Tranforming Branches and the Branch Network

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The changing nature of the branch channel and its transformation. Presentation at American Banker/Source Media Retail Banking 2014 conference.

The changing nature of the branch channel and its transformation. Presentation at American Banker/Source Media Retail Banking 2014 conference.

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  • Thoughtful, David. Bank branches are like video stores in an on-demand world, and they are doing little to build/align their brand experience with the next generation of users. They've had many chances since de-reg to get this right, but all I see is more bricks, terrible IVR and on-line processes, empty desks and few staffers with a clue about building relationships. People still don't mind visiting a place they like, a bank branch should be one of them.
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  • 1. Peak Performance Consulting Group March 13, 2014 Transforming Branches – and the branch network
  • 2. Retail banking is facing a difficult challenge…  Consumers and businesses are changing the way they interact with financial institutions, shifting to non-branch channels  But customers still value branch convenience ― It is the most important factor in bank selection ― Branches are still the primary channel for customer acquisition and consultative sales for both consumers and small business  Significant opportunity to improve branch efficiency/reduce cost… ― Redefine the model: the right branch configuration to efficiently meet customer needs ― Enable more efficient service through improved technology ― Shift branch staffing toward more flexible, “Universal Banker” model  …and grow revenue by refocusing away from declining transactions and toward sales growth  But banks must evolve their retail distribution strategies ― What kind of branches - and what kind of branch network – do we need for the future? ― Video banking, pop-up branches and other new formats: What is the “branch of the future?” ― Combining traditional, digital, and self-service – making it work on the front lines? ― Is the Universal Associate the answer to staffing retail branches? Page 1
  • 3. Our panelists… Andy Harmening SEVP, Regional Banking Group Head Mark Iniguez SVP, Director of Retail Network Strategy Brent Tischler SVP, Director of Channel Optimization Page 2
  • 4. “New Normal” requires change in strategy  Primary role of the retail branch: drive customer acquisition and support consultative sales ― Drive new customer acquisition and provide sales and for existing customers ― Support business customers, who are more dependent on branch services ― Build and reinforce bank’s brand  Customers still value branch presence: ― 64% identify branch convenience as primary reason for choosing their bank ― 61% still visit a bank branch at least once per quarter  Channel preferences are changing ― Transactions conducted in bank branches are declining 5-6% per year due to direct deposit, debit, electronic bill pay and other check displacement ― Transaction behavior and routine servicing shifting to other channels  Shrinking branch traffic leaves fewer sales opportunities ― New accounts opened per branch FTE declined 23% since 1997 Page 3 20% 46% 34% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Branch dominant Multi Channel Web/phone dominant Actual Channel Usage: Shifting Away from Branch 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Age 18-34 Age 35-54 Age 55+ Branch Preference Declining Among All Age Groups (% listing branch as preferred banking method) 2008 2010 2012 Source: ABA Source: PNC Investor Presentation
  • 5. The changing dynamic of how people bank means the design of retail branches must evolve  Redefine branch operating model  Enhance multi-channel experience  Migrate customers to self service and digital channels  Reshape physical distribution model Page 4 Physical: bank at the branch Automated: ATMs/self service grows Virtual: on-line, mobile Personal: omni-channel
  • 6. Managing branch transformation  Branches will be designed differently. They’ll be smaller, and fit into typical retail footprints. There will be fewer free standing branches (less need for large branches with drive-ups).  Branches will be staffed differently. There will be greater utilization of universal staff who can handle sales, service and transactions — we won’t need as many tellers.  Branches need different marketing support. Smaller, lower traffic branches will be more like sales centers, and this means greater micro-market promotion and calling efforts to improve trade area sales penetration.  Successful financial institutions will have more robust front-line relationship management technology to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet. Page 5
