Few topics in banking inspire as much commentary as branch-of-the-future concepts, since it’s now generally accepted in the industry that today’s branch model is fated to go the way of the typewriter after the word processor made its debut. Everyone, it seems, has an opinion on what that future branch should look like.
Some clues to that format are likely contained in branch-of-the-future prototypes that some institutions are beginning to roll out. During a recent visit to San Francisco, I took the time to visit two of them operated by New York-based JPMorgan Chase & Co. and Portland, Oregon’s Umpqua Bank. Here, in the hopes of bringing the discussion back to street level from the 30,000-foot conceptual stage, are my impressions of these current efforts.
Built for Speed
Chase’s Union Square branch is an impressive, airy facility located on a busy downtown corner. It was my first opportunity to see their new banking center model and experience the smart ATMs from South Korea’s Hyosung. Chase now has about 800 of these machines in place and is installing them in all its new facilities.
They don’t look like traditional ATMs with their large iPad-like displays and enhanced functionality. You can withdraw as little as $1 or up to $1,000 and specify the mix of bills, such as in, “Give me $387 in seven ones, eight tens …” Additional service capabilities include pre-paid card loading, bill payment and enhanced bulk deposit capability.
The layout of the branch encourages self-service. The first thing you encounter is the ATM area, which is walled off after hours with glass partitions for 24 hour access. There is a small teller area with two stations behind a glass security barrier. Clearly, customers are discouraged from using staffed teller services, but they’re available if needed. Although each time I visited the branch I encountered short wait lines for tellers, my impression was that this was primarily designed to serve the coin and currency needs of local businesses.
In many respects the Chase branch is evolutionary, not revolutionary. All the traditional functions there in a recognizable format: tellers in the front, sales offices in the back. But there are some non-traditional touches. The branch is open seven days a week because of the business needs in this location. Quick service stations (stand up desk with a PC) are positioned behind the ATMs so that customers who need more help can receive expeditious service. There is a large digital display wall showing scenes of San Francisco, but not of Chase products and services.
Wi-Fi is available, but not heavily promoted – apparently used as a branding element or as a convenience for waiting customers but not to encourage people to hang out in the branch. There’s a nice conference room and branch staff told me they are planning to let customers reserve it for meetings, but that idea has not been formally implemented yet.
The branch was busy when I visited, as I would expect given both the location and Chase’s local market share. But no one was working the crowd – no concierge, no one at the quick-service stations. I didn’t have trouble finding someone to answer my questions, but my impression was that if you needed additional services, you were expected to ask, or make an appointment, and that the layout was designed for speed and self-service (operational efficiency) with personal bankers primarily focused on deepening relationships with high-value clients.
Built for Engagement
Umpqua’s office is located just a short distance away from the Chase facility. This flagship branch opened with lots of buzz, receiving international recognition as the Retail Design Institute’s 2013 Store of the Year, the first time a financial institution has received this award. Store design has long been part of Umpqua’s strategy to emphasize its positioning as entrepreneurial and innovative.
But style aside, what’s really different? Everything. First of all, the Umpqua facility is not a “branch” but a “store,” as the bank’s employees constantly reminded me. This is not just about marketing terminology. As in a typical retail store, Umpqua customers are encouraged to actively engage, not just transact and get out. You are encouraged to sit down, have coffee and use the Wi-Fi. When I was there, several people were doing just that at computer stations that resembled what you might see at a Starbucks rather than a bank. Conference rooms are not only available for customers and prospects but are also actively utilized for everything from business meetings to meeting friends for lunch. Umpqua provides the coffee – and even wine glasses if you bring your own (no corkage fee either!).
There is an area that looks like a teller counter, but there are no “tellers” (or personal bankers) in Umpqua parlance, but “universal associates,” which means that they are trained to handle any task from opening an account to helping you get cash. The idea is clearly to engage with anyone who walks into the branch in order to identify opportunities, turn prospects into customers and then create deep (and profitable) relationships.
The associate I spoke with had worked at an Apple Store prior to joining Umpqua. “How did you find the transition to banking?” I asked. “Not hard,” he said. “I learned Umpqua’s automated systems and the banking terminology pretty quickly. Service is service, and in that manner this is just like working at Apple, where our job was to help people solve their problems. And much of the time we needed to dig a little deeper to understand their real needs, not just the symptom they described.”
The customer engagement extends to in-branch marketing. The Umpqua brand story, highlighting the way they helped specific customers, was everywhere. Want a brochure of a particular product or service? There’s nothing on paper, but you can access such information in digital format on iPads. Rather than just grab and go, you have to sit down with one of Umpqua’s tools, engage with them and then transfer what you need to your smartphone or PC.
So, there you have two different visions for the branch of the future: speed and efficiency at Chase vs. a deeper engagement with the customer at Umpqua. Which will prevail?
First, some basic concepts. We all know that branch transformation has to happen. In this digital era, routine transactions have to be offloaded to self-service in order to improve efficiency. As transactions continue to move out of branches, the purpose of having a branch shifts to becoming a sales center, a place where you go for more complex services. The downside is that the more we drive people out of the branch, or the less personal we make our service, the fewer opportunities there are to engage with customers and create needed sales opportunities.
Chase has been particularly successful in evolving their branches to improve cost efficiency. According to their investor presentations, teller usage is down – only 51% of consumer deposits are now through tellers, compared to 90% in 2007, and this has allowed them to reduce same-store branch staff by about 20%. Savings have been reinvested in targeted expansion, with Chase bucking the industry trend by opening more new branches than they are closing.
Both institutions have created branch models that are modular. Chase’s Union Square facility was quite large, but can easily be scaled to a smaller footprint offering a few self-service kiosks and only one or two bankers for personal service. Likewise Umpqua’s San Francisco flagship store is, in many respects, a scaled up version of their small community-based facilities in Portland and Seattle.
The Umpqua story is all about growth, from $150 million in assets in 1994 to $22 billion when their latest acquisition closes next quarter. And they have done this through a culture of innovation, differentiated branch experience and distinctive marketing strategy. It is easy to become overly focused on their unique branch style and miss the way they have created an entire sales and marketing process that leverages physical facilities to create customer acquisition.
So again, which of these two visions will prevail?
Chase has clearly shown a roadmap for transforming the traditional branch. They have a robust self-service experience where you feel that you are getting the same (or even better) service, as opposed to being forced into a channel that is convenient for the bank but not necessarily for you.
Umpqua is trying to both make branches more efficient (they are highly automated, it is just not as visible in their branch design) but they are also transforming the way banking works. They’ve staked out a clear position for the bank that differentiates them from larger competitors. They have been successful in acquiring more traditional organizations and integrating them into their model, developing a mix of physical distribution that encompasses innovative neighborhood branches (the kind that get all the press) and integrating best practices back into their more traditional structures. And they have been particularly successful in converting almost all of their branch staff to universal associates, eliminating specialized roles with the benefit of increased staffing flexibility and improved efficiency.
In the end, financial institutions need to learn lessons from both formats. They need to move more aggressively to implement self-service technology and branch re-design in order to improve efficiency and reduce cost, as Chase has done. But they also need to create a strategy of customer engagement, which is Umpqua’s strength. While there is a declining need for branch-based financial transactions, there is increasing need to find sales and marketing approaches that leverage unique trade area opportunities in order to attract prospects and convert them into deep customer relationships. Winners will integrate lessons from both Chase and Umpqua to achieve both the operational efficiency and sales growth that is critical to their future success.
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