"Royal Bank currently sells transactional products through
its branch network. Royal Bank is considering switching to
using digital channels exclusively. At the moment, 5% of the
branch accounts close at the end of the year they are
booked, but then the remainder stay active for the next 2
years.
Accounts booked through digital channels are significantly
less loyal; 30% close at the end of first year after being
opened. 10% of those who remain after year 1 will close at
the end of year 2, and then the remainder stay active after
that.
The branch network currently sells 500,000
accounts a year at a cost of R2,500 per
account sold and then each account
generates R150 revenue per month while on
book. The digital channel currently sells 1
million accounts a year at a cost of R150 per
account and then each account generates
R50 revenue per month.
Which channel is more valuable to the bank
over the next 3 years? Assume all sales happen
on day 1 of each year."
