What the Bank Branch Will Become

In my recent blog on branch reform, I got some reader feedback that some have apparently interpreted my positive reporting of the effectiveness of direct channels as evidence that I am 'against' branches. This is not the case. However, I do think that branch networks are currently in a precarious situation and bank's might find themselves saddled with a costly anachronism if they don't anticipate where the customer behavioral shift will take branch networks in the very near future. There is hope - but it will take a determination to revisit what branch networks really do for banks and customers.

The data shows that branch growth in the west is flat. Given that branch networks were already suffering in the 90's, we shouldn't be surprised that branch networks today --when customers are rapidly adopting new ways of banking-- are under even more pressure.

The facts are that branches will survive. However, not in the current form and function. Why? Because as-is, they are too costly and are ill suited to the customer of tomorrow. Here is where I see branches going over the next 5-7 years based on the fact that current branch configurations will become too costly to maintain as behavioral shifts start to bite revenue streams hard.

If you take just the one element of day-to-day banking -- cheques (or checks if you live over the pond) -- the fact is that a large portion of branch traffic globally continues to be attributed to cheque processing. Now, however, banks such as HSBC are seriously considering phasing out cheques over the next two to three years. When cheques disappear, how will this affect the operability of your branch?

High Counter to Low Counter
The core function of the branch moving forward will be about establishing the relationship with the customer at inception, and extending that relationship through an advisory or predictive sales process and excellent customer support systems. It is conceivable that all of the transactional elements within a branch will be moved to automated banking within electronic banking centres, automated branches, ATMs or the Internet within the next 5-10 years. What then is left? The face-to-face, value-add of a real, live human interaction.

As we've seen with stock trading, a transaction "platform" has no value being situated in a physical branch because the human "teller" or "broker" generally offers no value add to that transaction. Indeed, very few traditional brokers have survived the Internet trading onslaught of the dot.com boom. If we are honest, the only processes which will truly require a face-to-face interaction in the branch in the future are those that are sales and service related. These are also the only elements that will continue to make branches viable from a cost-margin point of view as the current over-the-counter transactions will simply remain a cost, rather than revenue opportunity.

Many of the traditional high street branches will inevitably close as decreasing traffic and increasing costs will invariably make such high cost properties no longer feasible in the current evolution. Flagship "brand- store" branches may emerge, but will need to change in function away from traditional high-counter, transactional focus to low-counter, sales and service focus. More than that, a "standard" one-type fits all branch is simply no longer going to be possible in the BANK 2.0 paradigm.

Deutsche Bank's Q110 model is an excellent template for 'flagship' branches

Form and Function
Banks need to innovate around form and function to get a better fit with customer needs. This has to be based on needs of the customer in respect of product and service, and not a transaction platform as traditionally held. Traditionalists here might argue that it is the very need to "process a transaction" that brings a customer to the branch and presents a cross-sell opportunity in the first place. The reality is, however, that despite cross-sell and up-sell opportunities the cost of over the counter 'transactions' increasingly are simply too high to warrant the long tail of the possible conversion.

This uncertainty around branch function versus cost structure and capability serves to illustrate the key differences in goals between the institution and the customer. The institution sees the branch increasingly as a revenue centre whereas in the past these were more accurately classified as cost centres. Thus, improvement in branch profitability has largely been the focus of the institution over the last 20 years.

Customers, on the other hand, simply expect service from a branch, and they expect this because they "pay for it" with account-keeping fees, over-the- counter fees and other such levies. For an exchange of "value" to occur between the institution and the customer, both parties need to be getting something out of this real estate. As direct channels have begun to dominate the day-to-day interactions for bank customers the convenience factor for the 'branch' has been lost. Thus, the remaining value must be about access to a unique "value-add". Primarily this must be the advisory capability of in-branch staff - it is not a transactional platform.

What has to change?
Apart from a shift completely away from high-counter transaction processing, branches must become either intimate customer engagement havens, or locations of opportunity where the branch can maximize point-of-impact.

In major city High Street locations this means a shift to the flagship, megastore, coffee-enabled, rich engagement model. In smaller locations mini-branches, pop-up branches, bankshops and 1-2 person advisory stations at locations where customers are most likely to be. In shopping malls, at airports, at football stadiums perhaps? One idea I heard recently was to put an advisor in the business class section of a A380 airbus. The trick will be to be where customers will get value out of the mini-branch. But that value won't be transaction based.

Timing will be critical too. The days of the 9-3 or 9-5 branch hours are dead. We might find some branches that specialize in mortgage products only open at weekends, perhaps in a mobile branch located outside display homes or show flats for major developments. We'll find shopping mall branches that are open till the wee hours, and we'll find embedded 'advisor' desks in corporations assisting group employees with their problems and issues.

We'll see technology interactions move into the branch with media walls, iPad carrying advisors, integration of sales experience from the RM to direct channels seamlessly (engage in the branch, but execute at home online) and we'll see RFID technology that recognizes who you are when you walk in the door so we have a few more valuable seconds to prepare our sales script. We'll see mobile and internet channels hand you off to a branch much more competently and vis versa. We won't see channels compete for the customer - we'll see them cooperate (nice theory I know).

The one thing we won't see a great deal of is branches as they look today. The other thing we'll see is smaller branch networks, unless banks recognize the shift in consumer behavior that is going to drive bank/brand experience from this day forth and start to think out of the box.