The Digital Transformation of Retail Banking: Adapting to New Customer Needs

Retail banking is facing an unprecedented transformation, driven by the growing need to adapt to new customer needs. In particular, the focus is on the transition to an increasingly digital approach, which aims to create a banking ecosystem capable of meeting the needs of a heterogeneous customer base, increasingly composed of young people accustomed to immediate services.

It emerges that the average number of customers per current account is 1.51, with highs and lows of 2.38 and 0.92, respectively. It was noted that there are, on average, 1.32 individuals per current account of the "Mass" type, while for the "Affluent" and "Private" categories with 1.43 and 1.40 individuals per current account, respectively, there are increasing cases of joint current accounts. 76% of customers are Home Banking enabled, while 55% are from the Mobile App. Among them, 49% are actually active on Home Banking, while 43% actively use the Mobile App. Despite the lower number of enabled customers, mobile registers nearly equal levels of usage to Web.

However, to fully understand the banking sector, it is also necessary to consider the characteristics of the customers themselves. The majority of "Mass" customers reside in Northern Italy (48 percent), followed by a fair presence in the South (25 percent), while the Islands and the Center show similar values (14 percent and 13 percent). At the national level, the age distribution reveals a clientele composed mainly of individuals over the age of fifty, with a reduced presence of young people or young adults, and the bracket between fifty and sixty-five is the most represented in all geographic areas.

The physical channel plays a significant role in terms of resources employed. Networked staff account for the majority of total employees in banking institutions (65 percent) and decreased by 2 percent during 2022. Not only that, this is characterized by a pronounced male presence (66%), is between thirty and fifty years old with an age gap of 27% between the outgoing population and new hires. Examining the contribution of branches, it is noted that their number has decreased by 3.8 percent in 2022, and that on average each branch manages about 1,500 current accounts, with an average of 110 new accounts opened per year. There are about 1.51 active automated teller machines (ATMs) per branch, and 44 percent of these are of the advanced type (0.68 per branch), while 13 percent are in locations other than branches (0.3 per branch). This highlights how there is a trend toward centralization of resources in branches. In fact, evolved ATMs, despite having superior operational capabilities, are still underutilized.

Digital channels are increasingly important for Retail Banking and this is evidenced by the use of these for various types of payments. Home Banking still appears to be the most widely used device channel, with Mobile Banking taking second place, albeit with exponential growth rates. Evolved ATMs play a marginal role, with negligible percentages of usage compared to total dispositions. Most of the costs of digital channels, accounting for 79 percent of the total, are shared between Mobile Banking and Home Banking, mainly due to the cost of adopting and maintaining technology infrastructure and the cost of developing common application features. The cost of the App channel, however, is affected by additional specific costs that, although marginally, lead the channel to be the most expensive.

In the near future, the greatest technological investments in channels will be in customer-facing advice and after-sales service. In fact, analyses show that new features will be made available to the customer. These include video-consulting, with an integrated operator within the App, and evolved chatbots capable of supporting simple conversation, with the aim increasingly to offer frictionless support services. In addition, investments will continue on customer recognition activities across all channels, both physical and digital, with liveness solutions detection and digital identities, compliant with new European requirements.

In summary, financial institutions have faced major investments in recent years that have rapidly transformed the service model. Digitization is extending to all areas of retail banking and becoming an integral part of it. This will also be crucial in the future, where the main challenge will be, precisely, the further development of the digital model also on the advice and service side, until a fully omnichannel approach is achieved.

Edited by the team Cetif Research

Want to learn more? Download here the Research Insight 2022

Learn more about Digital Banking HUB 2023