Re-Calibrating Your Branch Transformation Strategy: The Role of Predictive Analytics and Branch Design Approaches in Today’s Ever-Changing Environment
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On-going branch transformation plans have been disrupted. Bank and credit union customers are relying more and more on appointment-only lobby hours, drive-up locations and digital channels to do their banking. What do these short-term disruptions mean to the future of location-based networks, and how can you reassess the importance of location, facility design and usage? Now more than ever, banks and credit unions must find ways to keep up by transforming their branch networks and re-evaluating the importance of location. Register for this webinar to learn: - The shift in the value of location: location dependent to location influenced behavior - Key elements in designing a thin branch infrastructure network - Community matters: matching the branch design to the consumer - Resetting customer and employee experience at the branch-what is the right balance of technology
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Re-Calibrating Your Branch Transformation Strategy: The Role of Predictive Analytics and Branch Design Approaches in Today’s Ever-Changing Environment
- 1. Re-Calibrate Your Branch Transformation Strategy With New Insights: How retail banking location analytics and branch design are adapting in today’s challenging economy
- 2. Bob Saunders LEED AP BD+C Vice President, Strategic Partnerships at Momentum, Inc. Michael Downs Presenter Steve Rymers PresenterHost Vice President, Client Solutions at Momentum, Inc. Our Panel Director Financial Services Location Analytics & Data at Precisely
- 3. Summarize The current landscape in retail banking, trends and opportunities Identify Branch network strategies and the role of predictive analytics Outline Key considerations for branch transformation and best practices Discuss Interactive conversation with Q & A Today’s Discussion
- 4. Summarize
- 6. -13% Bank branch change since 2009 102,100 Total Locations in 2019 83K Bank and 19K CU +28% CU branch change since 2009 Number of Bank and Credit Union Branches
- 7. % Product Buying Decisions Made in Branch
- 8. % First Contact Resolution is Key of consumers who switched to another provider due to poor services would have stayed had their primary problem been handled on the first contact Source: Accenture Consumer Banking Survey
- 9. Network Optimization Investing in Digital Capabilities Testing New Branch Formats Renovate Branches to Improve Consumer Experience Transformation Responses
- 10. Comfortable spaces to engage people in providing problem solving and advice giving
- 11. Our World Has Changed
- 12. % Americans who said they would stop using branch banking altogether in response to the coronavirus pandemic. Source: Boston Consulting Group 2020
- 13. Acceleration of Optimization Programs Upgrades to the Built Environment (IEQ) Increase in Digital Channel Preference Work from Home Impact Increased Offsite ATM/ITM Deployments Drive Up Capabilities Revisited New Transformation Responses We Are Seeing
- 14. Safety will have a major role in branch design “Viral Aware Environment”
- 15. Technology will more important than ever
- 16. Poll Question As a result of recent industry challenges, are you most focused on? • Network optimization and location analysis • Employee/consumer health and safety • Technology enhancements • Changes to service model • Economic environment • Business as usual
- 17. Identify
- 18. Analog Models Providing existing performance and characteristics compared to a existing/prospective store/location Trade Area Profile Analysis Understand supply/demand environment around existing/prospective store/location Location Analytics for Network Planning Visualization View spatial relationships Data Science/Spatial Modelling Multi-level sales modelling, understanding key drivers of demand such as residential, shopper, worker, transient, tourism Demographic Data 200+ Demographic Variables, Quarterly and Annual Updates
- 19. Addressing Current Impacts to Your Branch Plan Bank at Home 4% Bank At Work 34% Remote 62% Total Mortgage Demand: $210MM $0 $50 $100 $150 $200 Millions Total Product Balances
- 20. Assessing the Changes to Channel Preference 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Checking Savings Money Market Time Account IRA Home Equity Mortgage Credit Card Auto Loan SB Checking SB Savings SB Time Account SB Money Market SB Loan Location Based Remote Change in Remote Current Channel Behavior by Product Location Risk and the New Familiarity of Online Regiments will Speed up the Pace of ChangeTotal Product Demand Branch Based Bank Near Home Bank Near Work Remote
- 21. Work From Home Impact Total Product Demand Branch Based Bank Near Home Bank Near Work Remote About Half of the 102K Branches Reside in Trade Areas That Have 25% Or More of Their Total Deposit Demand Comprised of Bank Near Work (Workers) 879 6,465 15,788 20,581 18,762 13,651 13,726 5,762 3,017 1,639 1,305 876 455 0 5,000 10,000 15,000 20,000 25,000 5% 10% 15% 20% 25% 30% 40% 50% 60% 70% 80% 90% 100% NumberofBranches % of Worker Deposit Demand in Trade Area
