The branch that once captured 100% of all transactions now only represents 10% of transactions and has been impacted by various industry trends and fads.
In the 1990s, it was the imminent demise of the branch with the advent of the internet, driving many banks to set up separate online banking operations, which later had to close or consolidate after finding out that customers didn’t want to deal with separate entities. In the early 2000s, the new trend was about branches adopting retailing practices, redesigning physical spaces, and adopting a casual, “un-bank,” look and feel. These inviting, but costly ($1 million plus), stores were designed to induce prospects to walk in, but not for better efficiency and productivity. As the 2008 financial crisis unfolded, this model was quickly rolled back.
Post-financial crisis, the “hi-tech” branch trend emerged. This meant modernizing branches and deploying new technologies such as video banking and in-branch apps. However, little emphasis was placed on how to integrate these tools with the bank’s service model and deliver a value-added customer experience; customers would walk past the expensive video-banking device to get in the queue to see the teller.
The latest trend is a shift to smaller branches by reducing physical space, cutting personnel, adding self-service options and ultimately cutting costs. Several questions arise as this unfolds: Do I understand my market segments? Is this right for my customers in this footprint? Should I keep experienced employees or junior personnel? How will I continue selling? What type of self-service devices should I deploy? How do I promote change in customer behavior from tellers to self-service?
Although frequency of usage is dropping, the branch remains significant in business impact – 75% of accounts are opened there – and there are still more than 100,000 branches in the U.S. The challenge is that many banks lack formal criteria to approach change, which requires answering three questions: what do you want to achieve (for example, reduce costs or drive sales), what are your target market wants/needs (such as faster transactions or easy access to capable personnel) and what can you do well, taking into account budgets, management, internal culture and capabilities? As these answers emerge, the right technologies and vendors can then be selected.
Consumers today access their banks both physically and digitally. Many simple and recurring transactions are shifting to digital and other self-service channels, such as the ATM. But most complex and/or sensitive transactions remain within the branch and will stay there until alternatives are better developed as a seamless extension of traditional services. Respective channel strengths support the types of transactions that the channels are chosen for. The ATM and online, for example, are considered fast and convenient while the branch is viewed as secure and trustworthy. But consumers don’t use channels in isolation; researching new loan alternatives often commences online, followed by reaching the call center to clarify terms, to then visit the branch to open the account, back to online to make loan payments and finally to online or mobile to check the balance. Cross-channel consistency and connectivity is a must.
So, what works for you? It depends on your needs. For example, a focused modern branch staged as a welcoming destination has served Umpqua Bank very well, and attracted and deepened relationships with business owners and affluent consumers in the Pacific Northwest. A Bank of America teller-less branch well equipped with self-service devices and a helpful banking officer to guide customers as needed has met well the needs of busy New Yorkers in the city’s financial district. Will Umpqua’s model work in the Appalachian Mountains in Kentucky? Will Bank of America’s teller-less branch work in a retiree community in South Florida? What works is getting to know your target market and setting realistic goals in line with what you can achieve by evolving the branch and other channels. And remember: just listening to vendors or (blindly) copying others is not strategy.
So, where do we go from here? How should the branch evolve?
Good banking practices must support selling and deepening customer relationships while lowering costs and raising efficiencies. With a trend towards smaller branches and more self-service, banks are trimming personnel from 10 to 12 employees per branch to 8 to 10, often reducing teller positions and expecting remaining employees to pick up the slack. However, self-service is not growing as fast as expected, the branch remains busy at peak times and customers still walk in to perform basic transactions (e.g., deposit a check) that employees (including senior bankers) must address. This hurts productivity and affects employee performance, missing on opportunities to better spend time selling and strengthening relationships with customers.
It’s time to reconfigure the branch, recast the service model and integrate throughout to advance self-service productively and release valued human resources to drive sales and build relationships.
Our core recommendation is to move away from the vaguely defined self-service branch, often passively backed by a pass-through lobby with a few ATMs. Instead, the branch should be “the star” of your delivery model, with a central role in meeting most customer needs. This should be accomplished by shifting the service model from the old and larger (10 to 12 employees) teller-line focused structure to a new, smaller (6-8 employees) and flatter model containing primarily two groups of employees: self-service helpers and professional/advisory officers. The former educates and helps customers navigate transactions on their own, instilling confidence and comfort to repeat self-service behavior. The latter, made up of experienced bankers with authority, handles all matters that self-service could not fulfill. Limited traditional teller stations would be preserved temporarily, to be eliminated as self-service behavior matures and becomes pervasive.
Those institutions unable to change as described above should at least pursue concerted efforts to expand self-service behavior with their existing capabilities. These could include placing an employee at the lobby or teller queue asking customers about the transactions that they would like to perform and appropriately directing them towards self-service and educational videos at the branch showing how to use an ATM to perform routine banking transactions.
In the end, this is not about chasing the latest technologies or undertaking fancy, costly branch transformation with unclear purpose. By pursuing focused, no-nonsense approaches to advance self-service, aligned with the personal service model, financial institutions can leverage existing resources and new investments to lower costs and raise efficiencies, prevent service disruptions, and strengthen the means to continue selling and building thriving relationships. This is about you, and setting your stage to grow a healthy and enduring business.
Mr. Majors is head of the Payment Systems practice, and Mr. Medelius managing director for Rhinebeck, N.Y.-based Phoenix Marketing International. They can be reached firstname.lastname@example.org and email@example.com.