Investing in the Branch of the Future
There is intense debate right now about the future of the branch. Some say it will become increasingly obsolete as customers move towards online, mobile and other non-branch channels. Others point out that the majority of new accounts are still opened at the branch and customers look for who has the most convenient locations when selecting a bank. TD Bank is in this particular camp and recently announced an aggressive expansion of its branch footprint.
Time will tell how extensive branch footprints will be in the future but branches will continue to exist. The focus of attention, then, should be on understanding how to make branches more efficient, how to maximize revenue in the current environment and how to most effectively interact with customers as technology and channel preferences change.
The first challenge is to maintain branch efficiency. Two key components to this are getting the staffing model right and optimizing operating hours. Staffing models are becoming obsolete as customers visit the branch less often and handle more routine transactions at the ATM instead of the teller window. Do you still need as many positions and as many employees for each position?
In an effort to reduce expenses and increase efficiency, Capital One Bank recently eliminated 500 assistant branch manager positions. There is risk to cutting back staffing, however, as it could negatively impact the customer experience as well as employee morale. A sounder strategy would include “natural attrition” – not filling some positions when employees leave – and then treating that as a “test” by measuring the impact of the reduced staffing on branch performance and using that information to determine the best path forward.
Reducing operating hours is another possible avenue to reduce expenses and improve efficiency. Trends in recent years have actually been going the other way – to add hours and increase convenience – but are the added hours really necessary? True, extended hours can be a competitive advantage that can improve retention and help bring in new customers. However, longer hours are not uniformly beneficial across all branches. For example, a rural branch where you already have strong market share may not benefit from weekend or weeknight hours.
There is also a wide range of effectiveness across different hours throughout the week. For example, adding weekday morning hours may not be effective while additional Saturday hours may be highly beneficial. Convenience is important for customers, so before making any broad changes, try cutting back hours for different parts of the week across different types of branches and see where you have the best opportunity to scale back hours with minimal negative impact.
A second challenge is to find ways to maintain and grow revenue at the branch in today’s environment. Given that many banking relationships are unprofitable right now with rock bottom rates and increased regulation, this means focusing more on particular products (e.g. brokerage and mortgages) and more on the mass affluent and wealth customers. Branches are not geared to specialize in these areas and there are a number of changes and investments required to achieve growth with these products and customers.
One such investment that banks have started to make is to bring in more specialized staff members who are experienced with selling complex products and meeting the needs of more affluent customers. These employees tend to be highly paid individuals, so you need to analyze and learn from early investments to determine which branches warrant dedicated specialists, which can share resources across multiple branches and whether some branches can leverage virtual or remote meetings with specialists.
It is equally or more important to invest in training current staff members to become more knowledgeable about specialized products. The right training programs can also make those who are used to completing more routine transactions become more adept at the “soft” skills required for selling and relationship building. As training programs are rolled out, measure the impact on metrics such as new account generation, cross-selling and retention to find which are effective and which are just wasting time and resources.
Changing incentives can also be a highly effective way to move branch employees from fundamental tasks like cashing checks to actually driving revenue growth. However, there are risks with changing incentives and sometimes they can have unexpected consequences. In one particular case, changing incentives to bring in new accounts did, in fact, increase account generation but the bank ended up with less valuable products that were poorly funded so that revenue actually decreased.
New incentives also run the risk of hurting employee morale and negatively affecting the customer experience. On the other hand, the right type of incentive can significantly improve sales for high-value products and customers and help boost the bottom line. Try different approaches with a limited number of employees before changing incentives more broadly to find the winning incentive structure.
Finally, a third challenge is to interact with customers effectively as the way they use the branch evolves. While branches will continue to be around, they will certainly look different over time. Banks should continue investing in technology such as “smarter” ATMs or replacing a teller window with an ATM. As customers use technology at the branch or via the mobile/online channels to complete routine transactions, the rest of the branch should evolve as well. This can include getting rid of the teller line and going to a more open look and feel for the branch. These are expensive investments so they should be implemented slowly and closely monitored.
The future of the branch can still be bright if banks make the right decisions and investments now.
Mr. Weidman is vice president at Washington, D.C.-based Applied Predictive Technologies, a data analytics firm that helps retail banks test how various business changes alter customer behavior. He can be reached at [email protected].