Building the ‘Branch of the Future’ is More Than Technology

The discussion around the "Branch of the Future" in banking continues, with no single winning strategy. The key is to increase efficiency while enhancing the consumer experience.

By Alex Jimenez, Digital Banking and Payments Strategist

As digital banking usage continues to increase, customer traffic in bank branches has been drastically reduced. In fact, 94% of consumers under 35-years-old bank online, according to First Data’s report, The Unbanked Generation. The problem has grown so overwhelming that it has become the biggest concern branch banking is facing.

So far, the approach that many banks have taken is reactive, without being grounded in analysis. The resulting panic has driven many bankers to try to copy successful retail models, hoping to replicate their success.

To illustrate this point, earlier this year at a banking conference, a discussion was overheard between three bankers who were talking about the future of the American bank branch. They had just listened to a speech by James Gilmore, co-author of The Experience Economy, in which he made the point that American commerce is moving from products and services to experiences. The three of them seemed to be inspired by the speech and were talking about how to turn a branch visit into a memorable experience.

Most bankers can’t help but to be limited by the industry’s recent ideas in branch transformation. These three bankers were no different. The first banker talked about how the branch can become a destination location. “Imagine,” he started, “we could offer free WiFi and coffee to our customers. They could bring their pets and lounge in comfy chairs at the branch.”

The second banker said, “We could also ‘digitize’ the branch to have more of an Apple Store feel. We could train our staff to be ‘Banking Geniuses.’ Customers could bring their iPads, or we could have tablets to show consumers how to use our website and our app. We could have a kiosk for people to go to online banking.”

Excitedly, the third banker suggested an incomprehensible combination of Starbucks, Apple Store and a bank branch, where “Banking Geniuses” deliver free coffee, while carrying tablets featuring YouTube videos of the bank’s latest commercial. 

If You Build It, They Still Won’t Come

For the past several years, conversations about the “perfect” branch have taken place as the industry comes to grips with a heavy reduction in branch traffic, fueled by changing demographics and a more digital consumer. Many banks have begun to close branches in response to these changes, while others hesitate because surveys show many Americans still want to have a bank branch nearby, just in case they have a problem.

”Rather than trying to build branches that more consumers will visit, the focus should be on digitizing activities that consumers still do in the branch.”

No matter where the discussions occur, bankers are focusing on the wrong problem and the wrong solutions. They are worrying about diminishing traffic, and in response, are looking for ways to get traffic back into the branches. Instead, banks and credit unions should focus on what actually happens at the branch, and figure out how to remove friction from processes using digital technologies.

Many banking customers are not going to branches because most routine banking transactions are automated or digitized, eliminating the need to visit a physical facility. Some bankers look at other retail establishments and see people milling in coffee houses or computer stores and are assuming that they just need to replicate the environments of busy retailers.

When bank branches had long queues, people were not there because they thought banks were cool places to hang out. They were there because there was no alternative at the time. Remember the complaints about long queue lines?

The idea of the coffee house branch lives on because one bank, Umpqua Bank, in Oregon has been successful with this strategy. However, this design was successful because of the location and the demographics particular to one of their markets, Portland. Portland, much like Seattle, is the one of the epicenters of an American coffee house culture that hasn’t translated well to other parts of the country. Banks forget that Peoria, IL, Macon, GA or Hempstead, NY are not Portland, OR, and may not share this unique culture.

Similarly, more than a handful of banks have tried the “Genius Bar” concept, copying Apple stores. These branches feature digital displays, the latest ATMs, kiosks with computers for customers to access online banking, and eager to help Millennials armed with mobile devices. Most banks that have tried this design have also seen it fail.

A banker from one of the top banks in the country recently described how their costly test “digitized branch” in a major American city had borne no fruit. At the back of the branch there was a single teller line designated for businesses.  When entering the branch, most customers were confused and headed to the teller line. The “Bank Geniuses” offered help with their tablets, yet most customers brushed them off and continued to the teller line.

Customers weren’t interested in checking out the new technology, since they were there to do what banks have trained their customers to do throughout history … stand in line. After a while, the Universal bankers stopped trying to engage with customers. In this scenario, the bank failed to realize that the people that still go to the branches are not the ones who are dazzled by technology.

The biggest problem that bank branches are facing is a reported 10%+ year over year reduction in teller traffic for activities like check cashing, depositing checks, and withdrawing cash. To answer this dilemma bankers should be focusing on the customer and the activities that they do at the branch. Once those activities are cataloged, banks should then determine how digital technologies can be applied to improve the branch experience.

According to Jim Bruene, the four cornerstones of the American bank branch are:

1. Opening Accounts: Primarily for someone new to the bank
2. Servicing Accounts: Usually when there is a problem
3. Administer Advice: Primarily for more involved services like loans and business services
4. Provide Visible Reinforcement of the Brand: (i.e. very expensive billboards)

If these four activities are in fact the “cornerstones” that make up today’s bank branch deliverables, there are digital technologies that can be applied to each activity.

Opening Accounts

Most banks have multiple systems for opening consumer deposit accounts; one system for the branch and a different system for their website. Some even have a separate system for their mobile platform. Unfortunately, the branch system is usually a legacy system that is much more cumbersome. Banks should consider deploying one system for all channels.

Online platforms are often built to be more efficient and take advantage of self-service routines that allow customers to identify the ideal product for themselves. The branch staff can use these tools to augment account opening and cross-sell efforts. These tools also reduce the heavy training burden on the branch staff and could result in more sales.

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