Is it time to branch out?
It's quite strange how the word 'branch' can mean three totally different things.
It’s quite strange how the word ‘branch’ can mean three totally different things (1) A part of a tree which grows out from the trunk, (2) To separate or divide, or (3) building where banking is conducted, writes Michael Nuciforo
The word ‘branch’ is the main word on the lips of every mass-market UK bank CEO.
It’s quite ironic then, when you think of the definitions above, how divisive the discussion about the future branches has become – to be blunt, banks are currently asking themselves ‘What the hell do we do with these things?.
When branches were first opened they had a clear purpose. They were the only way you could access a banks services. They were large, prestigious and furnished immaculately to reflect their secure stature. Over the 20th century branch numbers expanded rapidly to cater for a growing population and workforce.
Over the same period the general population got busy being busy. New technology arrived and this resulted in a variety of options being available to consumers. The introduction of ATM’s, EFTPOS and the rapid rise of digital and mobile banking has resulted in a large gap between the original purpose of the branch and the modern needs of consumers. Joe Public now has limited time (and limited desire) to conduct financial transactions in person.
Due to these changes in customer behaviour and technology, the expected announcements about a reduction in bank branches have now started to become more commonplace. Whilst this day was forecast, the decline in network numbers could have far reaching consequences for the industry. Shrinking branch volumes has the unintended consequence of lowering a major barrier to entry for new competitors. Banks need branches in many respects and instead of digging their own graves, can banks potentially reposition the channel to protect their ground?
Physical branches have always been considered one the three key barriers to entry for the banking industry along with regulation and capital requirements. Put simply, even though customers are using the channel less, to be a mainstream player you need a big branch network. In the UK, it is considered so important that the UK government has stepped in on numerous occasions and forced two of the majors to divest their branch network.
Without realising it, branch networks have slowly become the only thing protecting the industry from mass scale disintermediation. Put it this way; a healthy branch network equals a healthy bank. If people still want to bank at branches – the incumbents win. Just imagine for a second that the branch was still a critical element to a consumers banking experience. Imagine that customers still wanted to go to the branch. Game over. All the direct banks and new competitors wouldn’t stand a chance. With this in mind the longer banks can cling on to the relevance of the branch network, the longer they can retain their one core advantage. The one thing they do better than anybody else.
Due to this, the role of the branch needs to change significantly to reflect this movement in consumer behaviour. Branches should no longer be treated as the shop front for branch services only. The branch needs to become a window for the services of the entire bank. As transactions continue to move to online channels, the branch needs to become less about execution and more about communication. Moving from an execution channel to a communication channel is complicated. Everything in a branch today is geared towards transactions. When you enter the branch you are not greeted, but forced to take a spot on the factory conveyer belt. If you need to inquire about a transaction, you need to contact the call centre from the branch, because this is what the layout and process dictates.
To move away from this ‘factory banking’ mentality, banks will need to conduct a complete cultural overhaul. Banks will need to start recruiting a new type of branch staff. New staff will need to be confident and able to create dialog with customers. With a need to proactively engage customers, rather than reactively execute, some staff will be caught out. Employees that only are only interested in branch services will get lost in the blur between the digital and physical bank environment. Banks will need to downsize their branch portfolio, and then re-hire, and re-train their branch workforce to drive forward this cultural shift. Whilst branches will continue to execute transactions for customers that prefer a more personal experience, communication needs to be at the core of the new service.
For the banks that have the boldness to change, new and exciting opportunities will open up for them. They can now transform more broadly to become a local community hub. They can assist in establishing new ventures, supporting small businesses and improving the financial literacy of their community. Education seminars can be run on the financial topics of the day and to demystify important economic trends.
Seminars could range from top mortgage tips, to an overview of negative gearing. Start ups could receive special assistance in developing business cases and seeking investment. New technology will also drive forward a new experience in the branch. Collaboration tools that facilitate networking and access to shared space should become mandatory. Free Wi-Fi, touch screen displays and tablets could all be provided to add to the new set up. These new customer journeys and technologies could also lead to fresh revenue streams for the bank.
For the banks that don’t adapt, traditional and non-traditional competitors will continue to impact. Once a customer’s transactions are all conducted via alternative channels, they will rarely have the need to visit a branch. This reduction in foot traffic will lead to most bank branches looking like ghost towns unless they evolve and offer alternative services. If banks don’t move to this new model to counter the reduction in branch volumes, they might as well pack up their branches and implement a mobile sales force. It is important that a branch serves a purpose beyond being the banking choice of pensioners. It will need to differentiate itself now or risk being swallowed up in the future.
The benefits of achieving the right branch strategy are significant. If banks can deliver a seamless, efficient and integrated approach to managing the financial service needs of their customers in a physical space, opportunities abound. More importantly it can do all this whilst helping guard against the digital only channel model of most new non-traditional competitors. An integrated multi-channel approaches can break down the walls between the digital and physical world and offer customers the choice they desire. Perhaps it might just also break down the walls between the bank and its customers.