The Branch Is Dead – Long Live the Branch!

By Eric Schoeniger

A few years ago, bank experts began foretelling the demise of the bank branch. Branches were just too expensive to operate. Consumers and small businesses alike would conduct their business through new channels: ATMs, the Internet, cell phones, grocery stores.

Trouble is, nobody told the customer. It turns out that customers prefer the branch to all other methods of banking. In fact, 86 percent of U.S. consumers visit the branch at least once a month, according to a recent survey by International Banking Technologies. Worldwide, the number of banks overall is shrinking, but the number of branches continues to grow.

But the fact remains that branches cost a lot to run in terms of real estate and employees. They don't generate the revenues they should, and each year they become less profitable. Alternative channels such as ATMs and the Internet are far more cost-effective, especially for simple transactions.

What's needed, then, is an overhaul of the bank branch. Smart banks are deploying the technology, people and processes that will transform the branch from a transaction-centric money pit into a customer-focused, sales-generating profit center.

Banks Branch Out

The branch is the primary channel for retail banking, which accounts for up to 80 percent of a bank's net revenues, according to research firm Celent Communications. But retail banks face challenges in building customer relationships, especially in the United States. While annual customer attrition rates are 2 percent in France and 4 percent in the United Kingdom, U.S. rates reach into the double digits. Acquiring a new account is costly, up to $180 online and $280 in the branch.

What's more, banks haven't been very effective at cross-selling. The average U.S. household purchases nine financial products, but only two to four from a bank, Celent reports. That has a direct impact on customer retention. Attrition rates for households with a single product are 19 percent, compared to 6.5 percent for households with three products.

Banks are beginning to respond accordingly. In Europe, IT spending on branch renewal will be the top priority for the next several years, according to Celent. In the United States, the greatest spending increases will target delivery channels, reports research firm TowerGroup (Needham, Mass.).

But while some smaller banks have made changes, few large banks are far along in the process. "Our research suggests that only six of the top 20 U.S. banks are implementing the technologies to do this," says Jerry Silva, senior analyst for TowerGroup. "Upgrading branch technology requires a high level of sophistication and organizational commitment."

Branch Transformation

Banks that are transforming their branches are taking a multipronged approach. For some, it starts with the look and feel: sharing space with coffee shops, providing lounges with perks for profitable customers. "Banks recognize that in a highly commoditized market, they must take steps to differentiate in terms of customer experience," says Jonathan Charley, vice president of Global Retail Banking at Unisys. "As a result, they will transform the branch into something much more like a retail outlet."

Fleet National Bank, which is merging with Bank of America, has deployed branches with a high-tech look, with Internet kiosks and a concierge who greets customers at the door. "The goal is to increase foot traffic," says Silva. "And in fact, the bank saw an increase in new accounts versus its traditional branches."

Seattle-based Washington Mutual actually received a patent for its new branch. Its "retail banking stores" feature a circular layout, a concierge service and even a children's play area. The traditional teller window is replaced with standalone teller "towers" designed to ease customer interactions. The towers may also increase security, as cash is counted by machine and doled out through computer controlled slots.

Better Tools at the Branch Level

The biggest changes are taking place behind the scenes, particularly in information technology. "Branches need a customer-centric model, but few have the technology tools in place to achieve that," says Anjalee Davis, banking analyst for Celent. Those tools include imaging solutions that push document processing closer to the customer and workflow software that streamlines processes.

But, the more significant technology goes to the heart of a bank's infrastructure: the branch network.

Most branches use outmoded, proprietary networks, and many have different networks for different applications. Smart banks are replacing those old pipes with a single network based on the Internet protocol (IP). An IP network can handle all data and voice communication, enabling banks to significantly reduce costs while integrating channels.

SouthTrust Bank recently deployed Voice over IP (VoIP) technology in 700 of its branches. Its reported savings: $5 million a year. Plus, it expects better business continuity through the ability to route data among various locations.

IP networks can also help banks capitalize on IT investments they've already made. During the past 10 years, banks have poured large sums into customer relationship management (CRM) and have amassed volumes of customer information. But the tracks have stopped short of the station. "CRM has been focused on campaigns at the corporate level," Davis says. "But the closer CRM comes to the customer interaction point, the higher the value."

