Kevin Philpott

International Journal of Arts and Sciences 3(2): 66 - 82 (2009) CD-ROM. ISSN: 1944-6934 InternationalJournal.
org
Channel Innovation in the Retail Banking Sector: Best Practice Initiatives, Customer-orientation and Emerging Strategic Foci
Kevin Philpott, University College Cork, Ireland Lawrence Dooley, University College Cork, Ireland Abstract: This study presents a selection of key findings from a wider exploratory investigation into the nature of multi-channel innovation in the retail banking sector. Drawing on interviews conducted with industry experts, the following investigation makes four core contributions. First, the study highlights a wide range of best practice channel innovations for further consideration by bank management. Second, the study provides evidence that banks are looking outside the banking industry for best practice inspiration. Third, the study hypothesises that best practice channel innovations tend to be customer-oriented in nature. Finally, the study hypothesises that best practice multi-channel strategy is moving away from the current, unfocused all-things-to-all-people approach.
1. Introduction
Innovation is positively related to firm performance (Goosen, de Coning & Smit, 2002; Rauch, Wiklund, Frese & Lumpkin, 2004). Managing multiple distribution channels is now a key strategic challenge for retail banks (Bruce, Bondy, Street & Wilson, 2009; Capgemini, EFMA & ING, 2008). Drawing on the findings of a larger study, this paper examines best practice innovations across the multi-channel mix. This is done from the perspective of a clicks and mortar retail bank. Clicks and mortar retail banks are those banks that have both a physical branch network and an online presence. First, the study provides a brief review of the relevant literature, followed by a summary description of the exploratory methodology employed. Next, the study presents core findings related to: best practice channel innovations, channel functions, and channel evolutions. Finally, the implications of these findings are discussed and recommendations for future research are made.
2. Literature Review
2.1 Innovation and the Retail Banking Sector
Innovation can be described as the means by which either new wealth producing resources are created or existing resources are endowed with enhanced potential for creating wealth (Drucker, 1985:67). At the organisational-level, innovation has been shown to be positively related to individual firm performance (Goosen, et al., 2002; Rauch, et al., 2004). One key industry where there are calls for greater levels of innovation is the retail banking sector (Sullivan, 2009; KPMG & Innovaro, 2007; Capgemini, et al., 2008). The retail banking sector is currently struggling as it comes under greater competitive pressure from a number of sources. Customers are becoming more demanding (Accenture, 2008). Banking services are gradually being seen as commodities (Onufrey & Moskowitz, 2008; Genesys, 2008). Nonbanking organisations are increasingly entering the marketplace to compete for customers (Deloitte, 2008). Combing these trends, there appears to be a strong impetus for greater levels of innovation to enable individual banks to differentiate themselves in an increasingly
International Journal of Arts and Sciences 3(2): 66 - 82 (2009) CD-ROM. ISSN: 1944-6934 InternationalJournal.org
competitive marketplace. Yet retail banks are behind other industries in terms of managing the process of innovation (KPMG & Innovaro, 2007; Mckeon & Kandybin, 2006). In order to address this issue, a deeper understanding of innovation in the retail banking sector would be valuable. Indeed, relatively little is known about innovation in the retail banking sector. This is symptomatic of the wider problem that relatively little is known about services innovation in general (Tidd & Bessant, 2009). From the body of research that has been conducted on innovation in the retail banking sector, some significant findings have emerged. For instance, KPMG and Innovaro (2007:15) point out that innovation in this sector tends to be both incremental and short-term in nature (ibid). A longitudinal study conducted by Roberts and Amit (2003) on the Australian retail banking sector offers further insights. According to this study, between 1981 and 1995, the vast majority of innovations in the Australian sector were imported from banking industries in other countries. Furthermore, the study shows that within the Australian sector, innovations were quickly copied by competitors, usually within one year. In fact, only one of the twentysix major innovations observed by the study avoided imitation for a prolonged period of time. What is more, this rare proprietary position did not realise significant financial performance improvements for the bank in question. The study showed no evidence that innovating first in the market significantly impacted financial performance. Rather, findings from the study suggest that a banks financial performance was positively related to historically undertaking incremental innovative activities that were new-to-the-firm, but not necessarily new to the sector as a whole. The findings from this study appear to align with Michael Porters assessment of the retail banking sector (Klinkerman, 1998). According to Porter, The banking industry is overwhelmed by imitation...One bank goes into Internet banking; all banks go into Internet banking. One bank puts branches in supermarkets; all banks put branches in supermarkets (ibid. p.40). However, Porter suggests that now is the time for banks to move away from their imitative instincts in order to provide a differentiated offering in the marketplace. In summary, these key findings demonstrate that innovation in the retail banking sector tends to be incremental and imitative in nature, and retail bank performance is positively related to the continuous adoption of new-to-the-firm ideas.
2.2 Distribution Channels

