Perhaps the single most important threat facing the banking industry is the fundamental change in the way consumers and small businesses use branches. Routine service transactions are being displaced by online and mobile, causing branch transaction activity to decline at a 4% to 5% rate per year on average, with some banks such as SunTrust, experiencing declines of 8.5%. And sales productivity is low: our client benchmark data indicates the average branch opens 20 to 30 new accounts per month, and that translates to only 1 to 1.5 accounts per business day.
The steady change in channel behavior has left many bankers uncertain about how aggressively to respond. In our recent survey of industry leaders, one senior banker said, “There is still a lot of disagreement within the industry and our bank as to how quickly the shift from physical to digital is taking place. That is leading to a hesitation about committing resource investments, which could be a huge stumbling block for the prosperity of the industry longer term.”
Here are some suggestions for revamping your distribution model to evolve with the changing customer trends:
Design an optimized distribution network. It’s about managing distribution, not managing branches. Your distribution network should be matched against the needs of the local market, the competitive density and your ability to capture growth. Take a disciplined, fact-driven approach to creating the plan that fits your bank. Is your distribution – facilities, people, and marketing – aligned with the highest priority opportunities? Which sub-markets have the greatest potential for growth? Are the right product resources and staff skills in place to insure success?
The right metrics drive the right decisions. Planning for a successful future means reallocating resources that were designed for a high volume of basic monetary transactions to a future where digital and physical distribution are more closely aligned with growth, customer value and customer preferences. And that is an evolutionary journey that requires a management roadmap informed by the right tools and metrics.
Develop the right mix of facilities. Branches will be smaller and fit into typical retail footprints. There will be fewer free standing branches with drive-ups. Three basic models are emerging: traditional full service hubs in a limited number of high opportunity locations; neighborhood branches in strip centers or other traditional retail spaces; and smaller, highly automated express branches.
The payoff from reconfiguring the mix is significant. Associated Bank’s branch network rationalization resulted in 29% fewer branches and 36% fewer full-time employees per-branch. A branch-by-branch action plan to address legacy real estate issues enabled the bank to shift to smaller, lower cost and more visible retail facilities that better matched capacity needs.
Re-think branch staffing. It is clear that banks will need fewer tellers in the future, and this has significant implications for organizational roles and structure. Most branches will need only universal bankers, who are capable of performing both sales and service transactions. This is not the same as cross training staff to float between positions, but a fundamental change in the way branches are staffed and managed, with implications for hiring, training, incentives and compensation.
For example, universal bankers bring significant improvements in cost efficiency. Traditional staffing structures require multiple levels of tellers and teller supervisors, and similar multiple levels of branch platform staff. In the universal banker model, you typically have only three to four levels of branch staff, who handle all banking center functions. In addition, these branches need fewer supervisory staff, with branch managers capable of managing two to three branches, with equivalent improvements in regional or district manager span-of-control.
Branches staffed with universal bankers are also more productive. At a recent investor conference, PNC’s CEO stated that branches with universal bankers require, on average, one less person to staff. One of our regional bank clients achieved a 20% improvement in per-person sales performance. And there are implications for back office efficiency: reduced training costs (fewer levels to train fewer support processes) and fewer systems procedures to manage.
Banks should be prepared to make the move to universal bankers more quickly. As one executive vice president of Retail at a regional bank told us, “With hindsight, staff resistance was less than we thought, the payoff was greater than we expected and we should have implemented this sooner and more quickly.”
Create a customer experience hub. In an omnichannel environment, customers use more channels than ever before but they expect consistency across channels. Centralized contact centers are well-positioned to provide this.
Traditionally, bankers managed contact centers, or call centers, with strategies designed to migrate routine transactions to automated response systems and reduce customer handle time. However, routine inquiries are now increasingly handled online or with mobile apps and customers are more likely to call the bank with more complex service issues or sales questions.
Re-thinking the contact center as a “customer experience hub” involves broadening the role of traditional contact center to enable faster implementation of new channels and technologies, such as video conferencing with product experts, remote teller management for low-transaction branches and online chat to simplify access. The benefits of adding these technologies include improved customer experience, with consistency that bridges physical and digital channels, and improved productivity as staff focuses on building deeper customer relationships.
Achieving this transition, however, requires different management strategies and operational metrics. New training, knowledge management and simplified customer interactions designed for more complex cross-channel interactions will be required.
Don’t wait to get started. The slow but steady pace of change can lull us into the belief that we can take more time. Delay will only mean a more aggressive and expensive response will be needed later. As Netflix CEO Reed Hastings recently noted, “Companies rarely die from moving too fast, but they frequently die from moving too slowly.”