Branch Transformation: The Line Extension Approach

Celent recently published a detailed case study on Easy by RHB, a leading retail bank in Malaysia seeking to grow market share in the large but under-banked Malaysian mass market. Celent was so impressed with its initiative that it awarded RHB Bank the Celent Model Bank of the Year award for 2012. Ernst & young said this in its recently Global Consumer Banking Survey 2012: “Banks are competing for the business and loyalty of increasingly demanding customers. In response, different models are emerging to serve different customer needs. Some are based on low-cost competition, some on high-touch service and some on accessibility. Large, full-service banks need to defend market share against specialist competitors focusing on particular products or customer segments, as well as new entrants in the payments space. At the same time, full-service banks need to retain the ability to meet a huge range of customer needs.” In this context, I assert there is not a credible argument to be made for the status quo in retail branch banking. Financial institutions simply must evolve their branch networks into more efficient and effective delivery channels – alongside carefully and fully integrating other delivery channels. Doing so, however, is perilously difficult for many banks – particularly full-service financial institutions. There are both perceived and real risks associated with massive branch transformation initiatives – alienating profitable customers that liked things the old way. Thus, to balance the imperative for branch transformation alongside the risk of customer attrition, many banks are moving at a glacial pace. This won’t work either. Therein lies the brilliance of the RHB initiative. Rather than transforming RHB branches to profitably serve the Malaysian mass market (and risk messing up its profitable mass affluent business), RHB launched a new brand, a line extension of its RHB parent. The new brand, Easy by RHB, was launched using an entirely new retail delivery model and a portfolio of four ultra low-cost retail outlet designs. Easy by RHB is: • A stellar branch transformation success story • A new consumer brand (a line extension to RHB) • Simplified products to make them easy to sell and deliver • An entirely new organization – younger, empowered, compensated, and a different culture within RHB (bold, ambitious). • A fully-automated retail delivery model interfacing to RHB’s legacy systems (biometrics, cash recycling, paperless origination, automated underwriting, instant-issue cards, instant disbursement). The figure below shows Easy’s four different retail outlet designs. In its first two years (through 2011) RHB deployed 235 Easy outlets, taking its retail footprint from a distant #5 to market leadership. Over the period, total RHB customer deposits have grown by more than 50% and assets by 45%. And it has done so with a portfolio of retail outlets that cost, on average, about a tenth of what a traditional branch costs to build and operate. This would have likely been nearly impossible if attempted using existing RHB branches and the legacy RHB brand. Line extensions are common in consumer packaged goods (e.g., Tide with Bleach, Charmin Ultra, Bounty Basic). Line extensions can also be found among restaurants seeking to expand into smaller, faster dining environments such as airport and shopping mall food courts. Pizza Hut express is one such example. Why not with retail financial institutions? Branch transformation has always been about more than just technology. In our view, the line extension approach can be an attractive strategy that deserves a close look. Readers may download an excerpt of the Celent report, Model Bank 2012: Case studies of Effective use of Technology in Banking, June 2012 by clicking here. The excerpt features an abbreviated case study of Easy by RHB.