A key area of strategic importance for retail banks is distribution channel management (Bruce et al., 2009; Capgemini et al., 2008). Fundamentally, a distribution channel can be described as any delivery method through which a bank can provide services to customers. Each individual bank typically operates an array of distribution channels, collectively termed the banks multi-channel mix. Across the multi-channel mix, those channels that do not involve physical face-to-face contact with bank staff members have been called direct channels. Examples of the most commonly employed direct channels include: call centres, web banking, direct mail, and automated teller machines. Historically, banks have actively sought to migrate simple transactions, products and services away from tellers towards direct channels. This global trend has been driven by a combination of three underlying forces. Firstly, migration towards direct channels represents a cost saving opportunity for banks, particularly migration towards web banking (Peppard, 2000; Farquhar & Panther, 2007). Secondly, the migration of simple, low-value activities away from in-branch tellers, allows staff to focus instead on the sale of high-value products and services (BearingPoint, 2006). Thirdly, direct channels have the potential to offer customers enhanced levels of service and convenience (Peppard, 2000). As a result, most clicks and mortar banks must now manage
innovation across a broad range of both direct and indirect distribution channels. Given the aforementioned importance of innovation to firm performance, it is surprising that there are no academic studies to our knowledge that have focused specifically on the nature of innovation in the context of the multi-channel mix. Consequently, this study seeks to provide a deeper insight into the nature of distribution channel innovation in the retail banking sector. In particular this study seeks to identify best practice channel innovations for management consideration. Moreover, the study also seeks to bring to the surface relevant emerging channel innovation trends.
3. Methodology
Quantitative studies can underemphasise or miss potentially important distinctions between the innovative activities of different organisations (Tether, 2003). Thus, this investigation adopts an in-depth qualitative methodology. Given the absence of specific multi-channel innovation theory, an exploratory-style investigation was considered most suitable (Martin, 2003). With insufficient theory to test, the study takes an inductive approach (Eisenhardt, 1989). As with many other previous studies, semi-structured interviews were deemed the most appropriate data collection technique for an exploratory-style investigation (Petkova, Rindova & Gupta, 2008; Rogers, 2008; Doyle, Hughes & Glasiter, 2009; Ramstrom, 2008). Informal, conversational-style, interviews were conducted with a panel of sixteen channel experts. Ten Interviewees were sourced through research advertisements targeted at specialised professional groups. Six interviewees were sourced by approaching companies identified by other sample informants as information-rich sources. Indeed, all interviewees were purposely sampled to provide information-rich and insightful cases (Patton, 2002). Each informant was initially screened based on their job description and past channel experience. In order to protect against a myopic bias, ten bankers and six consultants were recruited. Bankers provided organisation-specific perspectives while consultants provided industrywide perspectives. Bank informants were either: channel managers, multi-channel leaders or equivalents. Consultant informants ranged from the vice president of a financial services consulting firm to a director of distribution channel research. Informants were further selected to provide a broad geographic mix, with a focus on mature retail markets. Specifically, the sample spanned: the US, the Middle East, the Nordic Region, Australia, and the EU (UK and Ireland). Overall confidence in the sample selection increased as informants unknowingly indentified other banks represented in the sample as best practice firms. However, the following study does not make direct associations between best practice banks and the sample to protect interviewee anonymity. Interviews covered a wide range of topics including: channel functions, best practice channel innovations, and channel trends. Interviews were conducted either over the phone or in person, and typically lasted between sixty and ninety minutes. Interview transcript notes were reviewed by a second independent researcher to assure informants had sufficient knowledge of the research area. Interview transcript notes were coded and iteratively assembled into emerging categories and overarching themes as the study progressed. As key ideas developed during the interview process, existing literature was surveyed for corroboration and conceptual clarification. The core findings from the investigation are now presented under the following three thematic headings:
(a) The main distribution channels identified by informants (b) Informant perspectives on channel functions and best practice innovations (c) Emerging channel trends
4. Findings
4.1 The Main Distribution Channels Identified by Informants
As a starting point, respondents were asked to identify the main distribution channels that can exist between a bank and its customer base. Figure 1.0 presents informant responses. The following five traditional channels were identified by informants: the branch, web banking,
Channel Category Main Channels Sub-channels Descriptive Quotes from Expert Informants Still, the primary banking channel for most. Central to the sale of value-added services that require faceto-face contact. Trying to reduce printing and paper costs here, but this channel is still invaluable for people that like to physically take away and read a document. Used to reduce queues and costs for the banks ...its importance will continue to grow over time due to the benefit of cost efficiencies for banks, and potential conveniences for consumers. Customers hate it because IVR is usually badly designed, but its cost efficient for banks. Needed for more complicated remote queries, and increasingly used for cross-selling. Generally, not seen as a competitive differentiator, but more important in countries like the US where ATM pricing strategy is important due to surcharge competition. Banks are looking to move a lot of this communication to e-messages, due to cost efficiencies. Possible future alternative to face-to-face contact. Capable of providing convenient access to bank staff without leaving your home. Banks believe social media is an important space to be in, but they arent really sure what to do within this space just yet. Seen as an extremely promising future channel, but generally still only in the early stages of development and testing. Popular in Australia and could potentially be applied in other countries for the sale of complex products like mortgages. There are a number of benefits to piggy-backing off another organisations existing channel network.
In-branch Staff Branch In-branch flyers In-branch ATMs Web Banking Conventional Channels Call Centre Interactive Voice Response (IVR) Call Centre Agent (CSA) -
External ATMs
Direct Mail
Video interface
Web Agent Social Media Banking Innovative Channels Mobile Banking Field Agents Partnering with Another Firm
Chat box interface Facebook, Twitter, etc. SMS-based, browser-based, client-based. Post offices, supermarkets, other financial service providers, etc.
Figure 1.0 The Distribution Channel Spectrum
call centres, external automatic teller machines (ATMs) and direct mail. These channels are employed by the vast majority of banks operating in more developed markets. Informants further reported that the traditional channels could be supplemented by a host of more innovative channels including: web agents, social media banking, mobile banking, field agents and non-bank distribution partnerships. These channels are present to varying degrees across more developed markets and represent new distribution alternatives. The next section of this study describes the functions of each of the main distribution channels as well as identified best practice innovations.
4.2 Informant Perspectives on Channel Functions and Best Practice Innovations 4.2.1 The Branch
There was widespread agreement amongst the sample that the branch remains the primary distribution channel for the vast majority of retail banks. The physical, face-to-face nature of the branch was considered a core competitive advantage when it came to banking activities that require high levels of trust, for example the sale of complex financial products or the resolution of complicated customer service issues. Aggregated sample responses showed that the core strategic objective of the branch was to build customer relationships in order to preserve loyalty and drive high value sales. One particularly experienced informant stated that it is the essential human element of branches that allows best practice banks to move into the high value adding, trusted financial advisor space. At present, the comfort of this face-to-face relationship was reported to be the key competitive advantage that clicks and mortar banks have over purely online banks. A general innovation trend emerging from the interviews was that innovation in the area of planned branch enhancements borrowed heavily from practices outside the retail banking industry. For instance, three informants noted that best practice banks were beginning to borrow same-store-growth metrics from the supermarket industry to increase deposit growth. Similarly, six informants identified copying the extended opening hours of non-bank retailers as a best practice evolution. In addition, seven informants noted that a number of banks have re-designed branches to physically appear less like traditional banks. Umpqua Bank was identified as best practice for physically designing its branches to have a much more casual, open-plan, sales-conducive atmosphere. Umpquas branches have been designed with special customer-centric features like, coffee spots, sit-down zones and ask bars. Along the same vein, Bank of New Zealand has designed a range of financial products that are displayed in physical packages. In this way consumers can more easily browse through their financial options when making purchase decisions. As a result, banks appear to be progressively looking towards more consumer-focused industries for branch best practices.
4.2.2 Web Banking

