New generations are demanding a wide range of mobile and web-enabled products and services in the banking and financial services sector. Self-service and new digital offerings have been well received by millennials and Generation-Xers (who, together, make up America’s largest demographic) and have pushed financial institutions (FIs) of all sizes towards transforming their business models to better compete, and survive the digital age.A vital part of this transformation is re-imagining the old branch-dominated banking model in a manner that leverages a traditional FI’s key advantages – an established customer base, physical proximity to customers, customer trust, and regulatory expertise – while embracing new technologies and new customer behavior patterns. The end result should be an omni-channel strategy that delivers a high quality banking experience while lowering the cost of service through personalized marketing, sales and service.
While building, maintaining and operating a branch was never cheap, bank transactions today are far more expensive than their digital equivalents. For example, consulting firm Accenture notes that it is 95 percent cheaper to process deposits digitally than to use a live teller. Accenture estimates that building a new bank or credit union branch costs about $2 million on average; that the nation’s 25 largest banks collectively spend about $50 billion to maintain 43,000 branches nationwide; and that up to a third of all branches are not profitable!
If that’s the case, why don’t financial institutions close under-performing branches, one might ask. As it happens, banks have shuttered over 10,000 branches since 2009, but branch closure isn’t always the best option because branches serve as important touch points for customers who, despite embracing multichannel access, do not trust banks without branches and prefer face-to-face interactions for high-value transactions.Multiple Ways to Transform Banks
As a result, rather than shutter branches, banks have started transforming them to meet evolving customer needs and expectations, in multiple ways.
New banking models combine customized variations of four possible alternatives presented below:
Smart Kiosks that offer advanced video and voice enabled services for routine banking.
‘Light’ Branches, often with no more than 2,000 square feet of space, which are thinly staffed by generalist bankers, highly automated, and offer top quality, personalized customer interactions, and live video and audio with remote specialists.
Full-Service Hubs that are much like today’s conventional branches and offer full service and support, with specialists on-hand for products such as mortgages and investments.
Flagship Centers to promote the bank’s brand, showcase its products and services, and launch new offerings.
…But Look Before You Leap
While branch transformation is much-in-vogue, with banks and credit unions across the globe changing their customer-facing business models, every FI must independently decide if a branch transformation is right for it by asking the following three questions.
Question #1. Why Should Our Bank / Credit Union Transform its Branches?
Branch transformations must be undertaken for the right reasons, and only after consultation and feedback from all stakeholders.
a. Dive into the treasure trove of customer data that your branch already has and analyze it to understand your customers’ branch needs, banking behavior and digital savviness. Analyze the demographics (how many Millennials, Gen-Xers, Baby Boomers, seniors, etc.), their transaction patterns, such as how often they come into branches, what they interact with branch staff about (opening accounts, withdrawing money, etc.), what they use the ATMs for, and how often they need assistance beyond what the branch can offer. For instance, a branch in a predominantly retirement community would have very different needs from a branch in a hipster neighborhood.
b. Once you’ve done the analysis, share your findings with a representative sample of customers… because the reality of what they do at the branch may surprise them as being quite different from their perceptions of what they need the branch for. Then share a few branch transformation options with them to get their feedback.
c. In parallel, gather insights on what your top few local competitors are doing by ‘mystery shopping’ their branches and looking at their sales and marketing pitches, in-store and online, to get a sense of changes afoot.
d. Next, present cumulative findings from branch-level analyses to the FI’s executive management so they know what ground reality is in each region before they develop strategic branch transformation plans for the entire bank or credit union.
This branch-wise breakdown will bring home the point that branch transformations need to be "localized" to reflect demographics, comfort with technology, and customer behavior at each location.
Question #2. What Mix Provides the Best Customer Experience?
Based on your findings to Question #1 above, figure out how you can best meet customers’ needs and wants at each branch. Practically speaking, banks and credit unions will have to pick one of the four Branch Transformation Models (presented above) for each branch and add a small degree of customization to best serve local customer needs.
Localize Branch Transformation
For example, a branch in a young, hip neighborhood may choose to reduce bank staff, increase the number of advanced ATMs / ITMs (Interactive Teller Machines) and add standalone kiosks in highly-frequented neighborhoods such as local malls or shopping/dining areas. Branches with a mix of young and old customers may decide to add a Universal Banker to make it easier for customers to complete transactions. Some branches may opt for a smaller store format with more self-service workstations so customers can independently go about their banking business.
Develop Mix to Best Serve Entire Town
Moreover, banks need to look at branch transformations from the macro perspective of how to best serve the town. It’s not each branch fighting to stay alive but management looking at the right mix - of kiosks, small and large branches, and ATMs/ITMs - for the town or neighborhood subdivision as a whole, based on customer density and demographics.
Question #3. What Are The Costs Versus The Benefits of Branch Transformation?
Although banks and credit unions will almost immediately know how much they need to spend on physical branch transformations, getting to know all the hidden costs and benefits will take time. Hidden costs reflect lost business from disgruntled customers, increased call center expenses in response to reduced staffing and other such indirect expenses.
At smaller branches with optimized staff levels, see if bankers will provide better service (benefit) and have more time to upsell the FI’s products and services (benefit). Run simple models to see how the introduction of kiosks might impact foot traffic into the branch and increase/decrease transactions.
Before implementing a branch transformation strategy, the bank or credit union must also determine the impact of technology on process efficiencies, transaction response times and workforce productivity. Omni-channel data collection and analysis is critically important before and after a branch transformation is implemented to fully understand actual and hidden costs and benefits, and gauge overall success.
Roadmap to Success
If your bank or credit union decides to go ahead with branch transformations, create a thorough roadmap for the roll-out. Then test the waters first with rollouts in only a few selected locations to iron out the process and learn from it. Thereafter, make changes one branch at a time.
To succeed, branch transformations need:
- a heavy marketing push to give customers a heads-up on ‘exciting new changes’ coming to their local banking ecosystem,
- training sessions for employees on new technologies and processes so they are prepared to handle the spate of questions from initially-confused customers.
- training sessions for customers on how to make the most of these changes – so everyone’s prepared and excited about the change.
FIs should also plan on giving staff and customers about 3-6 months to adjust to the changes and iron out various bugs. Once operations have stabilized, FIs will see reliable data on the real costs and benefits of the transformation, and know how well their strategy is working.
If done right, branch transformations encourage customers to increase their interactions with the bank or credit union – either online, through ATMs/ITMs/Kiosks or in-person, and turn customers into advocates for the FI. Successful transformations increase profitable transactions, attract new customers, improve the FI's competitive positioning and, ultimately, grow the bank or credit union’s revenues and profits.