05/31/2010 05:12 am ET | Updated May 25, 2011

Customer Channel Intensity

We all recognize that a total channel, total relationship, total profitability view of the customer is essential moving forward for retail banking. So the question becomes how to collate that data organizationally. Until you lift the hood and see all this data, then it's just too hard to really know where revenue lies.

As I'm speaking to more and more banks about BANK 2.0 a glaring realization is coming together. I think this has to be a core role with the bank moving forward - why? Because this is what someone needs to tell management for them to get it right.

Right now today I believe that in most developed economies if we properly measured Internet as a channel we'd find that it contributes on a par with Branches in respect to revenue. Internet is the primary day-to-day channel for almost half the retail bank's customers today.

My argument is as follows. Let's take a product like mortgages - in the USA, UK, Hong Kong, Singapore, Australia, Malaysia or similar with 70-75% internet penetration. Most people would be doing their primary product research on the web before committing to a mortgage. In some cases they might actually apply online, but even if they don't apply online they are still doing the bulk of their research online then they'd call to make an appointment or use an online enquiry form, etc. The key component of the sales process has really happened outside the branch (i.e. the 'hook'), but in the end it's likely that a bunch of sales get recorded as 'branch' revenue when actually the lead was generated online. Same with credit cards, life insurance, etc.

Now, internally as a bank we tend to have revenue as a key measure because it directly effects profit and therefore EPS (Earnings per share). What we look from a financial metrics perspective is what Branch A, Product B and Direct Channel C did month-on-month as a comparison of relative performance over time. We look at revenue for product as a whole, we look revenue for the channel as a whole, but I don't believe banks generally have a clear picture of how customers engage for a product 'journey' and where the revenue is really coming from. Additionally, we probably have a fair idea on transaction traffic per channel, but do we know how that traffic has changed over the last 2-3 years? What is the pattern? Can we predict more accurately where customers will be going in the future.

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