Deconstructing the Branch

The world is changing and the traditional bank branch needs to change with it. Most retail bankers would agree with that statement, at least in part. As customer transactions migrate from branches to electronic channels and a slow-growth economy pinches revenues, bankers generally accept the fact that the branch of the future will at least need to be smaller and perhaps more sales-oriented.

Branch architectural expert David Faulkner goes even further and says the service function of the branch and its “all-in-one model,” where all customers are treated the same, needs to be reconsidered entirely, with major implications for branch architecture and layout. Faulkner will present his ideas in detail at this year’s BAI Retail Delivery but recently explained some of the highlights in an interview with BAI Banking Strategies.

“I think everybody should go through the exercise of deconstructing the branch, even if they don’t plan to totally transform their network,” he says. “We need to evolve our branches to match the changes that our customers are going through and how they bank.”

Q: Do changing consumer preferences, such as the migration to electronic channels, require a change in branch format and design?

Faulkner: The question I focus most on is why our customers, and especially our most valuable customers, bank so differently today than they did in the 1930s – using other channels, for example – and yet we are still laying out our bank branches in almost the same way we did in the 1930s. There are three questions that bankers really need to ask themselves as they compare the industry today to, say, the 1980s, when the U.S. economy began its most recent period of rapid growth. First, have banks changed the way they do business? Second, have bank customers changed the way they do business? And third, have banks changed the way they build their branch networks?

Over the last decade, bankers have tried to align their branch model with more traditional retail models but other steps may need to be taken, partly because of recent changes in the economy. If you think of a typical retailer, they put out wares and expect customers to come in to look. You can expect a good number of those visits to result in purchases while only a very few focus on service on prior transactions. But the banker expects most customers to cross the threshold looking for service on past purchases. That’s where the banking model inevitably diverges from the traditional retail model. By trying to be more “retail,” bankers focused on the need for sales but they didn’t realize that they needed to look at the model critically and ask, okay, what about the service piece?

A good example of what I mean can be found in the car dealership, where the service part of the business has its own entrance and is really a segregated, though critical, part of the model. People don’t go into the service area expecting a sales pitch on a new or used car; they just expect great service, which was most likely part of the pitch during the original purchase. The service piece enhances trust and loyalty which, in turn, secures future sales.

In the last three decades of rapid growth in our economy, bankers did have more people coming into their branches looking for loans and other products. So it seemed logical to build large “all-in-one” branches designed to allow sales staff to connect with all the traffic coming through the door. I don’t know how many times I’ve heard bankers talk about putting the “milk, meaning the teller line, in the back of the store” to increase selling opportunities. But now, the weaker economic environment might spur us to rethink that model. Three fairly common aspects of bank design – tellers furthest from the door, closed offices and large comfortable waiting areas with TVs – all send the message that quick, efficient service is not top-of-mind.

Q: What interesting emerging models do you see out there in terms of new branch formats?

Faulkner: Umpqua Bank in Oregon is notable for changing the tone of the experience – some of their branches have a kind of Banana Republic look. It seems that credit unions have been the most innovative generally among the financial institutions, probably because there’s less at stake – they have their own customers to answer to so the focus can be on listening a little harder to customers, as opposed to shareholders.

It’s hard to cite a larger commercial bank in the U.S. that’s really being innovative, although across the board you see different elements here and there. This is particularly true from an architecture standpoint. The large banks are kind of like the airlines, which look and act very much the same. If you put the same coat of paint on their planes and dressed their staff in the same uniforms, you’d have a very difficult time telling them apart. What’s worse for banks is that the products themselves are regulated to such an extent that it’s difficult to differentiate between them. On the other hand, outside the United States, banks are trying some very exciting things.

Q: From a design perspective, didn’t the former Washington Mutual Inc. push the envelope with its “Occasio” branch?

Faulkner: Occasio tried to be different, but Wamu didn’t really examine how breaking up the teller line would impact the overall retail platform. You still had the long lines and oftentimes when I visited Occasio branches, the greeter station – a big, physical part of the landscape – was empty, allowing a poor first impression to introduce the new concept. After that, from a customer perspective, lining up outside a circle of pods was not a lot different from lining up in front of a teller line. Customers were confused. This is a great example of the need to integrate changes in the sales and service model with design changes. The Occasio concept might have been a home run if it had been handled differently.

Q: If you were approaching branch design with a white piece of paper – no existing constraints – where would you start?

Faulkner: People who are modeling the operational aspect of a bank need to dig deep into looking at service delivery in its component parts. If you look at the spread of customers you get walking into the bank, you’ll see there are non-customers who are cashing checks on-us, and some of whom may be prospects. You also have customers looking for service and others coming in for purchases. So, the question is, when they enter the door, how do you treat them?

For the most part, customers are all treated the same. The branch is still an all-in-one model. That puts pressure on the triage point, where customers are greeted. The customer often has to navigate the experience on their own. Bankers try to make the platform more navigable but the fact is, volume can increase at certain times of the day and overload the navigation and triage. Both customer and prospects end up relegated to waiting areas.

All of these things remove delight from the customer experience. I think that needs to be re-thought and it can’t just be the architecture that changes. Somebody needs to think about the retail distribution model and whether it has to be all-in-one. In a traditional retail model, after all, the retailer places what the customer wants directly in front of them exactly when they want it.

Q: Are you saying that banks possibly need to move to more of a car dealership model, where a building with a traditional teller line is placed next to a building with more sales orientation?

Faulkner: There are a lot of possible scenarios. In banking, from a real estate perspective, the question is whether the sales and service platforms always need to be intertwined. At a car dealership, it’s hard to separate the two, although I have seen it done. What if you tried a hub-and-spoke system in banking, with all-in-one branches connected to ATM networks or something in between the two? New technology offers lots of options for delivering the kinds of services that customers normally need in very small footprints at less than 10% of the cost of even the smallest traditional branch. The ability to deliver a broad range of services, in subway stations, condominium lobbies, or malls would resonate well with many valuable customers who have little time to spare. After all, convenience is one of the most critical ingredients in customer satisfaction and choice of bank.

Q: What about cost? Obviously, we’re in a bad economic situation right now and the prognosis is for limited revenue growth for banks – at least for a while.

Faulkner: Absolutely, and part of the reason that you go through exercises like deconstructing the branch is to learn things, not only from a real estate perspective but also from a customer needs perspective. You might say, okay, we have all this real estate but the cost of making big changes or building a thinner network  creates a big financial hurdle and might be unsettling for customers. But by going through the blue sky exercise or commissioning a white paper, you might learn things that help you find more cost-effective solutions for modifying the existing network to increase customer loyalty and satisfaction.

A good example from traditional retailing is Target, which was much smaller than Wal-Mart or K-Mart back in the 1980s. They offered roughly the same merchandise as the other two but were able to differentiate themselves from a design and customer experience perspective and grow rapidly. Target was small enough then to have the capacity to change rapidly. The larger banks today face a higher hurdle but even they can start to develop a sense of newness or differentiation, or more responsiveness to the modern customer need.

I think everybody should go through the exercise of deconstructing the branch, even if they don’t plan to totally transform their network, because they’ll learn more about their sales and service operations and their customers – and the potential risks from competitors who do make some changes. We need to evolve our branches to match the changes that our customers are going through and how they bank.

Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at [email protected].