- 22. Drive Up Option Eliminates Risk The Presence of a Drive-up Can Increase Branch Performance by 20% Depending on the MarketLocation Attributes Branch Type Storefront Local Setting Major Shopping Branch on Corner Yes Visibility from Road 2 Free Standing Road Sign Yes Sign on Building Yes Sign Visibility Good Sales and Service Attributes Lobby Positions 8 # Drive-up Lanes 4 # Lobby ATMs 0 # 24 Hr Walkup ATMs 0 # 24 Hr Drive-up ATMs 1 Night Deposit Yes Facility Hours Total Lobby Hours 46.5 Saturday Hours Yes Sunday Hours No Extended Drive-up Hours Yes - 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 RelativeShare Distance (Miles) Transaction Product Transaction Product DU Impact
- 23. Location and Digital Work Together Markets that opened a minimum of 1 new store Markets with existing stores but no new openings Markets with no physical store presence Ecommerce Comp Sales Store Presence Translates into Ecommerce Growth Increases Stores Are A Driver of Ecommerce Sales > $10 $8 to $10 $6 to $8 $4 to $6 $2 to $4 $1 to $2 < $1 Ecommerce Sales per Capita Ecommerce Comp Sales Time : 6 month intervals over two years
- 24. Do you think your organization’s appetite to deploy new branches will likely: • Stay the same as before the pandemic • Increase • Decrease • Too soon to tell Poll Question
- 25. Outline
- 26. Assess Impacts to Market Data Revisit Branch Optimization Strategy Enhance Servicing Opportunities Location and Technology Work Together Alternate Uses for Branch Footprint Evaluate the Built Environment (IEQ) Our World Has Changed Best Practices
- 27. Video
- 28. Discuss
- 29. Bob Saunders EVP of Strategic Partnerships Bsaunders@Momentumbuilds.com Momentum, Inc. Seattle WA www.momentumbuilds.com Steve Rymers Director, Financial Services Location Analytics and Data Steve.Rymers@pb.com Precisely, Raleigh NC www.precisely.com Follow Up Inquiries
Editor's Notes
- Introduction by MD MD STEVE Bob NEXT SLIDE MD
- [MD] Today is intended to be an interactive discussion, where we’ll be addressing three areas: -We’re going to talk about the current landscape in retail banking (given our Covid-19 environment), talk about trends and where there are opportunities -Steve is going to discuss the role of data and predictive analytics in making branch network decisions -We’ll be outlining some additional considerations and best practices -Finally, we’ll be opening the forum up to questions
- [MD] So, let’s get things started. Bob and Steve are going to talk about current trends and opportunities in the wake of Covid-19, and going forward. NEXT SLIDE BOB
- [Bob] You hear it every day, you read about it, you attend industry events, you listen to podcasts and you participate in webinars like today’s…the branch is dead…is it? Consumers want to shop in whatever channel which is most convenient to them…but they want your help and advice and they want the experience to be simple, intuitive and seamless across all channels. Organizations are having difficulty finding knowledgeable and consumer focused staff. Amazon rules the world today and SBUX provides the benchmark for the ultimate in consumer experience and loyalty…or is it Nordstrom, Apple, Trader Joe’s, COSTCO or Zappo’s…I can’t remember. Steve…I know that you heard that Goldman Sachs claims that 33% of millennials won’t need a physical banking presence in 5 years and… Bank of America plans to open 500 branches and Capital One will open high profile neighborhood branches, but BOA is shuttering branches in many established markets. In fact, according to McKinsey, the top 25 US banks increased deposits by 250% since 2004, yet their branch network decreased by 15% over that same period. The potential for looming changes, such as changes in metropolitan density, shopping, travel and communication will alter the addressable market and distribution strategy for years to come. The news goes on and on and it’s getting more difficult every day to know just what applies specifically to you. Given all of this never ending feed of information however, we don’t believe that the branch is dead….we see it simply evolving and changing with the needs of both the consumer and the institution. The reason that we are here today is to talk about the tools and the processes that you can use, to make branch network and design and transformation decisions that are based on data and not opinions, decisions which support the strategies and tactics that apply specifically to your mission, market position and brand. NEXT SLIDE STEVE