Across the sample web banking was found to be the second most important distribution channel, growing in importance to meet that of the branch. As a channel it tends to be more suited to addressing simple customer queries, carrying out simple transactions, and selling simple financial products. However, it was reported that over time customers are becoming more comfortable buying increasingly complex products online (e.g. shares and life
insurance). From a banking perspective, an inherent benefit of the web channel was cost reduction. While exact costs differed across the sample, it was generally reported that average transaction costs were most expensive through in-branch tellers, followed by CSAs, followed by ATMs or IVR, followed by web banking. This makes web banking a cost-effective distribution channel. Using a specific example, one bank informant estimated that it costs... [his bank]...about $12 to open an account using a human as opposed to $4 online. Thus, migrating customers towards web banking offers a significant cost saving for banks. Additionally, it was reported that the public section of a banks website is becoming a key acquisition tool. This is because, as online life proliferates, customers are increasingly considering the offers of competing banks by browsing competitor websites. From a consumer perspective, web banking can represent a highly convenient service. A representative quote from a bank informant stated that websites are currently being redesigned, so that customers can enjoy using the site, and so that they can interact and play with their finances...Its all about allowing them to do things nice-and-easy, and upfront, and making things as simple as possible for them. As a general innovation trend across the sample there appears to be a strong push towards making banking websites much more customer-centric. For example, four informants pointed towards the homepage of Progress Figure 2.0 - Succinct Homepage (Progress Bank as a best practice design (see figure Bank of Florida, 2009) 2.0). The page is distinctive, visually appealing and easy to understand for both customers and non-customers alike. In terms of customer-centric functionality ten informants pointed towards Mint.com as a best practice example. Mint.com is a non-bank money management site that allows users to make savings through improving their personal finance decisions. Mint aggregates the customers credit union, credit card and bank data so that the consumer can easily see an overall picture of their personal financial activities. The site displays attractive graphs that break down the users monetary activity so that they can better understand and adjust their financial behaviours. The site can also send text alerts to warn users of changes in bank fees, low balances and suspicious account activity. In this way Mint offers users a highly desirable customised service. Additionally, respondents stated that best practice banks were looking more and more at personalising the secure section of bank websites. Bankinter was identified as a best practice example. This bank targets its affluent customer base with messages that depend on individual customer behaviours (Gemes, Konik & Moss, 2008). Based on the specific online behaviours, the site will recommend products such as: tax planning, trusts and access to equities. Moreover, Bankinter offers users fast access to frequently used areas of the website based on individual usage patterns (Booz Allen Hamilton, 2007). Surprisingly, the vast majority of web banking innovations identified by the sample as best practice, focused not on cost reduction, but rather on enhancing the online experience. In summary, it was found that although web banking is inherently cost reducing for banks, it seems best practice innovation focuses more on enhancing the customer experience.
4.2.3 Call Centres