By using IP networks to link back-office data with customer-focused applications, banks can zip customer data to branch employees. That means better service and targeted cross-selling. Silva says, "Banks can now deliver information to the point of interaction – information such as customer profitability, transaction history, outstanding service requests, whether the customer has been offered a product in the past, and so on."

Branch Segments Add Value

Targeted information also means targeted branches. Banks are beginning to segment branches by customer type, industry, profitability and other demographics.

Small businesses, for example, use more branch services than consumers, and they're more profitable. So it's no surprise that banks are developing branches that cater to small-business needs. One bank in Sydney, Australia, even allows small businesses to hold meetings at its branch facilities. "It's a good way of getting prospects in the door," Charley says.

Customer value is another way to segment branches. Lloyds TSB, for example, has divided the United Kingdom into scores of local markets, where it is piloting segmented branches, such as those that serve its most profitable customers.

Segmentation can also fall along regional lines. Bank of America, based in Charlotte, N.C., is deploying "express" branches, with only ATMs and online banking stations, in urban areas. In the suburbs, it offers full-scale financial centers focused on selling complex products and developing customer relationships.

CIBC, headquartered in Toronto, is taking the opposite approach, ensuring that all branches can service all customers at all interaction points. "The banker's computer screen shows details about the current transaction, the customer's relationship with the bank and relevant suggestions for cross-selling," Davis says.

Integrating Bank Channels

This type of data integration is a prerequisite to channel integration. And key to the success of the branch, say experts, is the ability to provide services and sell products across all channels, including ATMs, call centers, the Internet and emerging applications, such as wireless and online chat.

For example, a customer might use his PC to learn about refinancing a mortgage. He could click on a Call Me button to have the call center contact him in real-time. The call center rep could take control of what the customer sees on his PC to provide the information he needs. The rep could then schedule an appointment for the customer at a local branch.

"That kind of channel integration can simultaneously reduce sales costs, provide better service and more effectively capture the sale," Charley says.

"The branch is an expensive asset," he continues. "The ability to use it to cross-sell is key to getting a return on that investment." It's also central to customer retention and profitability: Research shows that banks achieve a 97-percent retention rate among customers who purchase five or more of their products.

Empowering the Branch

Branch transformation also involves people. For segmentation and channel integration to work, branch employees will need to become sales-focused. "The number of employees in the branch will decrease, but the number in sales roles will increase," Davis says. That means recruiting new employees or training the ones you have.

Equally important are the right incentives. "Most banks are organized around products, so branches get pulled in different directions," Charley explains. "The checking group tells the branch to focus on checking. The e-banking group tells the branch to reduce the number of checks." Instead, branch staff should be rewarded for lead referrals across channels, targeted sales offers, promotion of profitable products – actions that advance strategic goals.

This approach might require organizational change. "If you don't make the appropriate changes to how you are organized, all the process re-engineering in the world won't make a difference," Silva says.

Royal Bank of Canada of Toronto and Melbourne-based National Australia Bank are two banks that have organized around customer segments, according to Silva. "Their organization isn't based on who manages the branch or the call center or the online bank, with separate operations and P&Ls," he says. "Instead, they focus on customer segments across channels."

A Branch With a View

Such reorganization requires executive oversight. It also requires a clear understanding of the strategies, processes and technologies that drive branch results.

That's the goal of Unisys 3D Blueprinting, a framework for creating a business blueprint. Unisys 3D Blueprinting shows the interconnections between the various layers of the organization, which helps banks understand the impact of changes before they make them.

Unisys recently applied the 3D Blueprinting approach at a large bank in Mexico, which is expected to see a boom in mortgages. In the past, prospective mortgage customers who came to the branch were sent to a mortgage center or asked to return when staff was available. Unisys simulated the impact of allowing customers to schedule appointments when they first came into the branch. The model weighed increased customer conversion rates against higher staff costs. After running the simulation, the bank could build a business case for investing in the new service.

Ultimately, 3D Blueprinting will enable banks to better understand their entire operations. Such visibility can help banks become more agile — "and agility is an imperative in an increasingly volatile market," Charley says.

For consumers and small businesses, the branch is the most tangible embodiment of a bank's brand. Transforming the branch by emphasizing sales, targeting customer offers, motivating the right employee behavior and supporting sales across channels can rejuvenate a bank's image – and its bottom line.

Eric Schoeniger is a freelance writer specializing in business and technology.