- Steve---As you know Bob I have presented the stats on the number of bank and cu branch quite a few times over the years. Looking at 2019 data there are about 102K total branch locations—83K bank branches and 19K credit union branches. Since 2009 when we reached a peak of approximately 110K branches; net the total number of bank branches has declined about 13% (so net there has been a higher number of closures but some openings). While credit union locations have actually been growing up 28% since 2009. If you look at closures across market size larger banks are pulling out of smaller and rural markets at a greater rate, while credit unions and some community are filling the void and deploying more rapidly into these markets. As compared to the rest of the world the US has about 30 branches/100000 pop, whilst the UK and Canada about 25 and 20 respectively. So, no doubt there is quite a bit of disruption out there in the FS space and it is definitely a chess game to figure out how and when to reduce or grow a network, the number of branches speaks to the importance of location….. NEXT SLIDE BOB
- [Bob] Research data shows that 60% of financial products and services are still purchased in the branch and having a branch in the right location remains the surest way towards building new banking relationships. To add to the conversation, when opening a new deposit, the researching options sub journey (as we call it) by the consumer, have 8X the impact on consumer satisfaction, when compared to other research sub journeys, such as mortgage or indirect lending research. Whether that journey begins at the branch or online, it better be good…with the branch, the journey needs to be just as convenient as the online experience and coupled with the face-to-face opportunity that the branch offers, you can knock the consumer experience out the park if the staff, setting and technology work together to support the experience. So it’s important to understand that satisfaction is shaped by the consumer experience across all channels and the branch remains the physical billboard which represents the greatest opportunity to initiate and grow relationships. The branch can help to send the message that your FI is a “safe” institution, as we have seen flight from some of the pure digital banks during this crisis. NEXT SLIDE BOB
- [BOB] With all this in mind, we fully understand that beyond initiating relationships, problem resolution remains a critical component of the banking experience so to speak…my debit card was hacked, how do I lower my credit card interest rate, I wonder if my IRA contains the right mix of investments, I can’t make my mortgage payment this month, as I have been off work for several weeks, how do I transfer money to my kid, surely it can’t be that hard…. A study by Accenture noted that 80% of consumers who switched to another financial provider due to poor response and services, would have remained, had their primary problem been handled on the first contact with the FI. FLIP STATEMENT…STEVE…I bet that even you use Zelle…wait…can your RAZR phone do that? NEXT SLIDE STEVE
- Steve— So, with changes in technology usage, banking demographics shifting, the emergence of online competitors and the need to update customer experience, pre-pandemic transformation responses were…… Network Optimization that encompasses: closures, opening and renovation/relocations Investment in Digital Capabilities –both within the bank from an integrated channel approach and then also in terms of some banks are creating their own online banks. Test New Branch formats—Hub and Spoke, Smaller Footprints, Thin Infrastructure networks…which we will have an entire webinar on in August. And, renovating their existing networks to improve customer experience. NEXT SLIDE BOB
- [BOB] The trend in retail banking has been to provide comfortable spaces to enable high-value consultation and problem solving with friendly and knowledgeable staff. The pandemic has certainly caused FI’s to shift priorities… We are seeing a new consumer norm with new business models…essentially, how consumers select and use financial products, as consumers expect individualized offerings that sometimes don’t fit within the confines of broader, demographic segmentation. People see the branch as a reminder that they can interface with an individual, especially in a time of need. Have you seen what drive-ups have been dealing with over the past few months? In most cases, a DU teller window, camera or video screen has been the only chance for a consumer to interact with your staff…in person so to speak. This won’t go on forever as we know. Many branches now offer limited access and there are plans in place to remain as contactless as possible during transactions. Staff interaction with each other is also a key concern and we are going to view a short video later in the program, which demonstrates the design, function and operational features of a branch in the post-Covid world. NEXT SLIDE BOB
- [Bob] This won’t go on forever as we know. Many branches now offer limited access and there are plans in place to remain as contactless as possible during transactions and staff interaction with each other is also a key concern. We’re obviously faced with a new reality, and there is a certain amount of “live and experimental” learning taking place, both in terms of consumer preferences and retail banking strategy. NEXT SLIDE BOB
