New product development in the retail banking industry has changed traditional banking practices. Banks now act as retail operations, with branch staff responsible for meeting sales targets as well as providing customer service. Banks have opened new channels to market, delivering a range of services via telephone or the Internet. However, customer preference for the convenience of new channels has also opened the market to new competitors. Retailers and other non-traditional competitors now offer banking services without incurring the costs of a branch infrastructure.
Share
The objective of new product development is to gain a greater share of customers' expenditure on financial services, according to The Wharton Financial Institutions Center. By developing services such as insurance, investment advice, credit cards, mortgages and pension products, banks can capture a greater share of revenue from their customer base. The aim is to become a single source for financial services and to meet customers' financial needs throughout their lifetime.
Selling
The emphasis on cross-selling to customers gives new responsibilities to bank staff. By automating many basic transaction services such as cash dispensing and deposits, banks free staff to spend more time with customers. However, the emphasis on selling changes the relationship with the customer. Bank staff, who traditionally offered customers objective advice, may now be under pressure to reach sales targets.
Retailing
Traditional bank branches featured a counter service where staff dealt with customers from behind secure screens. The transition to banks as retail outlets made this traditional environment impractical. However, banks faced a dilemma -- they had to reassure customers that they were secure, reliable organizations. A Harvard Business School paper reported a program by Bank of America's Innovation & Development Team, which monitored customer responses to changes in the branch environment. The team created a series of different branch styles, but evaluated each on customer response.
Channels
In parallel with developing new products, banks opened new channels to deliver new products while increasing customer convenience. Services such as online banking or online application for loans or mortgages also reduced the banks' costs of doing business with customers. Some established banks set up alternative online banks that offered a full range of banking and related financial services, but without branch facilities.
Competitors
Although the online banks proved attractive to customers, they also helped to indirectly create new forms of competition. The online business model represented a low barrier of entry to competitors such as retailers who did not have to invest in building a network of physical branches. New competitors were able to utilize their customer databases to identify prospects for services such as personal loans, insurance, credit cards and savings. The new entrants partnered with existing financial service providers to develop their own range of branded products.
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