Bank Branch Transformation: A step towards an optimal branch set-up

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 optimization	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 digitization	Introducing digital elements into a bank branch
Consumer Interaction centers	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.