BANKING sources have told the Jamaica Observer that the race to new digital frontiers in the transactional space is intensely competitive, with service providers watching each other either to match or exceed the pace of the fastest mover.

The island’s two largest banks – the National Commercial Bank and Scotiabank Jamaica – estimated to hold 60 per cent of commercial bank assets, have been matching each other’s moves so far.

As each shutter physical branches and move capital into digital buildout, they both claim significant achievements in customer conversion.

Their dual aim is to convince banking clients to make use of services offered online and move most, if not all transactions to the digital space.

Significant undisclosed investments have been made in tightening cybersecurity, as the assurance is sold to clients that their switch to digital will not be affected by criminals.

But, the main story to be told is how far each of the large banks intends to go in asking clients to go digital and whether or not their clients will follow. Will many savers be left behind?

Pandemic opportunity

Both NCB and Scotiabank chose the opportunities presented by physical distancing rules to accelerate and rewrite the script for digital banking. Capital has been redeployed in digital buildout and marketing to support it.

NCB has sold two properties which were formerly the home of banking operations, but which were closed in July 2020. The sale and closure of one other resulted in gains of over $500 million.

NCB told the Business Observer, “Operational costs associated with those locations contributed to reduced expenses for our branch network.”

“We conducted further examination of our branch network islandwide, and made the decision to close five additional in-branch locations. Four are in Kingston where there is a high density of branches, many of which are in close proximity to each other. The other is in Black River, St Elizabeth, where we have operated an agency of the Santa Cruz branch for the last three years.”

The bank notes that while it has closed in-branch services, “we retain the 24/7 Bank on the Go/ ATM areas, except Oxford Road where the usage is relatively lower than most.”

NCB clients in Black River will have to be satisfied with machine interfaces. In the capital of St Elizabeth, the in-branch services provided are currently limited to non-cash transactions, while the existing Bank on the Go area provides cash services such as deposits, withdrawals, transfers and bill payments.

NCB points out that its Junction branch (also in St.Elizabeth) has been recently renovated and alongside the Bank on the Go area, it will be reintroducing limited in-branch cash services in that location, by the end of March.

Scotiabank’s cut

Perrin Gayle, executive vice-president, retail & small business banking – Scotiabank, said, “since March 2020, we have consolidated three branches– Black River (April 2021), Old Harbour (May 2021) and Cross Roads ( February 2022).”

The commercial bank now operates 28 branches across the island including 17 full-service branches, nine digital branches, and two sales centres.

The company has also converted some branches to a “digital operating model,”.

Overall, Gayle claimed Scotiabank continues to experience higher customer advocacy ( net promoter scores) scores than prior to their conversion. “Staff at these branches are now able to dedicate more time to providing financial advice to customers based on their individual needs. Staff at these branches also assist customers to learn how to use digital channels so that all customers are comfortable with the new technology,” the banker stated.

Gayle said that customers all across the island were increasingly choosing digital options to bank.

He told the Business Observer, “More customers continue to opt for the convenience of our digital channels in which we continue to invest heavily to improve and expand the services that are available. These include state-of-the-art intelligent ABMs, the Scotia Online platform and the Scotia Mobile app.”

He notes meanwhile that digital channels are “continuously upgraded to enhance functionality and give customers greater options to transact outside of banking hours. Currently approximately 97 per cent of transactions processed are conducted using an electronic channel while three per cent are conducted in branches.”

Gayle asserts, “Ultimately, this has assisted many customers to access the ease and convenience of banking online and they continue to register their satisfaction via our customer feedback systems which send real-time surveys to customers who have recently conducted a transaction.”

Savings flow to digital

Both banks have declined to mention either savings on branch closures and conversions, or investment in digital.

NCB explained, “We won’t share actual values for competitive reasons. However, our digital investments represent a greater share of our overall investment budget given the evolution in our business model.

“Each investment requires a business case which evaluates impact on a number of value dimensions including customer experience, technology, people and risk; the business case is approved once it meets our investment criteria, which includes factors that define the financial and non-financial value from the investment.”

The bank also indicated that savings will be offset by investments in other areas, such as enhancements to digital channels and remaining branch renovations.

Bank expenses

Though neither NCB nor Scotibank outlined how much was spent or saved from the digital transformation, their financials give an insight into spending in the last few years.

For Scotiabank Jamaica, which has switched six branches to fully digital, operating expenses climbed from $10.45 billion in 2020 to $12.02 billion at year end October 2021.

Over the last two financial years, capital outlay was in the region of $4.4 billion, with the bulk of $2.4 billion being spent in 2020, the year the novel coronavirus disease was first detected in Jamaica. The spending continued into 2021, when $1.74 billion was outlayed. Its last annual report (2021) cites restructuring provisions at $1 billion for 2020 and $803 million provision for 2021.

At NCB a similar increase was seen in operating expenses which climbed from $40.53 billion in 2020 to 44.50 billion at fiscal year end September 2021.

For 2021, total capital expenditure was $8.96 billion, down from the $14.17 billion spent in 2020.

Customer behaviour

Like Scotiabank, NCB said that use of digital channels was significant. It stated, “Our customers continue to avail of day-to-day banking services by using the digital channels. We have made special provision for seniors and the physically disabled to be prioritised for in-branch services so there has been no material change to how those groups transact.”

NCB asserts that the network has experienced net growth in its customer portfolio, claiming also that digitisation has positively impacted the customer experience.

The bank stated, “Several of our key customer segments have benefitted significantly from 24/7 access to intelligent ABMs allowing them to deposit their cash safely at their convenience.

“Transactions such as NCB to NCB transfers and bill payments via our mobile app and online banking platform are also available 24/7 and are free of charge. Previously, these would have required an in branch visit and time out of one’s day.”

It explained that as the banks rolls out more products and services in digital, “Each investment requires a business case which evaluates impact on a number of value dimensions including customer experience, technology, people and risk; the business case is approved once it meets our investment criteria, which includes factors that define the financial and non-financial value from the investment.”

The Bank of Jamaica was asked its opinion of the trend in commercial bank branch closures and conversion to digital. However, a response was not received before press time.