliferation of these channels over time the challenge for banks will be how to use these channels in effectively offering additional products and services and managing their costs of service delivery to their retail customers, which would constitute the bulk of their customer base. An approach to addressing this ubiquitous challenge will be cross channel integration and optimization.
Cross channel integration and optimization is not simply about executing the same activities in multiple, separate channels, nor does it focus on simply integrating and synchronizing channels to support cross-channel products or services. Instead it offers a systematic approach to exploit the strengths of one channel to complement the relative weaknesses of other channels. It involves the migration of costly activities in one channel to a lower costs basis in another. What this means for Nigerian banks is that they are able to identify the strength and weaknesses of their various channels and also identify opportunities to provide retail services to their customers through a channel that is convenient for the customer and also at the lowest possible costs.
Accordingly, this paper makes the case for an emerging retailing model for Nigerian Banks based on years of research. The paper elaborates on the conceptual basis for cross channel integration and optimization and describes a four stage iterative framework to harness its power:
Stage I – Multichannel Strategy Alignment
In this stage banks need to address two key questions 1. What is our strategy to serve our customers? and 2. How is this strategy executed within and across multiple channels?
Essentially this stage involves ensuring that the basic value proposition (retail banking products and services offered and pricing), are in sync with the overall strategy. Alignment is important because it allows the bank to present its value proposition in a compatible way in all channels.
Stage II – Focus on Achieving Proficiency
In this stage focus is on achieving operational proficiency. The two key aspects of achieving proficiency in the context of multichannel retail banking are:
First, banks aim to reduce the costs of performing activities in the new channel by achieving economies of scale. This is about going up the familiar learning curve: the lower the relative costs, the greater the difference with those in other channels, and therefore, the greater potential for benefit of cross channel optimization.
Second, banks respond to customers emerging banking patterns and information needs, both within and across the different channels.
Stage III – Leveraging across channels
In this stage banks seek to deploy assets or capabilities developed in one channel into another. This involves using the strengths of one channel to compensate for the weakness in another. Each channel has certain inherent challenges that are well known and are not solvable in that channel, but can be addressed by leveraging on the unique capabilities of a different channel. For example, starting a loan process on the web and completing that process in the branch.
Stage IV – Optimize the Operating Model
In this last stage, banks seek to optimize their operating models at an enterprise level. Optimization builds on leverage. The basic logic is simple: if a capability or asset from one channel is systematically available to the other channels, the overall resources or budget devoted by the enterprise to similar or redundant activities can be appropriately adjusted. For example, if new products and services can be advertised via the web, ATM or mobile channels, then the budget for media advertisement of such products and services could be reduced or redirected to more productive uses.
This last stage involves a three-stage process:
- First, Banks need to specify metrics and collect data (for example cost of providing services via an ATM as against a branch)
2. Second, metrics are used as input to response model (continuing the example, if the costs of providing services via the ATM, can customers be redirected to this cheaper channel?)
3. Third, the response model is used to adjust resource allocation.
An optimized organization structure and the right incentive schemes, tied to the chosen metrics are required to support this process.
In recent times we have seen Nigerian Banks begin to develop new capabilities and adopt new channels of delivering services to their customers. Most of this has however, not been from any clear strategy and has been driven more by a bandwagon effect. Going forward banks would need to develop a conscious strategy within and across the various channels at their disposal for delivering services. While, doing this they must recognize the challenge of doing this optimally.
To be successful at cross channel integration and optimization, banks will need to proactively address key factors that may hinder their progress. The charge must be led from the top of the organization, treating multichannel retail banking as an enterprisewide, strategic issue. The internal objectives and incentives must be aligned. The performance and costs of specific activities in each channel should be measured to identify the most promising opportunities for optimization.
Mr. Ini Akpan, Managing Director SoftWorks Limited a member of the Telnet Group.