September 9, 2005

By Jason Deign, News@Cisco

Research by the business information company Datamonitor indicates that European bank branches can derive significant benefits from the use of converged Internet Protocol networks.

Datamonitor's white paper Network synergies in branch renewal, commissioned by Cisco Systems®, says that banks could save money and improve service in areas such as marketing and security.

Banks throughout Europe have historically seen their branch networks as a necessary but burdensome cost generator. This has resulted in moves to close down branches in countries such as the UK.

More recently, however, many banks have revised their policy on branch networks, partly in response to customer demands for more branches on the high street and partly to provide a differentiator with respect to Internet and phone-based competitors.

The result is a growing number of so-called 'branch renewal' programs aimed at shifting the primary emphasis of branches from teller and cashier-based functions to marketing and sales, with new, open layouts and more customer service-focused staff.

Information technology is an important component in many of these programs. In recent years, technology investment in the banking sector has tended to concentrate on channels such as telephone and Internet, to the detriment of branches.

Now banks such as Abbey National in the UK are taking advantage of branch renewal initiatives to rip out existing outdated technology infrastructure and replace it with something more up to date, which in most cases means a converged IP network.

IP is now the common platform for modern branch banking applications such as customer relationship management but, says Datamonitor, the real opportunity for banks is to use it also in less obvious areas such as security and marketing.

Network synergies in branch renewal, which is based on a survey of 50 senior decision makers in retail banks across Europe, states: "...Most IT investments with respect to branch renewal currently focus on the sales and services side.

"While this is understandable due to the fact that these functions deliver the greatest and most direct impact to the bottom line (i.e. product sales), there are considerable synergies to be achieved by integrating other areas of branch operations into the overall renewal initiative."

As an example, the paper cites how IP networks such as those prescribed in the Cisco Branch of the Future concept could help transform in-branch marketing.

Communicating with customers in branches cost US$2.2 billion across Europe in 2004, says Datamonitor. The way it is done has not changed for decades, typically consisting of printed material which is costly and time-consuming to produce, distribute and update.

Datamonitor's research shows 40 percent of banks take more than three weeks to design, print and distribute new collateral. That period rises to more than six weeks for almost a third of respondents.

In addition, 67 percent of banks have concerns over the consistency of materials across branches and the cost of production. A total of 50 percent of banks are concerned about the 'freshness' of collateral and 38 percent worry about how relevant the collateral is.

Since customers spend at least three minutes on average waiting to be served in a branch office, Datamonitor believes banks could complement current in-house marketing with plasma-screen based video content distributed over IP.

This video content could be updated and distributed more quickly, easily and cost-effectively than printed collateral. And if marketing messages are interspersed with more general 'infotainment', it could help to make queuing less of a chore for branch customers.

Datamonitor foresees a similar opportunity in the area of physical security, which covers surveillance systems such as closed-circuit television, intruder detection systems such as alarms and access control systems such as doors and locks.

Physical security is typically seen as adding no value or competitive advantage to the business and is usually managed by third parties. In some cases, different vendors are responsible for separate pieces of the security system.

Today, losses from robberies now represent only a tiny financial risk to banks. Security systems are no longer required much for guarding cash, but more for health and safety regulations and for the protection of bank employees.

This has led to a situation where security is seen as costly (intruder detection cost was cited as a problem by 53 percent of Datamonitor respondents, while 40 percent complained of the expense of video surveillance) yet without centralized control or any great level of integration across systems.

According to Datamonitor, running all branch security systems over a converged IP network will reduce long-term maintenance cost, enable central control and access and improve standards and functional integration between various areas of security.

In addition, it will allow security systems to be integrated into other business processes, so that, for example, video surveillance could be used by marketing or operations teams to monitor queuing times or customer behavior.

Jordi Ferrer, Cisco Systems business development manager for the financial sector in Europe, Middle East and Africa, says: "Datamonitor's research, as well as recent reports from Gartner, confirms that our strategy for financial institutions provides banks with significant competitive advantages.

"The findings fully support our thought leadership in this market."

Jason Deign is a freelance journalist located in Barcelona, Spain.