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3: Rebuilding the Branch One Customer at a Time

If you were to take an informal poll, ask people the last time they visited a bank branch, the majority will not be able even to remember. Meanwhile, bankers remain under the impression that the branch is the center of their customers' banking experience - and further, that the branch experience is pleasant. In more formal studies, it's been determined that 75% of banking customers indicate that the Internet is their preferred channel for banking, and only 12% chose the branch office.

The author (again) trots out various evidence, this time from blogs and social media sites, that customers feel a level of resentment, bordering on hatred, for their banks in the wake of the financial meltdown and the behavior that was exposed - and publicly comment when they got a better rate and took their business away from their previous bank.

Banks beleaguered by the financial crisis are shutting down branch offices to save costs - and while there is some remark that they may be overdoing it, and expect there to be resurgence of branch banking, customers are not demanding this. In fact, the trend among customers is to move accounts to obtain better rates, even if this means moving accounts to a bank that has no branch in their vicinity.

As a result, there is a high level of uncertainty over the value of the branch office to the customer. Does branch banking hold any value at all?

The Core Function of the Branch in the 21st Century

The banking industry considers the branch as a "one-stop shop" for retail customers, where they can show up in person to get advice and service on any financial product they might need or desire. The reality, however, is the fewer customers visit a branch for day-to-day interactions, and many turn to other sources for information and advice.

The author considers some research in various markets:

While some would like to attribute the decline of branch banking solely to the rise of new technology, this is not entirely to the credit of technology alone - the problem is far more deep rooted. And while some bankers forecast a mass return to branch banking in the future, it is likewise an inaccurate reflection of the facts. Again, no one channel is right - or wrong - for all customers, all products, and all transactions.

Currently, the largest portion of transactions performed at retail banks in the US and UK consist of check processing. It's noted that major banks such as HSBC and Citibank are phasing out paper checks for retail customers, and are enabling electronic deposits using scanners or cameras - such that it is no longer necessary to present a physical artifact at a physical office.

Branch banking is likely to survive, though in order for it to be tenable from a cost-benefit perspective, it will need to alter its business model to suit the needs of its customers, and to assume a cooperative role with other channels rather than dismissing them as "alternatives" used for reasons of convenience alone.

It's mentioned that banks have attempted to charge convenience fees to customers for using physical branches, to offset the costs of physical premises and staff, but customers have shown little tolerance for such surcharges.

Some changes have been noticed in the banking industry: branch offices are being shifted more toward service than transactions, and are being specialized by market segment or product (an office may be for investments, or for auto loans) and are shifting away from "bankers hours" to a more extended operating schedule to accommodate customers' schedules. The branches are also becoming more focused on establishing a customer relationship at the inception of an account or loan than providing service and transactions after the sale.

Also, live bank tellers are being replaced by ATMs and kiosks for transactions. For deposits, withdrawals, transfers, and many routine tasks, the human teller or broker generally offers no value-add over a self-service terminal (much in the same way that a broker offers no value over Internet stock trading). The only processes which face-to-face interaction add value are related to sales or service - customers who wish to open a new account, or better utilize a product, seek to have face-time with an expert.

It's also noted that community banking centers, operated by local and regional banks, have thrived where bigger banks have failed. In addition to the customers who fled larger banks after the recent financial crisis, smaller banks have a more personal and service-oriented perspective toward their clientele and better connections with the local financial community. The notion of offering better customer service that the distant, bigger banks has long been a tactic of smaller banks.

Branch Models Emerging That Will Survive in the Bank 2.0 World

The author considers a few "futuristic" branch concepts that are being considered or pioneered in various markets. He concedes that they are new concepts, haven't had time to prove their long-term viability, and may not turn out to be viable after all. However, they demonstrate some of the more innovative approaches to branch banking.

The author begins with an anecdote about Ray Kroc, of McDonald's fame, who made far more profit from real estate than from the sales of hamburgers. In the early days, the company would buy land and build a restaurant, and lease it back to the franchisee - and when the town had grown around the restaurant, they would relocate it and sell the land at a profit. As a result, the firm made far more cash from the rental and sale of real estate than from selling supplies to restaurants.

This is an oblique approach to the cost of operating bank branches in high-traffic locations - which is a convenience to the customer and highly visible to new customers, but it constitutes a large overhead expense to the organization. As such, banks must find a way for branch offices to earn their keep.

Flagship Branches--The Banking Megastore

The "flagship" bank is focused on delivering a brand experience, meant to create an emotional connection between the customer and the bank and deliver a friendlier customer experience.

In Berlin, Deutsche Bank opened such a center that had a lounge atmosphere where customers would mingle and chat idly with financial service advisors. The goal of this was to reduce the formality and distance of the banking relationship, put customers more at ease, and make bank products seem more friendly and tangible. Early reports indicate the experiment is "extremely successful" (EN: though no indication of how "success" is defined, or what the before-and-after metrics were.)

A similar experiment in Denmark involved creating an informal bank, more like a retail store. The branch called itself a "shop," used informal names (the service counter was the "money bar"), basic information about financial products is presented on physical boxes, etc. (EN: no report on the effect)

In the United States, Wells Fargo is moving to rename branches as "stores" and presenting the customer with a retail experience, also to divest banking of its stodgy and formal personality as well as to encourage the attitude of its staff toward service orientation. It's segmented its customers by needs into six core groups, and seeks to provide a total financial solution rather than a specific product.