- [Bob] Despite the pandemic, early data is still showing us that the retail branch plays an important role in an individual's financial life. In a recent poll conducted by Boston Consulting Group, ONLY 3% of Americans said they would stop using branch banking altogether in response to the coronavirus pandemic. To revisit my comments regarding branch drive-up activity over the past few months, in some cases, the DU’s have been a lifeline to many consumers and even our most sophisticated clients have been surprised by the activity, especially when they have attempted to steer their consumers to using digital and video (think ITM) channels. We shall see shorty, how lobby re-openings progress as many locations are re-opening in a limited capacity, at least in my market in western PA. NEXT SLIDE STEVE
- Bob Steve So, what we are hearing/seeing from clients given the recent challenges. The reality is many of these trends were on-going well before the pandemic things were just changing very slowly. NEXT SLIDE BOB
- [Bob] Safety will certainly have a increased role in branch design for the foreseeable future. We are not just talking about physical security in terms of robbery suppression, but contactless transactions, clean work surfaces and materials, improved HVAC ventilation and filtering, specific queuing arrangements and more focus on creating zones in the branch, where a consumer can still have a private conversation, in a safe and secure manner with an advisor. NEXT SLIDE BOB
- [Bob] technology will be more important than ever in helping consumers conduct banking transactions and receive financial advice. Untethering staff so that they can use their device anywhere that they choose within the branch, improved digital teaching tools within the branch to help inform and educate consumers about the benefits of your mobile and digital platforms, increased use of ITM’s and secure video links to enable connection to advisors and mentors within the branch…talk about staff too…hub and spoke environment…HAPO…Chris George statement Tell the story about the PNC mobile app for advice on checks…when visiting my branch several months ago..shown the benefits of the app… NEXT SLIDE MD AND POLL
- [MD] -As a result of recent industry challenges, what are you most focused on?
- [MD] Now, Steve is going to transition into a discussion about how data and predictive analytics can play an integral role in making branch network decisions. [NEXT SLIDE STEVE
- As most of you know data and location analytics is used pretty extensively today in doing network planning analyses and building a strategic branch plan. We all know the importance of having a branch plan to make better decisions and now more than ever it might be time to take a look at revisiting that plan. So just a couple of thoughts on this slide. In doing these types of analysis a good place to start is with demographic data with demographic data and the ability to visual data. Then techniques such as trade area profile analyses to understand branch markets, customers and potential customers, analog models work well to compare branches in similar situations and various data science techniques and spatial modeling from simple regressions to random forest modelling approaches. Our work here at Precisely, we use a modified gravity approach because it tends to handle the interaction effects of change to branches quite well. Opening, closing renovated and the ability to do forecasts of any action and more importantly assess the cannibalization impacts of any action. So, while most of the clients we talk to have built out their branch plans based on the pre–Covid world….we have been getting a lot of questions on impact virus and economic fallout on data sources and how that can impact models and your branch plan. For most demographic data the impacts will be lagged and take time to materialize. However, Depending of the flexibility of approach there are a couple of levers to think about tweaking in order get an idea of impact of potential changes on your branch network. NEXT SLIDE STEVE
- Steve First thought here is about how you look at total market potential or the demand for financial services products. We have been building demand estimates for years that take actual banking customer records and demographics and modeling to come up with an estimate of the number of accounts and balance by product for every block group within the US. While that provides a good understanding of total potential available, the unique part of our approach is that we are able to get a bit more granular to not only forecast total demand but also how much of the demand is likely to be remote and also how much is likely to be bank at home and bank at work. Given today’s challenges that approach provides some flexibility in changing either the mix of remote demand within a market or bank at home and bank at work. NEXT SLIDE STEVE
