Different modes of customer servicing
Most banking customers need to use banking services frequently—like when they need to deposit and withdraw cash. There are other services that aren’t used frequently. However, customers need banks in order to go through a number of processes—like obtaining a loan. Bank services are available to customers through many different channels.
The main channels for banking services are:
- a bank branch
- phone banking
- mail banking
- an ATM
- online banking
Of all these channels, servicing customers through branch banking costs a bank the most. Next comes phone banking and then ATMs in terms of servicing costs. Online banking is the cheapest mode for servicing the customer in the long run. Online banking involves a one-time fixed cost. After that, the maintenance cost is very low.
Wells Fargo (WFC) has a legacy of community banking. It used to focus on branch banking. However, in the last few years the bank has become aggressive in non-traditional customer servicing modes. It wanted to cut costs. Also, it was influenced by the adoption of technology.
Making the best of different channels
Wells Fargo wants to optimize its use of technology. It obtains nearly 85% of its sales and referrals from its banking stores. It services nearly 85% of its transactions through the self-service modes—ATMs and online banking. There’s still room for the bank to reduce its costs. Reducing costs will help the bank reduce its cost of operations. This will increase its profitability.
Wells Fargo’s competitors—Bank of America (BAC), JP Morgan (JPM), and Citibank (C)—have better technological infrastructure. Wells Fargo needs to improve in this area. However, Wells Fargo adopts technology better than smaller banks. Many small banks are a part of an exchange-traded fund (or ETF) like the Financial Select Sector SPDR (XLF).
Visit the Market Realist Investment Banking page to learn more.