  • 7. Four new branch models emerging  Programs actively underway at most major banks  Early adopters are moving from pilot to rollout, with at least one “top 10” institution planning to convert 15% of total branch network into Universal Banker model in 2014  Driving down costs: 50-60% lower expense, 6+ months faster break even than traditional model Page 6 Archetype Typical Size Technology Staffing Utilization Self Service 500-1,000 sq. ft. • Full self service • Advanced function ATM • Video teller • Full self service • Not staffed, but may have video teller link for live support • Urban core Express 1,000- 2,000 sq. ft. • Full self service or assisted self service • Concierge (1-2 FTE) • No dedicated teller • Urban core • Rural replacement as substitute for closing branch Neighborhood 2,000- 3,000 sq. ft. • Assisted self service or cash recycler pods • Video conferencing access to business line partners (business banking, mortgage, investments, etc.) • 3-4 Universal Associates • No dedicated tellers • Urban core • Suburban strip center and neighborhood “life style” centers • Rural replacement as substitute for closing branch Traditional 4,000+ sq. ft. • Cash recyclers to supplement or replace traditional teller lines • Assisted self service in high volume locations • 6-8 FTE • UA as component part of total branch staffing • Hub branch • Center of expertise, staffed with business line partners
  • 8. Migrating transactions away from the teller line JP Morgan Chase  Deposits decreased 11% CAGR through targeted efforts to increase self service usage  Branch staff decreased 20% (same store)  Reinvested savings in new locations, improved sales process to fuel growth Large Regional Bank (>1,000 branches):  Pilot to improve self service acceptance resulted in 50% increase in deposits through ATMs in test market  Opportunity: 70% of all teller transactions could have been done through self service  Potentially shift 1/3 of branches to self- service format Page 7 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 % Consumer Deposit Transactions through Tellers: Chase Bank CAGR (11%) 90% 51%
  • 9. Micro and mini branches provide very low cost, fill- in opportunities Page 8 1,250 sq. ft. Wells Fargo branch in Washington DC has enhanced self service, walls that seal off consultation rooms for 24 hr. access Fifth Third 2,000 sq. ft. teller-less branch in downtown Cincinnati BofA branches with Video Teller Assist in Atlanta, Boston, Charlotte, Dallas, Houston, New York
  • 10. Temporary branches: go where the customers are Page 9 PNC “Pop Up” Branch Frost Bank mobile branch
  • 11. Create attraction: re-establish branch as a destination, not an infrequent errand Page 10 Branches don’t create their own gravity – they need intrusive programs to drive traffic, providing opportunities for conversion  Fewer customers visiting branches = fewer natural sales opportunities  Smaller branches lose “billboard” impact  PNC: Utilizing mobile stores, street teams and educational events to drive branch traffic and acquire accounts at lower cost  Umpqua Bank: hyper-local, branch based and community events drive traffic, create engagement and sales conversion
  • 12. Re-thinking staff efficiency and service delivery  Issue is not whether teller staffing can be reduced or eliminated, it is how to manage transformation ― Decreased need for specialized teller role ― Changes in branch mix requires staffing flexibility, not role rigidity — Establishing the optimal configuration based on trade area potential and transaction activity — Defining the baseline for technology: how much (or how little) is needed to eliminate barriers to change and prevent reversion to traditional roles  Sales improve, when combined with the right marketing paradigm and disciplined sales/service process  Universal Associate model is not just a training program but a major shift in focus, staff roles, and customer experience — Branch design and technology — Marketing — Measurements, rewards and recognition Page 11
  • 13. Moving forward… Managing the network mix  What technology do we need?  How do we manage the overall mix of branch types (large, small, mini, etc.)  Balancing lease vs. own, CRA and other requirements Managing the customer transition  Many customer use branches because they like personal interaction, or at least the opportunity to interact  Too much change can be disruptive: Banks have tried new designs before, and results have often been disappointing — WAMU’s converted over 1,000 branches to its’ patented Occasio design, but many customers found it too “different” and confusing Managing the staff transition  New roles require new skills and new career paths  Not everyone will be happy: “Bank of America Tellers Picket ATM Machines” (ABC News, November 23, 2013) Page 12
  • 14. Thank you …. Page 13 Peak Performance Consulting Group David Kerstein, President 512-607-6332