Informants stated that call centres were originally introduced as a cost reduction tool. In fact, within the sample, up to 90% of calls were handled by low cost interactive voice response machines (IVR). Calls that could not be answered through IVR were directed to a call centre agent (CSA). It was reported that banks are seeking to leverage these inbound services calls to drive cross-sales. The call centre acts as a necessary remote channel for less tech savvy customers and for those without internet access. It also acts as a useful customer support service for both the web banking and branch channels. However, evolving from their original purpose call centres were perceived by thirteen out of the sixteen informants as cost centres. Perhaps more importantly, it was widely remarked across the sample that customers increasingly preferred web banking or branch channels to call centres. As one consultant comment exemplifies, IVR is usually very poor. Call centre customers are very frustrated with it. Customers would prefer not to phone call centres at all, except when they have to. First Direct was identified by informants as a best practice call centre example. Unlike most other banks, First Direct uses its call centre to build customer relationships. This is done by specifically training CSAs in customer empathy and mood matching techniques to deliver a highly personalised, rapport building customer experience (Millard, 2003). Six informants further added that call me back buttons on websites were a best practice method used to improve sales conversion rates. While some banks were reported to have outsourced their call centres to control costs, across the sample the call centre was generally expected to remain a relatively steady channel for banks in the near future. However, in the long-term this may change, given the reported unpopularity of the call centre channel for most banks in the sample. Gemes, Konik & Moss (2007) have corroborated this finding at the global level by highlighting the decreasing importance of phone banking as a purchasing channel.
4.2.4 Automatic Teller Machines

