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Mark Riddle Oct 14, 2016

Changing branches in a digital age

There is no doubt that bank customers of all ages and incomes are moving to digital channels to conduct financial transactions. Use of mobile banking applications to check balances, transfer funds, pay bills and even deposit checks is growing rapidly. Furthermore, more customers are going online to open accounts and apply for loans.

But does that mean branches are dying? Not at all. BAI consumer research shows that while use of mobile and online channels to conduct basic transactions is growing, customers still want branches located near their homes and offices. Yes, even the Millennials, individuals under the age of 35 who are known for being attached to their cell phones, want to have proximity to and will use bank branches.

However, a customer’s use of digital channels will affect how bank branches look and function and how banks relate to their customers. And the biggest changes will involve the job functions of employees inside the branches.

Convenience Priority

While technological advancements in mobile and online technology get all the press, our research at BAI shows that branch services still play an important part in attracting and keeping bank customers today and will continue to do so in the near future. In fact, in our consumer survey conducted in January 2016, respondents told us that when choosing a new financial institution, having a branch located less than 10 minutes from their home or office is considerably more important to them than being able to access leading edge online or mobile capabilities.

Overall, 38% of customers rank branch location as the number one factor in bank selection compared to 12% picking leading edge technology. Additionally, another 32% rank having free and unlimited access to bank’s ATMs as number one. And remember, ATMs are typically attached to the branch.

While branch location was less important to Millennials than GenXers or Baby Boomers, it still was favored over technology, with 34% of Millennials saying branch location was most important, compared to 36% who wanted free access to ATMs and only 15% who ranked technology first.

Still, it is clear that customers, especially younger ones, are visiting their branches less often. The BAI consumer survey found that Millennials use branches less and mobile channels more than GenXers and Baby Boomers. About 14% of Millennials’ interactions with their bank are accomplished through the branches, compared to 20% for GenXers and 26% for Baby Boomers. Meanwhile, 34% of Millennials’ bank interaction comes via mobile channels, compared to 21% for GenXers and 11% for Baby Boomers. Surprisingly, Millennials used online channels less than their older counterparts , 21% for Millennials compared to 28% for GenXers and 32% for Baby Boomers.

Remember, however, that most of these digital and online interactions are for basic transactions such as cash withdrawals, balance review, bill pay and making deposits. When customers of all ages want to open new accounts, apply for a loan or discuss their financial situation, the branches are still where they most frequently go.

And, if Millennials use branches a smaller percentage of the time, consider the fact that overall they interact more with banks than their older counterparts. Our study found that Millennials actually use their bank branches nearly as much as other customers because they interact with the bank overall more. For example, they interact on average 57.6 times per-month compared to 50.2 times for GenXers and 42.5 times for Baby Boomers. That means they are still spending a considerable amount of time in those branches. They also tell us they visit the branch 1.9 times a month, the same as GenXers and only slightly less than the 2.3 times for Baby Boomers.

Millennials, who have less experience in dealing with financial matters than GenXers and Baby Boomers, are also willing to share personal information in exchange for help. About 36% said they would provide information to their bank in return for better service and product offers, compared to 33% for GenXers and 30% for Baby Boomers.

Positive Impression

Branches are also where customers form their opinions about the bank. Think about the cell phone industry. If their phone is working correctly, people don’t think about where they got the phone. But if there is something wrong with the device, or they need help with something related to the phone, where do they go? To the T-Mobile or Verizon store.

It’s the same with banking. Customers don’t always think much about the bank itself or its branches when they are checking their balances online or via a mobile device. Handling routine transactions constitutes a very small value proposition to them. But if customers have trouble or need advice, where do they go? To the branch. That’s where the banks can make a positive impression. How they resolve problems and what financial advice they give customers will have a major impact on how customers perceive them.

Still, some areas of bank interaction with customers will go digital. Take advertising for example. When we surveyed banks, they told us that nearly half of their advertising budgets will be spent either online or on mobile channels over the next year. Additionally, consumers tell us they want to receive bank product information in an electronic form. About 71% of consumers said they prefer to receive product information via web sites, email or text, compared to only 6% who wanted information at branches and 21% who wanted it via regular mail.

So, if digital interaction is not causing branches to die, is it bringing about change? Definitely. Branches need to respond to technological changes in our society. Accept the fact that customers of all ages will use digital channels to conduct basic transactions and focus the branches on serving customer financial demands that can’t easily be met with a machine.

Many big banks tell us they can continue to serve customer needs just as well with fewer branches. So, we may see fewer branches serving customers of large financial institutions. But many community banks tell us they can’t meet their customer demands with fewer branches. For these institutions, reducing branches may generate too much inconvenience for customers. Furthermore, if less time is spent on routine transactions, new branches are likely to be built in a smaller space than most existing branches. Where it is feasible, banks may want to replace existing locations with smaller branches or even rent out excess space, whenever possible.

However, more important than how many branches a bank has or the size of those branches is what is going on in them. The biggest changes going on in the branches relate to the staff and the jobs they perform. There are some things that are hard to replicate online or via a mobile phone. Banking is not that different from retail shopping. You can easily buy razor blades or books online. But some items are more complex and customers need help in purchasing them. I am an avid runner and regularly purchase running shoes. But I need help finding the right shoes. I need an expert to help me find what I need. I can only get that in a specialty shoe store.

Banking is the same. Checking and savings accounts are ubiquitous. While customers can perform most of their transactions online, they often need help with saving to buy a home and then applying for the right mortgage. They need help with planning for their future and providing for their family needs. That means that the staff inside the branch needs to be trained to perform a wide range of investment and lending services. And more staff members need to be trained to work with small businesses that have financial questions related to their businesses’ operations.

Yes, digital channels are changing how customers interact with banks. But customers still need a full range of options to choose from so they can decide how they want to interact. That means banks need to offer the latest in electronic services while providing promotions and products in electronically. Finally, branches need to change if they want to best serve customers regardless of their age.

Mr. Riddle is director of Research at BAI. He can be reached at mriddle@bai.org

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