With nearly 60% of traditional banking products still being sold in the branch, it's hard to argue that the brick-and-mortar channel still doesn't play a significant role in the retail financial industry. Seven experts on retail banking and branch design share their thoughts on how banks and credit unions will need to re-imagine a new future for face-to-face banking services in the physical world.
Kevin Blair, President/CEO at NewGround
There are over 60,000 branches today that are more than 15 years old. These legacy branches are typically too large, lacking technology and are generally irrelevant in today’s dynamic market. Many of these older branches should be downsized or replaced with new experiences, but most financial institutions underestimate the scope of investment this requires — beyond the cost of the physical bricks and mortar. Today it’s not uncommon to have technology and retail packages that exceed $500,000 in total investment, including the traditional security equipment package, cash automation, video teller machines, digital media and retail experience.
The hub-and-spoke retail distribution model has been around for decades, however financial institutions only now are beginning to understand the power of its application. The strategy relies on a tiered retail distribution model that is anchored by larger flagship experiences with 5,000+ square feet that radiate outward to full-service branches with 2,000 to 3,500 square feet, then down to neighborhood outlets with 1,200 to 2,000 square feet, and ultimately micro branches with as little as 500 square feet.
Because the vast majority of branches in existence today are full-service size, the infilling for most financial institutions are the smaller neighborhood and micro size branches, which can be misleading. Some financial institutions incorrectly draw the conclusion from this that they should only build small format branches. Wrong.
Five years from now, there will be 3,000 fewer banks and credit unions due to consolidation and acquisitions — about 600 less per year. This consolidation will drive significant change not just at the branch level, but also in the back office. Consumers are migrating to digital channels for more than just simple transactions. Even today, fairly complex lending products like mortgages are being done online with more and more frequency. This trend will only accelerate, forcing branch models to evolve with the market.
As branches generate less foot traffic, back office “Digital Experience Centers” must expand to meet the growing demands of consumers. Far too many financial institutions are talking about the “Branch of the Future” when the investment and reach of a $2 million investment will only serve a 5-10 mile radius. There isn’t enough attention on creating the “Digital Experience Center of the Future” that can serve a global market.
In ten years, there will be far fewer physical branches. Consumers will communicate with their personal banker through digital channels and the need to visit a physical branch will only occur for the most complex sales and service issues. Branch networks will be consolidated with little need for transaction centers. Larger flagship “community experience” centers will dominate the network in urban markets, while rural markets will still have access to full-service sites.
John Hyche, SVP/Principal at LEVEL5
Business models differ, and those differences matter. The models that drive Bank of America, Chase, and Wells Fargo are vastly different than those of community banks or credit unions.
One aspect that gets little play in the conversation about branches is the importance of commercial lending to small businesses. Community banks have a large share of this market. This is an area that automation has yet to influence the way it has with auto or mortgage lending. While this may not be the sole factor driving the design, style and size of future branches, we’ll see an ongoing need to provide space for bankers and commercial clients to interact and develop relationships.
“Branch footprints will shrink based on purpose, market, and business case. Designs will reflect the audiences they serve.”
The banking industry has been fascinated with Millennial demographic shift for years. A couple of interesting things intervened to muddle up the anticipated transfer of wealth. Quality of health care and emphasis on healthy living is extending life expectancy, so Grandma and Grandpa Boomer are holding onto their money longer. The Great Recession knocked the stuffing out of a lot of retirement plans, causing everyone (but Boomers in particular) to defer retirement and remain in the workforce. These changes force financial institutions to focus on a wider, more engaged, multi-generational audience than in the past. A decision to focus on or abandon one demographic in preference for another is done at the institution’s peril.
For branches going forward, engagement will be key. This includes product sales, problem resolution and sound advice. Staff competency and training will be top notch. Fewer employees will be “entry level.” More will have a breadth of skills and knowledge base that they bring to bear on their customer’s issues. Given the variety of technological channels through which customers can interact with the institution, the customers who actually visit the branch evidence a need that they believe can be best fulfilled by someone at the branch. This expectation must be met with competency. Branch footprints will shrink based on purpose, market, and business case. Designs will reflect the audiences they serve.