The sample unanimously stated that the primary objective of external ATMs was cash withdrawal. While some banks had external ATMs with the capacity to sell products (e.g. theatre tickets, airline tickets, and mobile top-ups), others consciously minimized sales features to avoid queues. Typically across the sample external ATMs were not perceived to be strong sales channels. Moreover, ATMs were not generally perceived to be effective market differentiators, with the possible exception of banks operating in countries where surcharges play a noteworthy role. Perhaps most importantly this study questions the longterm viability of the external ATM network. One bank informant, operating in the samples most technologically advanced market, stated that ATM transactions in his region were already seeing a 1.5-3% decrease in transaction volumes per annum due to movement towards electronic payment methods. While for the foreseeable future cash will remain a key payment method in most countries, it is slowly declining at the global level (Denecker, Sarvady & Yip, 2009). Since external ATMs are generally not seen as market differentiators, and since the importance of cash withdrawals looks set to decrease in the long-term, findings appear to call into question the long-term strategic role of external ATMs in the multichannel mix. On the other hand, sample informants noted that most banks are leveraging in-branch ATMs to free up teller time for high value adding sales opportunities. One key area of in-branch
ATM innovation identified by informants was automated deposit machines. Such in-branch machines allow customers to self-deposit cheques, cash and coins. However, it should be pointed out that respondents had mixed experiences with the success of such machines. Some informant criticisms included: customers being too afraid to use the machines, coin deposits being too slow, and the existence of some margin of error in counting. On the other hand, other respondents reported strong growth in usage. Indeed, Commerce Bank was identified as a best practice example, using free in-branch coin deposit machines to attract in non-bank customers. In-branch ATMs were generally considered to be useful cost reduction mechanisms and branch supports, but individual differences between machines may need to be considered when making strategic choices.
4.2.5 Direct Mail and In-branch Flyers

Direct mail was reported to be especially useful for: mailing foreign currency to customers (e.g. HSBCs Travel Money service), launching large-scale credit card sales campaigns, and catering for the needs of less tech-savvy customers. In-branch flyers were considered a critical channel for those customers that like to physically take away and read banking information. However, it was additionally reported that many banks are now seeking to significantly reduce paper-based costs. This is typified by the present push to encourage customers to use e-statements. Many sample informants expected paper-based communications to be minimized going forward.
4.2.6 Web Agents

Web agents add a real-time human element to online bank interactions. Informants that had experience with web agents explained that two distinct formats were currently employed by banks. In the first format, web agents use a pop-up dialog box to communicate with customers. One interviewee reported that a skilled chat agent can handle four customer queries at once, making it a particularly cost effective channel. The second form of web agent is a Skype-style video agent. Bankinter recently introduced this tool to enable remote financial advice, file sharing, and online support. As a result, Bankinter achieved 150% growth on its sales success rate within the first 3 months of implementation (The Banker, 2008).
4.2.7 Social Media Banking

Two interviewees were currently trialling the idea of social media banking. Indeed, approximately fifty banks and credit unions have developed Facebook pages (Bruene, 2008) and a number of major US financial institutions have opened Twitter accounts (e.g. Bank of America and Wachovia). Furthermore, informants reported that Wells Fargo has launched an online role playing game and First Direct has formed its own online community that reviews restaurants and holiday spots. However, at present social media bank is still very much in the experimental stages of development. As one bank informant put it, banks believe social media is an important space to be in, but they arent really sure what exactly to do within this space just yet. No convincing evidence was provided by the sample to confirm the link between social media banking and significant positive financial performance improvements. However, respondents were positive about future developments.
4.2.8 Banking Field Agents

Four informants explained that banking field agents (also known as mobile bankers) were a common distribution channel in Australia. Following the Australian model, field agents travel directly to the homes of time poor customers to sell complex financial products, for example mortgages. It was suggested by Australian informants that there was significant potential to trial this model more widely in other regions. The same conclusion was reached by Gemes et al. (2007:1). This channel appears to align with the benefits of the branch channel by encouraging relationship building and a more convenient customer experience.
4.2.9 Distribution Partners

Informants noted that banks can piggyback off the distribution networks of other organisations. Common types of bank partnerships were reported to exist between post offices, supermarkets or other financial services firms. Of these partnerships, the most oft mentioned form of partnership was the supermarket bank branch. From a bank perspective, the success of such a partnership was deemed by sample members to be heavily dependent on achieving strategic fit. According to Flur, Ledet and McCoy (1996), supermarket bank branches appear to be less suited to banks pursuing strong relationship building strategies (ibid). As a result, supermarket banks tend to be more suited to the sale of low margin products, like checking accounts, personal loans and credit cards. Respondents stated that partnership success varied case-by-case.
4.2.10 Mobile Banking