Bank-Shops and Pop-up Branches

It's also noted that the downtown branch bank was often a convenience to workers who would "pop down to the bank" during the working day - but given that most downtown areas have become desolate and the population is more dispersed, it's no longer convenient. Workers have to drive to a branch, wait in a line, and "popping" in an out for a simple transaction is no longer an option unless you take a long lunch.

The primary reaction to this was to extend banking hours to enable people to stop by on weekends and their way home from work - though this comes at significant expense, as the bank has to be staffed during these hours.

The next step in the evolution is creating the bank-shop: setting up a small store or a booth at a shopping mall, cinema, and other areas where people are going to be for other reasons. This enabled the bank to be available in a convenient location and at a convenient time, at a far lower price than building a stand-alone branch office.

By considering the location of the bank-shop, it is also possible to better segment the market and tailor the offerings to the needs of the audience. A bank-shop near a college campus could be expected to draw a specific age group, with specific needs, that are different from the shop at a new and trendy mall, that are different than the shop located in a cluster of high-end boutiques.

Similar to the notion of a bank shop, there are also pop-up branches that serve specific purposes, for a short amount of time. Some examples of the pop-up format include booths at: consumer real-estate or auto shows (auto loans, home improvement loans), auto dealerships (auto loans), university bookstores (student loans, youth checking, credit cards), airports (currency exchange, travelers checks), cruise ships (currency exchange, retirement planning), and mobile branches ( truck or coach that can be parked at virtually any event)

Automated and Self-Service Branches

It's noted that this notion has been tried in the past, but hasn't done well, largely because the replacement of a staffed branch with what is essentially a row of ATMs is perceived as a decrease in customer service.

However, if a bank opens a self-service branch in a new location, customers are more likely to see it as a "new" branch that adds convenience. It's been especially popular with branchless banks, who bean as internet-only institutions and opened self-service branches as an added convenience. The author also notes that some traditional banks that have opened "fighting brands" to complete with Internet banks - such as ING Direct (ING) or FirstDirect (HSBC) have also found success with this format.

For traditional branch banks, a more hybrid approach is often used - much like the "bank shop" concept - in which customers are directed to ATMs or kiosks for routine service functions, but a live banker is available to assist with more involved transactions.

These branches are entirely un-staffed and consist of kiosks, ATMs, and/or Internet terminals, whose theme is more along the lines of an Internet cafe (though the only access is to the bank system).

Customers accustomed to face-to-face banking may not be prone to adopt the self0-service branch, but it's noted that the Y-generation was born into an age of technology and are completely at ease with it, and many of that generation are precisely the opposite in terms of customer preferences - they prefer dealing with machines and are uncomfortable with human contact.

An aside: HSBC experimented with embedding RFID chips in bank cards, which enabled them to be aware when a high-value customer entered the branch, greet them by name, and usher them to a server who had their details ready by the time they walked in the door.

It's also worth considering that the value of the automated branch is that it provides an interface for customers to access banking systems in convenient locations. But given the growth of mobile computing, this may be a transitional step that will eventually become unnecessary, given that bank customers will carry with them their own interface (mobile device).

Third-Party Branches

Another concept in branch evolution is using a franchise or outsourcing model to enable an independent company to provide branch services for your bank: the sales and/or service of bank products are contracted to other companies.

Some reselling of products is currently done, particularly by small banks who offer basic services on their own, but resell other services from a partner bank to round out their own product line. This notion is merely the ultimate expression of that model, where the company that operates a branch merely resells the products of other banks. Another analogy is the ATM network, in which a customer from one bank can use an ATM at another bank (or a machine operated by a third party) to perform transactions.

The added advantage of the franchise model is that it enables banks to expand rapidly, with very little outlay of cash, and virtually no risk (The franchisee performs the task of researching a location and assumes the risk of failure if it does not draw sufficient customers.)

(EN: The author does not provide any evidence this has been attempted, and he overlooks some of the dangers of the franchise model - namely, putting one's customer and brand experience into the hands of a third party. If customer experience is critical, it should not be outsourced to others.)

Branch Improvements Today

The author lists some of the critical areas for improvement in financial services: improved customer communications, better cross-selling and up-selling, efficiency gains through training and process remodeling, better channel migration, improved use of technology, and better market segmentation.

The author considers the notion of "dashboards" that provided an at-a-glace overview or customer data. (EN: I'd agree that an overview is worthwhile, but the notion of a dashboard was to monitor changes that take place in real time. Many companies have been enchanted by this notion, but found that their data doesn't actually change than much in real-time, and the dashboard, while a trendy notion, is not the best tool for the job.)

A number of initiatives are listed, as an indication of the kinds of projects that are presently being undertaken:

These initiatives are worthwhile undertakings for any bank, geared toward saving money, being more nimble, and improving the long-term value to the customer. It's suggested that the return on investment should be noticeable between 6 and 18 months (larger banks will gain ROI faster)

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