Financial institutions are often tempted to adopt what other institutions do, without careful consideration whether such actions are best to impact the target market and leverage the organization's own assets and resources. Many institutions engage in expensive efforts to modernize branches, with unclear results and payoff. The challenge is that many institutions lack formal criteria to approach change, which requires answering three questions: what do you want to achieve (for example, reduce costs or drive sales), what are your target market wants/needs (such as faster transactions or easy access to capable personnel) and what can you do well, taking into account budgets, management, internal culture and capabilities? As these answers emerge, the right approaches can then be defined and deployed. This article shows how the industry is evolving, what challenges it is facing, and what opportunities exist to deploy viable approaches to optimize performance and drive market impact.

1. Dec 14, 2015
The branch that once captured 100% of all transactions now only represents 10% of
transactions and has been impacted by various industry trends and fads.
In the 1990s, it was the imminent demise of the branch with the advent of the internet, driving
many banks to set up separate online banking operations, which later had to close or
consolidate after finding out that customers didn’t want to deal with separate entities. In the
early 2000s, the new trend was about branches adopting retailing practices, redesigning
physical spaces, and adopting a casual, “un-bank,” look and feel. These inviting, but costly ($1
million plus), stores were designed to induce prospects to walk in, but not for better efficiency
and productivity. As the 2008 financial crisis unfolded, this model was quickly rolled back.
Post-financial crisis, the “hi-tech” branch trend emerged. This meant modernizing branches
and deploying new technologies such as video banking and in-branch apps. However, little
emphasis was placed on how to integrate these tools with the bank’s service model and deliver
a value-added customer experience; customers would walk past the expensive video-banking
device to get in the queue to see the teller.
The latest trend is a shift to smaller branches by reducing physical space, cutting personnel,
adding self-service options and ultimately cutting costs. Several questions arise as this
unfolds: Do I understand my market segments? Is this right for my customers in this footprint?
Should I keep experienced employees or junior personnel? How will I continue selling? What
type of self-service devices should I deploy? How do I promote change in customer behavior
from tellers to self-service?
Change Criteria
Although frequency of usage is dropping, the branch remains significant in business impact –
75% of accounts are opened there – and there are still more than 100,000 branches in the U.S.
The challenge is that many banks lack formal criteria to approach change, which requires
answering three questions: what do you want to achieve (for example, reduce costs or drive
Augusto Medelius,Leon Majors
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2. sales), what are your target market wants/needs (such as faster transactions or easy access to
capable personnel) and what can you do well, taking into account budgets, management,
internal culture and capabilities? As these answers emerge, the right technologies and vendors
can then be selected.
Consumers today access their banks both physically and digitally. Many simple and recurring
transactions are shifting to digital and other self-service channels, such as the ATM. But most
complex and/or sensitive transactions remain within the branch and will stay there until
alternatives are better developed as a seamless extension of traditional services. Respective
channel strengths support the types of transactions that the channels are chosen for. The
ATM and online, for example, are considered fast and convenient while the branch is viewed as
secure and trustworthy. But consumers don’t use channels in isolation; researching new loan
alternatives often commences online, followed by reaching the call center to clarify terms, to
then visit the branch to open the account, back to online to make loan payments and finally to
online or mobile to check the balance. Cross-channel consistency and connectivity is a must.
So, what works for you? It depends on your needs. For example, a focused modern branch
staged as a welcoming destination has served Umpqua Bank very well, and attracted and
deepened relationships with business owners and affluent consumers in the Pacific Northwest.
A Bank of America teller-less branch well equipped with self-service devices and a helpful
banking officer to guide customers as needed has met well the needs of busy New Yorkers in
the city’s financial district. Will Umpqua’s model work in the Appalachian Mountains in
Kentucky? Will Bank of America’s teller-less branch work in a retiree community in South
Florida? What works is getting to know your target market and setting realistic goals in line
with what you can achieve by evolving the branch and other channels. And remember: just
listening to vendors or (blindly) copying others is not strategy.
So, where do we go from here? How should the branch evolve?
Good banking practices must support selling and deepening customer relationships while
lowering costs and raising efficiencies. With a trend towards smaller branches and more self-
service, banks are trimming personnel from 10 to 12 employees per branch to 8 to 10, often
reducing teller positions and expecting remaining employees to pick up the slack. However,
self-service is not growing as fast as expected, the branch remains busy at peak times and
customers still walk in to perform basic transactions (e.g., deposit a check) that employees
(including senior bankers) must address. This hurts productivity and affects employee
performance, missing on opportunities to better spend time selling and strengthening
relationships with customers.
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3. “Star Branches”
It’s time to reconfigure the branch, recast the service model and integrate throughout to
advance self-service productively and release valued human resources to drive sales and build
relationships.
Our core recommendation is to move away from the vaguely defined self-service branch, often
passively backed by a pass-through lobby with a few ATMs. Instead, the branch should be “the
star” of your delivery model, with a central role in meeting most customer needs. This should
be accomplished by shifting the service model from the old and larger (10 to 12 employees)
teller-line focused structure to a new, smaller (6-8 employees) and flatter model containing
primarily two groups of employees: self-service helpers and professional/advisory officers. The
former educates and helps customers navigate transactions on their own, instilling confidence
and comfort to repeat self-service behavior. The latter, made up of experienced bankers with
authority, handles all matters that self-service could not fulfill. Limited traditional teller
stations would be preserved temporarily, to be eliminated as self-service behavior matures and
becomes pervasive.
Those institutions unable to change as described above should at least pursue concerted
efforts to expand self-service behavior with their existing capabilities. These could include
placing an employee at the lobby or teller queue asking customers about the transactions that
they would like to perform and appropriately directing them towards self-service and
educational videos at the branch showing how to use an ATM to perform routine banking
transactions.
In the end, this is not about chasing the latest technologies or undertaking fancy, costly
branch transformation with unclear purpose. By pursuing focused, no-nonsense approaches to
advance self-service, aligned with the personal service model, financial institutions can
leverage existing resources and new investments to lower costs and raise efficiencies, prevent
service disruptions, and strengthen the means to continue selling and building thriving
relationships. This is about you, and setting your stage to grow a healthy and enduring
business.
Mr. Majors is head of the Payment Systems practice, and Mr. Medelius managing director for
Rhinebeck, N.Y.-based Phoenix Marketing International. They can be
reached leon.majors@phoenixmi.com and augusto.medelius@phoenixmi.comrespectively.
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