Mobile banking was most often cited across the sample as the biggest channel development over the next five years. A number of different mobile banking formats were found to exist including text, WAP and downloadable client applications. The general evolution of mobile banking in developed markets was reported to be towards Smartphone banking. Smartphones typically leverage rich user interfaces to provide an enhanced remote banking experience to customers. However, currently most banks are still only in the early stages of mobile banking development. In terms of functionality, mobile banking appears to be evolving from the information-push stage to the transaction stage. As one informant explained, banks, ...are only now really beginning to get into the payments phase. Those informants that had introduced Smartphone mobile banking, had seen promising results. Typifying sample reports, one banking informant noted that in his bank, transaction numbers are growing very positively, albeit from a low starting base. Another bank informant commented that mobile banking cost his bank very little to implement. This is because the bank pursued a strategy whereby the mobile offering simply re-skinned the online offering, switching on and off various bits that were suitable for the phone. Small and medium sized banks from the sample further reported that they benefited from pursuing a follower mobile banking strategy. Instead of pursuing a first mover strategy, these banks found it more cost effective to allow larger banks to raise initial market awareness and absorb the initial launch risk. The benefits of this follower strategy are corroborated by a Tower Group investigation (Vyas, 2009) reporting that small and mid-tier banks in the US market were adopting the same approach. Outside the common trajectory of mobile banking innovation, informants also cited more atypical innovations. Such innovations included the ability of USAA to allow customers to deposit cheques remotely by taking pictures of their cheques with an I-phone. Respondents
also identified National Australia Banks experimentation in the area of contactless mobile payments as a best practice example. After a three month trial of the contactless system, 90% of participants were very or extremely satisfied with the service and 78% of participants rated the technology as better than cash (National Australia Bank, 2009). To sum up, it would appear that there was widespread agreement amongst the sample that mobile banking is positioned to be a key distribution channel in the future. However at present, its development is typically only at the early payments stage and potential image capture or contactless payment capabilities are relatively immature across the industry as a whole.
4.4 Emerging Channel Trends

