For decades we’ve heard that the latest banking technology would eliminate the need for bank and credit union branches. And yet there are still more than 100,000 branches in the U.S. today. The reality is that consumers adopt — or “accumulate” — new channels and technologies as part of a mix of ways they manage their finances and interact with their banking provider. Initially, these new technologies and channels are differentiators, but over time become “table stakes” to simply remain competitive.
Many recent surveys confirm that while consumers are using branch teller services much less frequently, they still value having a local branch, especially for more complex issues. According to CACI, for example, retail branch visits are expected to drop 36% from 2017 to 2022. Even so, people will still be visiting branches, just less frequently — about four times annually.
If you accept that branches play an important role in delivering services to a portion of your customers, then the strategic question becomes: How do they need to change to meet those customers’ needs, given the decrease in branch traffic?
The Branch Pyramid Has Flipped
Branches still primarily perform three major functions: financial transactions, account servicing transactions, and sales/new account opening. The proportions of those three functions have never been evenly split. It’s been more like a pyramid.
For most of banking’s recent history, the bulk of customer interactions were financial transactions that either occurred at the teller line or the ATM. That’s the base of the pyramid. Next in volume came account servicing interactions, such as changing addresses, stopping checks, and questioning service charges. (At mature branches, as much as 80% of the time spent by platform staff was dealing with existing account issues.)
Sales/new account activities represented the smallest portion of customer interactions — the top of the pyramid.
As we’ve seen, branch financial transaction volume has declined as customers adopted first the online channel and then the mobile channel. These digital channels made it easy to transfer funds, pay bills, and make deposits. So the bottom of the pyramid shrank as routine transactions migrated to other channels.
As banks and credit unions continue to reduce their branch networks (down 12% for banks since 2010, according to an analysis of FDIC data by Quartz), the remaining branches must service more customers.
The Multi-Million Dollar Dilemma
This change in the functionality mix of the branch creates the dilemma that many CEOs are struggling with today. The branch format of former days no longer fits how branches are being used today. A complete remodel might cost more than $1 million. Most institutions can’t afford those levels of incremental cost.
A few of the largest banks have been experimenting with some revolutionary changes. Chase launched Finn, a mobile-based “parallel bank,” that allowed customers to perform teller transactions at Chase branches. Just a year into the project, however, Finn was closed.
“I’m sure the coffee shop concept drives branch foot traffic. The question to ask is, ‘Does it pay back the investment?'”
— Jon Voorhees, Peak Performance Consulting Group
Bank of America has been opening “advanced centers” across the country. The reason they don’t call them “advanced branches” is that they technically aren’t branches, because they are unmanned.
Little information about the performance of these unmanned sites in gathering new customers and deposits has been shared. You can’t get data on their deposits, because they are not in the annual FDIC summary of deposits.
Capital One opened the first Capital One Café after acquiring ING Direct’s Orange Cafes. While these cafes are a good “branding” play, they, too, are not branches based upon the functionality they provide to the public. Capital One claims they have been successful in driving deposit growth, but again no publicly reported information is available, as it isn’t required.
I’m sure the coffee shop concept drives foot traffic. The question to ask is, “Does it pay back the investment?”
Few Have Mastered the Use of Universal Bankers
What is the right answer? If the branch is shifting from a transactional place to an advisory place as the data indicates, removing staff (i.e. the advisors) and relying solely on technology is the wrong approach. Instead of focusing on the look of the branch, banks and credit unions should focus on the staff and how they behave with customers and prospects.
Imagine an experience where a consumer enters the branch and is greeted by an employee who asks how they can help. If the person has a financial transaction to conduct, the staffer can escort them to a station where the customer can have a seat while the employee performs the transaction and they continue to chat.
If the conversation identifies some other need — say help with using the mobile app — the same employee can assist them. If the additional need requires more privacy, they could move to an office to continue the conversation. If it’s likely to take some time, the employee can offer the customer coffee or water.
The point is, one properly trained employee can handle all or most of that customer’s needs. This approach is how the universal banker concept is supposed to work, but few institutions have mastered it.
Pairing the Right Technology with the Right People
Even having a branch staff of well-trained universal bankers is not enough now. Branch staffs need the right technologies to support their various tasks. At the transaction desk they need TCRs — teller cash recyclers — in order to facilitate the transaction without an open cash drawer. TCRs free up the employee’s time to continue the chat while the machine counts the cash going in or coming out.
The transaction desks would also need to have the platform software available so that one employee could handle both a financial transaction as well as an account servicing transaction.
In this approach, the only remodeling that needs to be done is redoing the teller area and making sure the right technology is in the right place.
The more important investment is in staffing and staff training. If all branch employees aren’t trained, then at some point there will be a customer waiting and an employee twiddling their thumbs because they can’t help.
That is a customer experience you want to avoid.
Combining universal bankers with the right technology only works if you have the right number of staff for the level of branch foot traffic, and if everyone is trained on all things.
If you’re concerned about having to pay more to get a more capable staff, I’d argue that right now you are paying tellers to stand around doing little at least 50% of their time. Could you reduce staffing levels by one person if the rest of them could handle anything?