There
was a time when branches were thought to be the banks’ primary customer
relationship channel. They were thought to be everything. Do customers feel the
same in this present time? It’s to be seen today that roughly 90% of simple daily
transactions take place electronically. The number of customers visiting a
branch is on the decline. In a changed
business scenario where multiple channels of communication are to be opened up,
what would a bank with a large branch network do to remain competitive? The
answer to it will be an optimal branch set-up that will clearly outline the
services branches will have to offer to its customers.
Branches will co-exist. Despite
the development of new distribution channels and falling number of customers,
the branch is by no means dead! When cards and ATM's came, many thought branches
will meet their end. When mobiles came and when customers took to transaction
on the go, the reality is that branches still exist but are undergoing a silent
metamorphosis to a whole new set-up.
Today, banks are in the
process of transforming their branches from a ‘transaction-based’ closed
ecosystem to a more effective, interactive and profitable channel for service
delivery. Bank branches should transform themselves in delivering an engaging
retail experience to its customers and focus on relationship building for
activities that may require proximity to instill trust and confidence in
customers.
Modern day branches could serve as:
- Interaction centers
- Offer specialized services
Why
banks and customers can’t do away with branches?
Though customer traffic to branches may have
declined, with simple transactions performed online; both banks and customers
will still need branches. Let’s find out why?
Branches will still continue to be an
interaction point between banks and their customers and with right
transformation strategies they will infact become a primary distribution
channel. Branches represent a bank’s brand identity, its presence, a source of
connect with its customers. With the recent financial meltdown, customers are
infact cautious with whom they bank and will seek the help of branches to carry
out specialised services. I’m sure many of us wouldn't prefer to book a large
loan online but rather visit a bank branch representative for consultations to
arrive at a final decision. Though customer’s journey may start from the bank’s
website but eventually it will end up in a bank branch for finalisation.
The goal towards ‘branch banking’ as a bank’s
strength has led to a wide network of branches before the proliferation of
multiple digital delivery channels can infact be turned to a banks advantage.
An interesting statistics from research firm
Gallup Inc on how customers interact with their banks can be summarized as
below:
- To open or close an account, apply for a loan or seek financial advice, about three out of four customers prefer interacting in person at a branch,
- To report a problem or inquire about a fee or service charge, customers prefer using a branch or interacting with a live call center representative,
- To make deposits, customers prefer using a branch. Customers who want to withdraw money prefer using a branch or an ATM.
- To learn about new products and services or request a loan payoff amount, the most preferred channels are: going online, using a branch, or speaking to a live call center representative.
- To request specific account information or transfer funds between accounts, most customers prefer going online although a number of customers also prefer using a branch.
- Not surprisingly, to receive statements and pay bills, mail and online are the preferred channels. More customers prefer to receive statements by mail, while customers prefer the online channel to pay bills.
- To receive alerts, customers prefer using multiple channels, including online, mail, and email.
The common customer expectation from a branch
set-up to my understanding is customers seeking some reassurance and
interaction from knowledgeable and attentive staff particularly when conducting
complex business or seeking financial advice. By looking at the level of ‘branch dependence’
and ‘branch attachment’, Banking Analytics and Advisory firm Novantas found
five segments of branch consumer:
- Thin Branch Ready (rarely use, modest attachment): 39%
- Mass Market (modest use, modest attachment): 29%
- Branch Traditionalist (heavy use, heavy attachment): 15%
- Innovation Seeker (use branch heavily, no attachment): 10%
- Internet Ready (rarely use branch, no attachment): 7%
Many researchers have pointed out that almost
80% of all current accounts are opened in branches, 75% of Gen Y customers
conclude their product purchases in a branch, and 67% of all product sales are
made in branch. This is regardless of the fact that many customers are
visiting branches less, and bear in mind this varies by country.
Some customers may
not want to visit a branch yet the knowledge that a branch exists instills a
level of confidence amongst customers who might have relationships with banks
through their deposits, loans, mortgages and so on. The recent financial
downturn has made customers exercise more caution while dealing with finances
and financial institutions. The branch still is so key is because it provides a
physical point of interaction.
