Change or get left behind: 3 keys to branch reinvention

15. 04. 2015

In today’s digitized world, we are increasingly using online banking platforms to manage our finances. At the same time, the popularity of self-service devices, such as ATMs, is growing constantly. Traditional branches will need major reinventions to keep up with newer and newer banking solutions. We present three potential ways for branches to avoid marginalization.

The concept of branch reinvention can easily be oversimplified into just moving basic transactions online and using fewer branches to focus more on sales.

Yes, customers are moving towards self-service machines and mobile banking is leading to closing branches (2,267 of them in 2012 according to SNL Financial, and 672 more a year later), but the fundamental need for the branch isn’t going away. It’s just becoming a more agile and strategic tool.

Given that 90 percent of all accounts are opened in a branch, there will always be a need for face-to-face customer interaction. So if you aren’t using your branches strategically, you’re missing out on new customers. Here are three ways to ensure that you don’t.

Reformatting and realigning the branch

Citigroup found that 60 percent of computer users manage their finances online and closing a branch can save a financial institution upwards of $300,000. But if you close all your branches, how do you sign up new customers? Or build a relationship with them that will inspire loyalty?

It’s a Catch-22 for management as reducing the number of branches can create short-term profits, but hinder new customer enrollment for the long term.

One tactic is to change your branch format. As the physical size of branches shrinks, some financial institutions are experimenting with novel approaches: Capital One 360 has experimented with a café-style mini branch in Boston; PNC launched a pop-up branch in Chicago to raise brand awareness while playing on the fad of pop-up fashion boutiques. Maybe next someone will ride the food truck trend and offer a true mobile bank on wheels that caters to large events or seasonal vacation spots.

Another option is strategic branch realignment. Financial institutions have to look at all of their branches and determine whether those with lower transaction rates should remain open.

According to consulting firm Bancography, “Branches that have 5,000 or fewer transactions each month are good candidates for downsizing.” So then do we just arbitrarily ax branches below the 5,000 mark?

Not quite.

This ignores the strategic part. The key is to balance this metric against the footprint of your service area. If closing a branch with lower transaction rates leaves a gaping hole in your territory, you might instead want to look at consolidating other branches that serve the same area and increasing the service capacity of the remaining branch with technology such as teller cash recyclers, interactive bankers, and digital signage.

The model institutions are moving towards is a hub-and-spokes design whereby a branch serves as a nucleus with self-service options serving to cover a larger territory while reducing costs. The shifting patterns of people and cities will require realignment over time, but the consensus is that if you don’t position your branches strategically now, you might not be around to do it in the future.

Piloting new technology

Don’t just close all of your low-transaction branches right away. You’ll need some for pilot testing. Customers want new and exciting technology that improves their banking experience, but they don’t want to learn about it when they’re in a rush on their way home from work.

Roll out new technology at branches with lower traffic so that customers can get comfortable with it and your employees will have the bandwidth to help them as needed without creating a line that backs up out the door. According to American Banker, you should look for a branch that doesn’t require a teller line during the busy lunch hour rush to be a candidate for piloting your new systems.

You might even find your lower transaction branch experiencing an uptick in visits depending on the popularity of new devices and systems. For example, the tellers at pioneering banks are coming out from behind the glass wall with tablets to help expedite noncash customer transactions, while adding a more personal touch. The Wall Street Journal reported that Wells Fargo piloted a branch that converts into a 24-hour self-service zone after business hours.

Planning to Exceed Customer Expectations

But how can financial institutions know what customers will want next? The key is to constantly search for that next advantage instead of resting on your laurels.

“Banks need to restlessly reinvent to stay relevant to customers,” according to IBM European Mobile Lead for Financial Services Gareth MacKown. He has said that banks focus on upselling clients when they should be concentrate on service and personalization.

One pathway to this type of service is to leverage customers’ financial information to help those customers better track and use their resources.

“Thanks to the rich data they possess about their customers’ purchasing and spending habits, banks … [can] anticipate customers’ needs,” according to Accenture. By providing personalized service before customers even know they need it, branches position themselves to better handle the task of selling customers more complex products.

Another pathway is for financial institutions to take digital employees out of their protective silos and integrate them into retail planning. According to Mike Baxter and Dirk Vater of BAIN and Co., “Digital channels are effectively seen as competitors to the branch network, creating an inherent conflict in the organization.”

Instead of letting digital departments stand alone, which an estimated 70 percent do, financial institutions need to foster an environment where their branches and digital departments work together to create seamless omnichannel solutions.

Whichever branch reinvention solutions you choose, they will most likely require funding. And yet Baxter and Vater say 41 percent of banks don’t budget for it. If you haven’t already, you need to create a “change fund” now.

Additionally, experts caution that many changes require an easing-in period for employees — a process that can even involve convincing managers to make the initial jump. Many are content to coast along on the loans and products that older customers are using now without robust technology. But every day that they do, millennials, the future of branches, are going elsewhere.