An overarching theme emerging from interviewee descriptions of best practice innovations across the channel mix was that best practice innovations focused heavily on improving the customer experience, as opposed to explicitly seeking to reduce costs or improve backend technologies. At the outset this seems like an obvious progression. Yet there was a strong sentiment across the sample that banks do not currently sufficiently understand or address customer needs. As one informant stated, ...banks need to ask, what the best strategy is for people? Then the channels are just components of that. Coming at it from a typical banker perspective, banks tend to analyse the individual channels and then drive the numbers from there. You cant start with a device or a particular channel and say thats relevant to the market. You need to work bottom up. You need to start by asking, what do customers really want? ...The fact of the matter is that most banks dont understand what customers want. Thus, this study hypothesises that best practice channel innovations tend to be customeroriented in nature. Analysing aggregated respondent comments that related to channel objectives and reported evolutions, a number of emerging patterns were also found. Based on responses across the sample it appears that the web banking channel is growing in strategic importance to meet that of the branch channel. In fact, for the first time ever, this year American customers up to the age of 55 were found to prefer online banking to any other banking channel (Kaplan, 2009). Web banking appears to be combining with Smartphone banking, web agents, and social media banking to offer a more convenient online service to customers. While the latter three channels have not yet been extensively tested for a prolonged period in the field, informant responses were positive about long-term developments. Informants were also positive about the strategic importance of the branch, asserting that it was still the primary distribution channel for most banks. Field agents appear to represent a promising import for many countries, acting as a mobile version of the branch channel. Similarly, in-branch ATMs support in-branch staff by drawing customers into the bank, while simultaneously freeing up teller time for the sale of complex products. On the other hand, the long-term future of call centres, external ATMs and paper-based channels was called into question by a number of informants. Finally, the success of distribution partnerships varied depending on the type of partnership and the organisations involved. Reviewing channel functions and expected channel evolutions, Figure 3.0 reveals the rise of face-to-face and online channels.
Face-to-face Supportive Channels In-branch staff In-branch ATMs Field Agents Online Supportive Channels Web Banking Web Agents Smartphone Banking Social Media Banking Declining Channels Call Centres External ATMs Paper-based channels
Face-to-face Objectives
Key Comments The mass market currently demands some degree of face-to-face contact. Additionally frees up teller time for the sale of complex products. Compliments in-branch staff by providing a mobile version of the in-branch service. Key Comments Movement towards personalisation to avoid commoditization. Video agents could allow remote face-to-face relationship building. Potential to be even more convenient than web banking. Seeks to take advantage of the significant trend towards social media. Key Comments Perceived as a cost centres. Preference as a purchasing channel is decreasing. Slow global movement away from the use of cash. Generally not seen as strong market differentiators. Paper communications decreasing due to costs.
Physical face-to-face relationship building to sell complex products. Can draw customers into the branch. Physical face-to-face relationship building to sell complex products. Online Objectives Convenient online service. Support for convenient online service. Anytime, anywhere convenient online service. Combines online communities with online banking. Channel Objectives Supports other channels. Sells less complex products. Convenient cash withdrawal. Attends to the needs of less techsavvy customers
Figure 3.0 The Rise of Face-to-face and Online Channels
Figure 4.0 Emerging Distribution Strategic Foci
Across the sample, those channels with the least reported future strategic concerns were the channels that directly supported online services or physical face-to-face relationship building. Combing this trend with aggregate informant descriptions of the types of products and services sold through individual channels, three potential strategic foci emerged (see figure 4.0). Trusted financial advisors focus on the provision of complex, high value added services through face-to-face channels like in-branch staff and field agents. Personalised remote service providers focus on the provision of less complex services through online channels. This particular strategic focus facilitates the provision of highly customised, valueadding online offerings, but avoids movement towards low cost service commoditization. Finally, all-things-to-all people banks represent the position that most banks are in at the moment. While not online focused or branch focused, all-things-to-all-people banks sit in the middle hedging their bets. As one informant explained, ...banks are really struggling with the idea of being all-things-to-all-people. Banks at the moment are marketing in a universal way, as in, everyone wants to go into a branch or everybody wants to go online. If you look at who is using the different channels, thats simply not whats happening. The contemporary incarnation of the all-things-to-all people approach involves banks providing services through a range of distribution channels in a largely unfocused manner. The current approach largely markets channels to all customers equally and does not actively seek to develop focused distribution strengths. Interviewee comments suggest that banks are moving away from the current all-things-to-all-people approach towards more focused multichannel strategy development. Thus, this study hypothesises that best practice multi-channel strategy is moving away from the broad all-things-to-all-people approach towards more focused strategies.
5.0 Discussion
In summary, this study makes four core contributions. Firstly, best practice innovations across each of the main distribution channels are brought to the surface for further considered by bank management. Indeed, Tether (2003) emphasises the heterogeneous nature of innovation both between and within service industry sectors. In line with movement away from the traditional one-size-fits-all understanding of services innovation (Tether, 2003), this study does not deem it appropriate to be overly prescriptive about the suitability of adopting specific channel innovations. Instead it is believed that the reader is in the best position to determine suitability. Secondly, this study shows that in the area of branch innovation banks are looking to other retail industries for inspiration. Similarly, banks that indentified Mint.com as best practice show evidence of sourcing innovation from non-bank organisations. This would seem to suggest that banks are becoming more creative about their best practice benchmarking. Moreover, this finding extends the findings of Roberts and Amit (2003) demonstrating that banks not only scan foreign banking industries for importable innovations, but also completely different industries outside the banking sector. Consequently, it may then be an idea for banks to look further afield to other leading companies of relevance. For example, banks could look to best-in-class consulting firms for inspiration on how to treat customers as clients. Banks could look to Tesco for guidelines on consumer data mining. Insights from Amazon.coms experience could be used to develop better customer purchasing propensity models. Indeed, Deloitte (2008) directs banks towards Best Buy as a best practice example of