Mark Weber, President/CEO at Weber Marketing Group
If you’re not a trillion dollar megabank, it’s far easier to make thoughtful and distinct future branch designs and solutions because you’ve already created a solid consumer and small business segmentation strategy. You know who you serve — who you are trying to attract, retain and grow profitable relationships with.
Using psychographic segmentation, you can learn critical insights into how individuals think and behave, where they shop, what they value, and how they use everything from debt, to savings and investments to shape their lives. Imagine how you could tailor branch designs if you were armed with that information.
“Above all, future branch solutions must be anchored first in relevant data analytics.”
A survey of executives in the banking industry revealed that the top three initiatives planned for 2017 among leaders included: 1) removing friction from the customer journey; 2) use of big data and advanced analytics; and 3) improvements in integrated multichannel delivery. These are three great places to begin your planning journey for improving user touch point experiences.
Adaptive, versatile spaces in branches can give financial institutions the flexibility and varying hours they need to accommodate different audiences and constantly changing — like homebuyers and realtors, small business owners and wealth management users. Flexible designs allow for an easy change out of new technologies that may not even exist today, but won’t required costly renovations. This kind of “adaptive design” requires careful consideration, so that you aren’t just designing spaces built specifically to accommodate the newest interactive teller machines but won’t handle future innovations — machine learning apps and in-store analytics, Wi-Fi and Bluetooth beacons, etc. Technology and consumer behavior are moving too fast for a non-adaptive approach.
Future branch designs should focus around four key themes:
1. Increase Meaningful Conversations and Valued Relationships. Engage relevant and helpful interactions that help clients get ahead. Personalize interactions and choices. Increase satisfaction — NPS and satisfaction scores, and the resulting referrals.
2. Enhance Talent and Build an Engaged Culture. Acquire exceptional people skills and talent. Help members/customers accelerate their financial goals. Design a superior work environment people want to work in.
3. Simplify and Adaptive Experience. Design user-intuitive spaces that are easy to navigate and learn in. Ensure every Mobile, tablet, and online banking touch point is simple and seamless. Develop flexibility and adaptivity in design as technologies shift.
4. Share the Unique Story Behind Your Brand and Solutions. Why do you exist and WIIFM? How are you making a difference in people’s lives and your local communities? How are you helping people get ahead?
Sean Keathley, President at Adrenaline
Instead of wondering what the “branch of the future” will look like, a better question might be “what will your branch network look like in 10 or 20 years,” since the future of branches will come in multiple formats.
Micro- or mobile formats will exist for 24-hour transactions or consultation by both appointment and drop-in, including video conferencing. Larger flagship formats will receive greater investment and attention to serve as brand statements, community hubs and staffing space for experts. Overall spending on branch real estate and technology will directly reflect the organization’s potential for market share. Most importantly, routine transactions will continue to migrate to virtual channels, while high-value interactions, consultations and service issues will become the primary purpose for branches.
New technologies will continue to emerge, and the most successful branch designs will be modular and flexible to allow tech to phase in and out. Hand-held technologies like tablets will become more prolific, with heightened functionality and integration with both core systems and CRMs. Two-way video conferencing with on-demand experts both inside the branch and at the drive-ups will become common, freeing up space in the branch floorplan. Digital signage will exist everywhere as the primary form of merchandising. Environments will become ergonomically pleasing on multisensory levels, from sight to sound to smell. The education and caliber of service personnel will continue to transition from task-doers to expert consultants.