Despite digital
options bank customers still use branches and this statistics varies from
country and among age groups. The reason why bank branches should still stay
can be summarized as below:
- Serves as a physical point of interaction
- Physicality acts as a security blanket
- Highly specialized, complex transactions carried out in branches.
- Unresolved customer issues find their way to branches.
- Reach the under banked in developing economies
Is branch transformation
crucial?
The rise of digital
channels, decreased branch traffic and high cost infrastructure of physical
bank branches seem to pose a growing matter of concern for the established
banks to compete with their new generation counterparts. If branches are to
continue in its traditional form, very soon they will be a financial burden to
banks cutting deep into cross channel profitability.
The branch of the future has
a crucial role to play in banks’ overall channel strategy. Transformation is
the key. Aligning the traditional branch setup to modern day customer
expectations and economic realities that surround will help banks return to
good old days through increased customer engagement in branches along with
increased profitability. Transformation can only be successful
if we have understood the customer expectations well to translate them into
action. Banks should also find a strategy to contain operations cost at the
branch level. Branch networks make 47% of banks'
operating costs and 54% of that branch expenditure goes to staffing, according
to research by Diebold and Forrester.
Transformation
is crucial because modern day branches should be designed with a mix of
technology and physical infrastructure to reflect comfort and convenience to
the customer. Again, bank branches are to be designed keeping in mind the
region, age group preferences, location yields and above all assessing customer
satisfaction and feedbacks. I would refer this branch transformation exercise
as ‘rightsizing’ rather than downsizing.
Many have
proclaimed the premature death of bank branches but the truth is that they
still continue to be a vital touch point and an effective delivery channel. It
may be true that in relation to specific target groups, certain functions of
the branches are ‘ dead’ or that the current location of many branches may not be
optimal, however, branches are still the major channel of customer acquisition
and cross selling that fuels revenue growth. Branches will therefore form play
a crucial role in a bank’s multichannel strategy.
Towards an optimal branch set-up
Branches will still be
relevant to banks though digital channels will hold greater significance.
Branches would be fewer in numbers with different formats and functions. Most
banks still operate in a controlled environment and they can’t be mute
spectators to the 3000+ odd start-ups innovating and eating up their customers.
Most established banks have a large budget allocated in running their legacy
infrastructure that supports back office functions while the customer facing
functions are still to gain prominence. There are also huge costs associated
with bank infrastructure on long term leases in prime locations which will need
rethinking in terms of cost optimization that could be brought in through all
new branch design (ensure optimal space utilization), product bundling ( as per
customer expectations) and training internal staff to take up greater
responsibilities in a changing environment.
Bank branch
optimization strategy can only be effective if carried out through the
introduction of a right mix of products, trained staff, customer centric
processes and an ambience set in a convenient location. The physical branch
delivery channels should further be strengthened through the introduction of
digital.
An optimal branch set-up can
be reached incorporating the below ideas that would help meet modern day
customer demands and expectations can be summarized as below:
Thoughts
|
Approach
|
Improved
Branch Design
|
Design
that allows easy access, comfort, convenience and maintains privacy
|
Partnering
|
Partnering
with retail outlets and large corporations. Helps expand branch footprint,
reduces infra cost.
|
ATM –
Branch Infrastructure
|
All
in one shop that offers both self banking and highly personalized services
|
Innovation
hubs
|
Utilize
the existing branch infrastructure to showcase banks innovation
|
Branch
|
Introducing
digital elements into a bank branch
|
Consumer
Interaction
|
Offering
specialized advisory services
|
Services
Redesign
|
Redesign
/ Introduce new product and services
|
Branch optimization should
again be broadly addressed from two perspectives:-
- Internal optimization: focused at improving the efficiency of the existing branch network. Key areas related to products and services, staff, operations costs should be addressed.
- External optimization: focused at improving efficiency and service delivery from a customer engagement perspective.
With
most bank branch environment getting a face light due to various factors at
play such as the impact of digital, economic and regulatory, new entrants and
customers with increased expectations; branches of future will be different in
sizes, services, formats and would lend
an engaging experience to its customers. Branches will continue to exist and still be relevant with specialized
services delivered though branches. Branches will therefore be crucial in
shaping a bank’s multichannel delivery channel strategy.
