Zsuzsanna Vargha and the interactive future of bank branches

March 2, 2009

In thinking about financial innovation, retail banking is not the first thing that comes to mind. Derivatives, global deals, complex portfolios — yes. But ATMs? Bank branches? As an ex-banker from Citigroup used to say to me years ago, “branches are a dead weight.”

Branches, however, are what makes the work of Zsuzsanna Vargha so interesting. Zsuzsi is finishing her Ph.D. in sociology at Columbia, and her dissertation examines a massive shift that has occurred across the Atlantic. She writes

Banks, after pursuing electronic banking, are once again
investing in the face-to-face encounter. This re-personalization of
finance is particularly well observable in post-socialist Hungary.
Banks individualize services to keep their share of profitable
clients, and reach out to new populations in person.

What do these changes mean for the future of retail finance? To address that, Zuzsi conducted ethnographic research on the Customer Relationship Management (CRM) software used to recommend products to bank clients. She then examined a savings and loan-type bank that used a direct selling organization, not unlike the “thundering herd” of salespeople that Merrill Lynch used to have. Her first findings are available in the first paper to come out her dissertation, “Markets from interactions: the technology of mass personalization in consumer banking.”

Zsuzsi’s study comes at a particularly timely juncture. Now that proprietary trading no longer seems to an option for American banks, these institutions need to reimagine their identity as something exciting and innovative … but distinct from Wall Street. Zsuzsi’s conception of retail banking as a high-tech service could well be the way to go.

We’re lucky to have Zsuzsi as guest blogger at Socializing Finance for the coming week.

Download vargha-2009-markets-from-interactions

6 Responses to “Zsuzsanna Vargha and the interactive future of bank branches”

  1. Jan Simon Says:

    Thanks Zsuzsanna for sharing this interesting paper. A case study which might be interesting for you and people interested in this topic, is Caja de Navarra (CdN), a savings bank in the North of Spain. Spain has many regional financial institutions and this is just one of them. In general they are all what you expect them to be: tons of branches, underpaid staff, conservative, high margins and boring. Except for this caja. They have decided to compete using innovation. Let me give you 2 examples of innovativeness. 1. At the end of the year CdN gives each of their customers a statement of how much CdN earned on them. A certain % of this profit is then dedicated to the social work chosen by the customer. 2. CdN has a lot of immigrants as customers. In Spain banks and Savings are closed in the afternoon. CdN transforms some of its branches into call and internet service for its customers in the afternoons. There are more examples of innovation applied by CdN. I agree with Daniel that banks will have to reinvent themselves. Looking at the market share CdN has been capturing, I think you might find it an interesting case study.

  2. danielbeunza Says:

    Jan — a great example. I had heard of Caja de Navarra from my conversations with economic sociologists in Spain. Apparently, they even went to the extreme as to ask depositors what is it that they wanted the Caja to do with part of their money that they invest in sustainable projects. And the reply was stunning: despite the fact that almost all Cajas in Spain spent loads of money on art, it turns out that the depositors of this one (and probably those of all cajas) were absolutely uninterested in that.

  3. zsuzsannavargha Says:

    Jan, thanks for the example, it is indeed very interesting. Banks like Caja de Navarra are sending a wake-up call to their sleepy competitors because they shift the comfortable frame of what banking service entails.

    What is most striking to me in this case is that CdN can tell an individual customer how much it made on him/her. This is a real calculative feat, especially from a savings bank. I wonder how individualized they can be.

    Spanish banks more generally are reputed to have unconventional innovations in branch banking. After the internet frenzy, banks in Western European countries were typically not expanding their branch network but rather redesigning and re-conceptualizing it, but Spain was right up there with Eastern European banks when it came to branch expansion.

    I’m also thinking of Mauro Guillen’s work on Banco Santander’s strategies in Latin America (see link below), the latter of which involved introducing lotteries as a reward for loyalty. In Hungary what some banks did was announce loyalty games for their current clients, which were either lotteries or, more interestingly, an imitation of game show geared towards the bank’s own performance. For example, customers could call in to guess how many people signed up for credit cards with the bank last month–the customer giving the closest estimate won a DVD player. This is a non-financial reward and it is not an inherent part of a specific banking product.

    The Santander way was more provocative: they offered lottery-linked deposit accounts with interest, where the amount of interest was determined by lottery. This solution was especially attractive, argue Guillen and Tschoegl, especially well for financially disenfranchised populations of customers.

    They note the very interesting fact that historically, securities with randomized return (typically bonds) have been around since the 17th century at the least, in the U.S., the U.K. and France, Germany, Japan, and the list goes on.

    Click to access Gambling.JFSR.2002.pdf

  4. […] Vargha, a sociology PhD student at Columbia (–currently guest-blogging over at Socializing Finance), has made available a draft chapter from her forthcoming dissertation on client-customer […]

  5. […] the sociology of finance, interest in personal finance has been led by the work of Zuzsi Vharga and Joe Deville — both contributors to this blog. And many more issues remain: interface […]

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