Predicting key trends in any industry—and financial services is no exception—means taking to account uncertainty, reality and possibility. In some years, that might as well demand a deft touch with a crystal ball (and we don’t mean the one that just dropped in Times Square).
Yet 2018 begins on a very favorable note. The economy is strong; margins are improving, albeit with some pressure from rising deposit rates; banks have overcome their fear of fintechs and now seek ways to partner with them; branch transformation remains on the front burner, no longer stigmatized as a crisis in need of change; and positive signs point to the easing of burdensome regulation.
So what does the crystal ball hold for 2018? Here’s our Top Five picks.
The “branch of the future” is here … and it’s still a branch. Banks and credit unions still open about 1,000 new branches a year. Although the total number of branches is declining, almost all this attrition originates from the largest banks—while community banks drive the majority of new branch growth.
One thing is clear: Customers still want physical locations. Countless surveys show that branch convenience remains the top criteria for selecting a financial institution. Data from Bank of America and Chase shows that, contrary to popular wisdom, millennials use branches with roughly the same frequency as the average bank customer. And while it may change in the future, 85-90 percent of all new accounts are opened in branches, not online.
Even feared disrupters such as Amazon recognize the need for physical distribution. Its Whole Foods subsidiary now has Amazon Lockers where customers can pick up their on-line orders, and Amazon is beta testing a physical store concept in Seattle.
It’s all about the customer experience. Customers have a choice. They know that almost everything customers do in a branch they can also do through other channels: through call centers, on computers, with smartphones or at an advance function ATM. When they visit a branch, they choose human interaction. They don’t want to come into a branch only to be told “use our self-service terminal and do it yourself.” Rather they want a personal experience they can’t get at home or via a mobile device.
This does not suggest self-service has no role in some locations, or as a strategy for some banks. But be careful. If you believe that self-service represents the new normal, then why do you need branches at all? Rather, banks now pay greater attention to the choreography of the in-branch experience and the integration with digital and call center channels.
The universal banker is the new standard. With declining branch traffic, the traditional branch staffing model must change. About 60 percent of bank branches are staffed at higher levels than required by customer traffic—security, dual control or standard staffing protocols drive the number of staff. That is not only economically unsustainable, but makes the customer experience even worse because it rarely produces the right mix of staff at the right time.
Financial institutions have experimented with a “universal” model, though they struggle to get it right. Too often it simply involves cross-training staff to handle other functions, but fails to change the cadence of how branches operate. That results in staff reverting to previous, comfortable roles.
Getting it right requires rethinking branches not as a collection of individuals with specific defined roles (teller, customer service representative, personal banker, etc.) but rather a team of players that can—and do—perform all branch functions. They become a group of utility players, with the branch manager functioning as a coach.
Technology will facilitate improved personal service, not drive self-service. Yes, there is a place for interactive teller machines (ITMs) or other similar technology—but it remains far from proven. ITMs require one-half to one full-time employee per machine in the call center, which begs the question of economic viability: no reduction in staff despite significant capital outlay? Attempts to turn ATMs into mini-branches through video have yielded similar mixed results. (“It was easier to just use the pneumatic tube.”)
Branch technology pays off when it makes it easier to serve customers. Cash recyclers, especially when used in pods or open teller lines, can improve security, staff utilization and customer interaction. Simplification and automation of operating procedures moves non-customer activities out of branches and allows staff to focus on sales, service and marketing. Use artificial intelligence to augment, not replace, human decision making to create a better customer experience.
It’s about agility. We live in a time of rapid change in technology, competition and customer behavior. Financial institutions must adopt agile decision processes that better prioritize opportunities and shorter go-to-market cycles. Many banks are adopting management concepts learned from fintech partners; these include rapid idea generation, iterative development and fast test-and-learn pilots. Gone are the days of long term development cycles where the end-product is obsolete by final implementation.
Agile project management concepts are not new. Around since the late 1950s, they’ve received fresh attention thanks to successes at companies such as Apple and Google. This revived management wrinkle is being adopted for mainstream decision making at banks as varied as Fifth Third or Frost. You should ask: Is there a Scrum product management with a sprint time frame in your future? (For those unfamiliar with Scrum, a popular team-based agile project management methodology in high tech, you can learn more here.)
How accurate will these predictions turn out? For all the balls we could consult—crystal, bouncing, Magic 8-Ball or otherwise—we promise something more literal: to keep our eyes on the ball through cusp of 2019.
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