- Steve, I have heard from a number of clients thinking about the impact of a sudden shift in online behavior…what impact is that likely to have on my branch network? So, in our product demand estimates, we quantify several different behavioral segments: demand available Fis with a physical presence and consumer demand that is totally remote—meaning location based providers really don’t compete for that business. For the work we do with the branch channel we use only the demand segment that corresponds with consumers that are likely to use a branch. For example, online providers tend to capture a significant portion of the total Mortgage demand, it is hard for branch’s in your network to compete for this portion of the market, so in make any forecast of mortgage balances you need to account from the fact that this segment of demand is unlikely to use a branch. Each year we make some pretty solid estimates of what branch based vs remote split will look like in the future for every block group within the US based on household changes, demographic changes and changes in channel preference that we received by looking at customer data but also survey information. But what happens if something unexpected happens and the demand shifts dramatically? Like a pandemic happens and everyone starts using online channels? With our models we have the ability to sensitivity analyses to test various changes to shifts demand, i.e., behavior becoming much more digital We can reduce the amount of deposit and loan demand available to physical networks and re run our optimization plan to see what the impact is going to be. In some case it might not be a larger change but it can provide some guidance as to what a shift would mean to your network.
- Steve In a similar fashion, what about the impact of working from home and as that trend continues—how is that demand shift likely to impact branches in your network that are near large employment centers? This is something that had been on-going prior to the pandemic but with the shut downs and increases rule to reopen an office space will we likely see more and more companies abandoning physical office space and allowing workers to work remotely? When our demand estimates we make a prediction of how much product demand is likely to be bank at home vs bank at work in any block group and we are reallocating demand to work centers based on predicted commuter flow within a market. So, generally we know how much demand is worker based and where it is located as we can look at this for any branch market. The graph on the right. We created trade areas for all 102K branches in the US. And in over Half of those branches had 25% or more of their total deposit comprised of bank at work demand. So, the return of worker demand is definitely something to consider in thinking about workplace branches. I had a conversation recently about a lease renewal in a high daytime worker area and the longer term impacts of the viability of branch locations in these areas. So, what happens if that demand shifts away from the workplaces and back toward bank at home? The segmentation of demand allowed us to test the impact of a 25-50-75% decrease in workplace demand to simulate things not returning to normal and provide a range of impacts on that particular branch.
- Steve We talked a bit about the drive-up earlier. It has served a critical role during the pandemic, allowing for in-person servicing at the branch--so it has had a resurgence of late. Prior to the pandemic, I was having quite a few discussions as to whether or not a drive-up was necessary. We happen to visit thousands of branches each year and collect their facility characteristics. At this point we have probably look at 40-50K locations. And, I was curious so I took a look back at markets that we surveyed 10 years ago and in one large metro market we found that 61% of total branches had a drive up capability. A 2019 survey of branches in that same market showed that now only 52% of the branches had drive-up capability. Some of the change can certainly be the result of the increase in market density over time but there has also been a significant amount of discussion about the importance of drive-up and the need from them in the future as the servicing elements of the branch continue to evolve. The graph up above shows the relative impact of the drive-up within our model. Primarily the impact is to extend the reach of the branch or draw….there fore the branch’s market area expands. Depending on the location a drive can increase performance 20%...with the biggest impact for just having the drive-up and a diminishment as you add lanes. What we have certainly seen recently is that one size doesn’t fit all in terms of putting the right facility characteristics in the right market….something that Bob and I talk a lot about is how to use data to help determine the attributes of a branch and influence the design. In terms of the current situation….having drive-up capability conveniently spaced through your network gives some adaptability for the future…….