Ray Wizbowski, Chief Marketing Officer at Entrust Datacard
Branches are still essential for financial institutions because they provide an essential avenue for people to interact with a financial institution’s brand. However, consumers’ expectations concerning when and where they should be able to access bank services has changed. With a mobile device in our hands, people expect to connect with their financial information anytime, anywhere. This means branches must evolve to add increasing value and provide experiential retail to consumers. If someone can easily transfer money on their mobile device, what will motivate them to visit a branch? In response to this shift, future bank branches will take the form of modern retail spaces that showcase the various technologies and products available to consumers.
“The branch of the future will be fueled by technology with a personal touch.
We’ll see automation begin to play a larger role in branches in the coming years. One example of this is advanced ATM platforms that provide additional financial management services such as robo-advice. Biometric authentication, such as retinal scans, could eliminate the need for consumers to remember their account number and PIN before withdrawing or depositing money. Additionally, we’ll see wearables enter the bank branch experience — logging into an ATM using a one-time password or authentication code which is sent to the consumer’s smartwatch or the ability to authenticate a user through integrated iBeacon technology.
The human element will never go away, but we’ll likely see it take a virtual route. Rather than visiting a local branch and speaking to an advisor in person, banks and credit unions may deploy video conferencing that allow consumers to Skype with financial experts located around the country.
Kevin Poirot, SVP at PWCampbell
Everyone knows that the number of branches is declining, but it helps to look at those numbers in more detail. FDIC insured full service locations stood around 83,000 in the fall of 2016 and credit union branches reported over 20,000 locations. (By comparison, there are 115,000 gas stations in the US.) When you consider the US population is about 324 million and about 19% are under the age of 15, that leaves you with one branch for every 2,500 adults. To many industry observers, that number seems too high. The right number of branches should probably look similar to the density of pharmacies in the US, which currently stands at 67,000. But it will take quite a while to get there.
The reason so many people struggle with the question on what the “Branch of the Future” will look like is because formats and designs will be much more divergent and differentiated between institutions in the future.
There is a fundamental formula for calculating brand strength: multiply “brand relevance” by “brand differentiation.” In the past brand relevance was not strong in the financial industry because new account openings were driven primarily by convenience — proximity of a physical location. With in-branch transaction volumes declining and the ability to open accounts virtually anywhere, convenience is no longer the driver it once was. This has given new importance to brand relevance in the banking world.
At the same time, financial institutions have never had so many tools at their disposal to differentiate their brands. When you combine the fact that banking products are more differentiated with greater delivery methods and the incredible selection of materials available to designers today, the branch of the future will have a stronger brand presence than ever before — it matters now more than ever.
A visit to the bank will continue to become more of destination and less transient than yesterday’s trips. When you look at shopping and buying behavior, it’s clear that the more important the transaction and larger the dollar amount, the further people are willing to travel. That’s why car dealers have continued to consolidate in larger — but increasingly more distant — lots. Ultimately, these trends will afford the opportunity for banks to compete on brand, which doesn’t equate to more locations, just better ones.
Steve Reider, Founder of Bancography
We decidedly disavow the term “Branch of the Future,” and completely refrain from it. In fact we published an article couple years back titled “The Branch of Now”. The article stands as a reminder that banks and credit unions shouldn’t forsake the needs of today’s key customers — those who are generating today’s profits — while rushing to embrace a generation that still hasn’t reached its peak profitability.
Nevertheless, what a branch building will look like 5 to 10 years from now hinges on its function, and not all branches will serve the same function. One of the benefits of technology is the ability to fragment a branch design into small divisions of functionality, and offer a greater portfolio of models that can accommodate an array of needs and a range of purposes — from pure self-service ATMs or video tellers to specialized areas for wealth management and loan origination centers.
A reduction in cash demands prods us to question what constitutes a branch. If a branch can be anywhere a representative of the institution is and where consumer interaction occurs, then it can be a mobile service rep with a tablet who visits someone in their home, or meets with an employee in a workplace cafeteria, or serves college students in a dormitory residence hall.
Ultimately, we shouldn’t pigeonhole ourselves into any rigid context for the future of branches.