A Question of Balance

By Bill Stoneman

Getting the most from the branch may entail splitting it into two complimentary businesses: transactions and consultative selling.

Spurred by cost-cutting imperatives and an expanding product set, banks are creating a new mission for their branch offices. Processing routine transactions will be a backdrop for an even larger purpose, which is helping bankers to connect with customers -- to converse about financial needs, explain complex products such as investments and insurance, cross-sell, and position the institution as a trusted adviser.

The implications for the industry should be positive. Assuming the shift produces additional profitable accounts per-customer and higher sales of investment and insurance products, consultative selling will help institutions justify their costly branch networks. "Branches are the most expensive delivery channel we have," says Joseph C. Guyaux, executive vice president with PNC Bank Corp., Pittsburgh. "Whatever goes on there ought to be the most valuable thing for the customer."

But implementing this strategy will require some adroit footwork. One key to success will be treating walk-in customers with the right mix of selling and servicing. Customers entering for a routine transaction surely can absorb messages describing a bank's full array of services on attractively designed displays. But they might not appreciate being stopped for a sales pitch about mutual funds. Taking a cue from Wal-Mart, some banks now employ skilled traffic managers -- known as "greeters" -- at branch entrances to help ascertain customer needs.

To capitalize more fully on the opportunities offered by the new branch mission, banks also must reach out to prospects who live or work near a particular site. On a selective basis, even customers who have adopted electronics so completely that they no longer enter branch offices can be profitably brought back into the fold. In any case, prospecting will require accurate targeting of candidates for a particular product or a consultation, and then finding effective pitches to bring them into the office.

While database marketing programs may be improving the ability of banks to identify the right prospect for the right offer, banks can't underestimate the value of a personal contact from a neighborhood branch office. Many prospective and existing customers will respond better to a call from a local bank employee than to communications from a centralized marketing unit.

So it's clear that after a bank commits to a new mission for its branches and analyzes opportunities to sell to new and existing customers, completing the makeover will depend on the skills of the front-line staff. "We will have to get much better at consultative selling and servicing," says David W. Mooney, Chase Manhattan Corp.'s regional executive for the New York City area.

That means managers must staff their branches with proactive sellers, rather than reactive servers. More branch employees will need greater expertise -- and likely licensing -- in advice-centered products. Banks also will have to revamp compensation to attract and retain people able to meet the new demands.

Even then, institutions must tread gingerly so as not to attract new business at the expense of the old. Many customers -- often including the most profitable -- still wish to conduct their mundane banking chores in the branch. At the end of the day, managers may find themselves operating two nearly separate businesses under the same roof: one advisory-based and the other focused on accommodating transactions.

Changing Mission

Experts repeatedly heralded the imminent obsolescence of the traditional bank branch over the past decade. Despite years of industry consolidation, however, the number of commercial bank branches in the U.S. has actually grown, from 50,017 in 1990 to 59,773 last year. It now seems that branches will remain among the most important delivery channels for banks well into the next century -- perhaps the most important. The branch's mission, however, has become more complicated.

Banks today are more likely to regard their branches as sales offices, and not just for old standby products like savings accounts and personal loans. Bankers increasingly believe they can derive the highest value from their physical sites by using them for consultative selling. That may take the form of a formal and comprehensive discussion about a client's financial needs. Or it may entail probing a person's circumstances when that individual asks a narrow question about a particular product or service.

High on the list of products well suited to such branch office conversations are investments and insurance, which are less vulnerable than basic savings and credit products to price-based competition. Nothing beats a face-to-face meeting with a trusted banker when a customer is shopping for a mutual fund or insurance policy. "These products require explaining and they require confidence in the person who is doing the explaining," says Robert Steele, vice chairman of John Ryan Co., a Minneapolis-based adviser to banks on branch merchandising and design. Steele points out that even Charles Schwab & Co. and Fidelity Investments -- both hailed for the service they provide by telephone, mail and computer -- generate substantial new business in their branch locations.

While millions of consumers are quite comfortable making their own investment decisions and dealing directly with fund families like Fidelity or the Vanguard Group, millions of others want guidance. Bank savers especially want help from someone who understands their more conservative nature. Life insurance products, including annuities and term, whole, universal and variable life, play to a trusted adviser's strength because they are usually complicated, and because consumers don't always buy them without prodding. Other products and services ripe for branch-based consultation and selling, according to Steele, are 401(k) rollovers, financial planning, retirement planning, tax service and assisted living insurance.

Homeowner and auto insurance do not offer banks as much opportunity, since consumers don't need a financial expert to recommend obtaining the coverage. Also, people typically buy a policy after checking around for the best price.

Even as new products are brought on board, branches will continue to do important business in traditional bank products that also take some explaining. Consumer offerings in this category include mortgages and home equity lines, and small business offerings include cash management services and retirement plans. For every consumer who values the quick-answer, loan-by-phone application, another one wants to sit down with a banker to talk about rates, terms, tax consequences and how much they can afford. With the critical proviso that personal attention should be selectively devoted to those people whose potential long-term relationship value truly warrants it, banks will find that obliging these individuals offers numerous opportunities to build profitable relationships and sell additional products.

Branch "Concierges"

Reconfiguring branches for advisory-based selling raises two immediate issues: physical layout and staffing. For banks just beginning to rethink the mission of the branch, at least modest construction expenses probably lie ahead as some of the space now occupied by tellers is reallocated to desks and meeting areas.