multi-channel integration. Banks seeking radical innovation might even benefit from attending conferences that focus on cutting edge ideas, for example SXSW Interactive or the TED conference. Thirdly, this study found that the vast majority of reported channel innovations focused on enhancing the customer experience. While this evolution may seem obvious, businesses do not always adopt a customer-orientated approach. In fact, the customer perspective is frequently ignored (Peters and Waterman, 2004). Peters and Waterman (2004) found that excellent companies tended to be primarily guided by a customer-orientation as opposed to cost reduction or technology enhancements. While bank success is clearly driven by both technology enhancements and cost reduction as well, the overarching driver that emerged from the interviews was customer-orientation. Similarly, project SAPPHO investigated over 120 measures of commercial innovation success, and discovered that a better understanding of consumer needs was one of the top five determinants of project success (Rothwell, Freeman, Horlsey, Jervis & Townsend, 1974). Again, SAPPHO suggests that innovations can benefit from a customer-orientation. Focusing specifically on the retail banking sector, Mckeon and Kandybin (2006:1) put forward the opinion that retail banking innovations are more successful if they fulfil a real customer need. The findings of this investigation would appear to empirically support such an assertion. As a result, this study hypothesises that best practice channel innovations tend to be customer-oriented in nature. Finally, this study hypothesises the emergence of three potential distribution strategic foci. Moving away from the current incarnation of the all-things-to-all-people approach this study suggests banks could benefit from focusing innovation on core distribution strengths. Indeed, by its very definition, a competitive advantage requires doing something different from the competition. With most banks pursuing the unfocused all-things-to-all-people approach, a differentiated strategy could offer a competitive advantage in a largely homogenous marketplace. As Porter suggests, now could be the right time for banks to challenge their imitative instinct and decide what not to do (Klinkerman, 1998). While individual channel innovations are quickly imitated, continuous incremental innovation within one of the foci could be more difficult for competitors to copy. In the short-term banks will likely continue to employ a broad all-things-to-all-people approach to cater to a diverse customer base with a wide range of channel needs. However, banks may begin to amend this approach to focus marketing efforts more specifically on particularly valuable customer groupings across the channel mix. Catering towards preferred customer segments may require developing certain channels over others. Alternatively, banks may seek to pursue the all-things-to-all-people approach at face value, but actually outsource non-core channels behind the scenes. External ATMs and call centres seem prime candidates for outsourcing, provided an appropriate service level agreement could be maintained. This could allow banks to concentrate on developing core distribution strengths without eliminating existing channels. Indeed, it would be difficult (and in some countries illegal) for banks to completely remove existing distribution channels. The all-things-to-all-people approach has the benefit of being a relatively low risk strategy since this is the approach that most banks are currently pursuing. However in the long-term, sample responses suggest that this strategy could be too unfocused. Moving closer toward the personalised remote service provider focus could be a viable option for some banks. Indeed, as one informant noted, the current economic environment will accelerate the use of direct channels because these
channels tend to have lower transaction costs. And within those direct channels, there will be more pressure on call centres to move transactions to the web. For banks in a weak financial position, the current economic environment could provide the impetus to push for a strong online focus. Yet an online focus has its disadvantages too. Banks that follow this path may experience higher levels of competition from non-bank competitors due to the lower barriers of entry associated with the internet. Clicks and mortar banks will experience competition from online-only banks. Perhaps most importantly, the remote service provider focus could begin a low cost race to the bottom turning bank services into commodities. On the other hand, banks may consider becoming trusted financial advisors. Taking this path, clicks and mortar banks could focus on fully developing their competitive advantage over online-only banks. Moreover, based on sample responses, face-to-face communication was deemed to be the best method for developing long-term customer relationships. Yet, moving towards this strategic focus would likely require the expensive re-modernization of branches in the longterm. Similarly, a branch build strategy can pose significant investment risks for banks. These issues could make the branch focus a risky endeavour for banks in weak financial positions. Banks pursuing the trusted financial advisor approach also risk being left behind if future generations if customers become comfortable buying complex products online. Alternatively, video agents could enable remote service providers to move into the trusted financial advisor space. Overall however, appropriate strategic focus will be contingent on each banks individual operating context, and in particular the banks position in the marketplace relative to competitors. Furthermore, while banks can choose specific consumer groups to cater towards, ultimately consumer preferences will drive channel strategy. On a concluding note it should also be acknowledged that banks may equally choose not to differentiate themselves from competitors through their distribution channels. Instead banks may choose to focus innovation efforts on other business areas such as financial product innovation or business model innovation.
6.0 Recommendations for Future Research

Since this investigation collected data from a relatively small dataset, quantitative validation is required to allow for large-scale generalisations to be confidently made. Thus, two hypotheses have been generated for further testing: H1: Best practice channel innovations tend to be customer-oriented in nature. H2: Best practice multi-channel strategy is moving away from the broad all-thingsto-all-people approach towards more focused strategies.
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International Journal of Arts and Sciences 3(2): 66 - 82 (2009) CD-ROM. ISSN: 1944-6934 InternationalJournal.

2.2 Distribution Channels

Figure 1.0 The Distribution Channel Spectrum

4.2.2 Web Banking

4.2.3 Call Centres

4.2.4 Automatic Teller Machines

4.2.5 Direct Mail and In-branch Flyers

4.2.6 Web Agents

4.2.7 Social Media Banking

4.2.8 Banking Field Agents

4.2.9 Distribution Partners

4.2.10 Mobile Banking

4.4 Emerging Channel Trends

Figure 3.0 The Rise of Face-to-face and Online Channels

Figure 4.0 Emerging Distribution Strategic Foci

6.0 Recommendations for Future Research

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