- Steve So, what I have learned over 25 years is that branch locations aren’t going away anytime soon. It is also clear that digital channels will play an increasing role in financial services and the two channels will need to work together to for an optimal outcome. I think what that means is we are going to become less dependent on location and more influence by its presence as digital channel usage grows. Let’s look at an example from our retail analytics practice to illustrate this point. So, looking in analyzing online sales at a nationwide retailer with a strong web presence and quite a few locations across the US. When we looked at online sales in markets where the retailer had no physical locations, had existing stores and had existing stores but with a new store opening. What we found was that the presence of location had an impact on online sales. And, additionally, the deployment of a new store actually lead to a further increase in on-line sales from the market. So the location channel and the on-line working together in the market and the presence of location increasing on-line sales. The map on the right shows that the online sales still have a location element to them…they are still clustered around store locations. So, as we think about the channels working together and transition of customers from being location dependent to location influenced. This will allow for thinner infrastructure networks within an market…it is certainly not a new concept but the online channels usage will make it more possible in the future.…we are going to talk more about thin infrastructure networks and the shift for location dependent to influence. But more importantly what data can you use to identify locations with the greatest billboard value.
- [MD] -How has this global pandemic changed the way we think about data and has this opened new data challenges or sources, not previously considered or known about? First of all my thought is that the pandemic will for the most part will force the industry to revisit the pre-existing trends and it might accelerate those trends Migration to digital channels, work for home, apt only lobby's, the need for the branch to transition from a transaction center to a sales and conflict resolution.. Going forward, is today’s data the new trend line or is just an anomaly -We are hearing more organisations questioning the need for office locations, with people working from home, organisations are looking at this as a way of changing their footprint, but what challenges does that raise for the retail and banking industries? -Do you feel that this could be the end of the high street/main street, will more organisations looking to support homeworking impact this? This is another example of a trend that existing prior to the is event: work from home. Will the tend accelerate now due to lease expiring, companies trying and liking the remote working experience…? In our banking demand estimates we project the amount of product demand for workers and can run various scenarios in our modelling that allow you to assess the impact of a reduction in bank at work demand. NEXT SLIDE MD
- [MD] So, what are some of the best practices and things you and your organization can do. NEXT SLIDE BS and Steve
- Bob and Steve Bob and Steve 3. 4. 5. Alternate use of the footprint include partnering with a complimentary businesses, such as insurance agencies, CPA’s and real estate firms. More creative partners have included coffee shops, pizza shops and we recently we transformed a branch in the San Diego market with Dunkin’ Donuts, sharing excess space in a very profitable legacy branch location. Essentially, we are using data from Precisely to not only help identify the most successful locations, we are using data to help drive design decisions as well. 6. We referred to IEQ earlier (indoor environmental quality). The health and wellness of your staff is an important subject and any improvements to the built environment in which an employee spends 8+ hours of their day will yield favorable results in employee satisfaction and retention…tell the HAPO WELL talent story….side note about what employees miss most about the COVID work at home requirements…their co-workers. NEXT SLIDE VIDEO INTRO
- [
- MD] So, what are some of the best practices and things you and your organization can do. [MD] -How has this global pandemic changed the way we think about data and has this opened new data challenges or sources, not previously considered or known about? First of all my thought is that the pandemic will for the most part will force the industry to revisit the pre-existing trends and it might accelerate those trends Migration to digital channels, work for home, apt only lobby's, the need for the branch to transition from a transaction center to a sales and conflict resolution.. Going forward, is today’s data the new trend line or is just an anomaly -We are hearing more organisations questioning the need for office locations, with people working from home, organisations are looking at this as a way of changing their footprint, but what challenges does that raise for the retail and banking industries? -Do you feel that this could be the end of the high street/main street, will more organisations looking to support homeworking impact this? This is another example of a trend that existing prior to the is event: work from home. Will the tend accelerate now due to lease expiring, companies trying and liking the remote working experience…? In our banking demand estimates we project the amount of product demand for workers and can run various scenarios in our modelling that allow you to assess the impact of a reduction in bank at work demand.
- We certainly encourage your comments and questions and for any follow up inquiries, we welcome hearing form you. Would you like to hear from someone about how they can assist you with better understanding how to optimize your branch network and use branch design to drive customer engagement and employee satisfaction? Yes No