Reducing transaction activity in the branches cuts the need for teller windows. Simply converting some of the teller area to additional open platform space, however, would not be wise. "It is very important that the bank provide some feeling of privacy to the customer," says Steele. Private offices for everyone probably are not necessary, but partitions that dampen sound and at least partially shield customers from view could help, as well as the positioning of consultation areas to avoid direct sight lines.

Technology will play a big role in branch redesign. Pioneers such as Mellon Bank Corp. have installed video kiosks -- known as "video bankers" -- to display product information, along with phone stations connecting customers directly to the call center. As activities become more varied and customer stopping points multiply, branches will begin to take on the feel of a store, or even a small shopping mall.

Merchandising material -- as simple as placards or as sleek as plasma television screens -- will help customers see that banks offer much more than traditional banking services. That is important, Steele says, because many customers just do not know the range of financial services offered by today's banks.

Further emulating retail merchants, many banks have created a new position -- the branch "greeter." This is an employee who patrols the entrance to the office and helps direct customers. The delicate nature of the task requires a high-quality individual; customers could be easily offended by a greeter who either pushes too hard or misdirects them. "The greeter has to be one of the best people in the store," says Vicki Kennedy, group executive for retail banking with Centura Banks Inc., Rocky Mount, N.C.

Staffing, in fact, is one of the biggest managerial challenges facing banks as they upgrade their branches. Many institutions are deciding that regular branch personnel, rather than specialists who are only in the office occasionally, should handle a good portion of investment and insurance sales. As a result, many banks have stepped up programs to train workers and help them acquire credentials.

For example, all 1,000 of Chase Manhattan's branch-based relationship managers have obtained insurance licenses, and all are expected to have a Series 6 securities license by the end of next year. Such credentials "round out their ability to serve the primary needs of our customers," says Mooney. While Chase is positioning insurance and investment specialists in many branches to handle the more complicated services, the relationship managers will be expected to initiate conversations with customers that identify needs beyond basic banking products.

Many of PNC's branch officers are acquiring similar credentials, although the bank is not aiming for 100% accreditation. Under the PNC model, branch-based generalists help customers determine when a non-traditional bank product might serve their particular needs. Then they route those customers to a specialist, who handles the actual sale. "The only things we let the platform officer sell right now are fixed annuities, which so closely approximate CDs that we feel comfortable with that," Guyaux says.

But PNC is considering other strategies for improving the advisory-based capabilities of its branches. The company may, for example, distribute comparative information about property taxes and school districts to people who inquire about mortgages.

Another plan under discussion is to wire all 743 offices with high-speed Internet access. That would put information about broad subjects and particular products, as well as the ability to perform myriad what-if calculations, right at bankers' fingertips. "As soon as we do that," Guyaux says, "people become experts on almost every product, and with minimal training."

This is not to suggest that broadly lifting staff expertise is the only way to go. Taking a contrarian approach, Milwaukee-based Firstar Corp. isn't demanding that its branch officers bone up on investments and insurance at all. "In my world," says vice chairman Richard K. Davis, "a single individual is not supposed to know everything." Instead, Davis likens Firstar branch officers to hotel concierges -- representatives know whom to call for every need, and they make arrangements for customers to talk with appropriate experts, though not always immediately.

Mellon is using its video hookup technology to attain the same objective. Its branch greeters are responsible for determining whether the video banker system will serve a customer's needs more effectively or more expeditiously than would an employee in the branch itself. Customers who pass that screening can then use the video banker to reach both banking and nonbanking product specialists. Now that video banker is installed in 340 of Mellon's 428 branches, it handles some 30% of all branch-related new account openings, according to a corporate spokesman.

Pay for Performance

Whichever path banks follow, shifting the emphasis to advisory services will require very different orientations and, in many cases, different skills from staff members. To attract and retain people with a grasp of investment and insurance products and an aptitude for selling, banks will probably have to make compensation more competitive with the securities industry, possibly by pegging a big part of pay to performance metrics.

Ample marketing support also is important, though experts differ on the relative opportunity presented by walk-in customers and people who don't typically use a branch. While John Ryan Co.'s Steele says, "Every time you walk in, that is an opportunity for the bank to communicate what it is about," other observers say transaction customers offer a limited market for advisory-based services.

"Walk-in traffic is at best the market at large," says consultant Les Dinkin. Such customers, having chosen to visit a branch, are the complete opposite of targets chosen based on the probability that they will buy a given product at a particular time, says Dinkin, managing principal of NBW Consulting Group Inc.

Chase is covering all bases. It is using mass media advertising in the New York City region to announce that it's in the insurance business. At the same time, it is harnessing database analyses to identify and contact customers and prospects who might be interested in specialized products.

Even with the emphasis on advisory services and new products, bank branches will still be used for basic depository and cash transactions. That means housing two distinct businesses at the same location for the foreseeable future. Separating teller areas from consultation areas with partitions and product displays will help keep customers of both comfortable. Encouraging frequent teller window visitors to use ATMs, direct deposit, telephone banking and PC banking -- through pricing incentives and personal reminders -- will ease the shift from transaction serving to consultative selling.

But if they push too hard, banks will inevitably alienate some of their most valuable customers, who are in a position to demand full service. The branch's transaction-based roots are something to be built upon, not abandoned. "People expect to be able to do certain things when they walk into a branch," says Mary Beth Sullivan, senior managing director for Furash & Co.

Mr. Stoneman is a freelance writer based in Albany, N.Y.

Copyright © 2003 by Banking Strategies, published by BAI.

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