Publications & Resources

March/April 2010
New Look for the Community Bank

Branch of the Future

By Jim VanderMale

It’s a concept that’s as elusive as the horizon. While everyone talks about it as though we’ll someday arrive in the future and poof, there it’ll be, the reality is that the bank of the future is already here. It’s the bank of today, tomorrow, 20 years from now, an evolutionary result of technology, customer need, and industry circumstance.

So if the bank of the future is really the “bank of now”…what does that mean?

It means you can’t just sit on the sidelines and wait for a transformation to happen. You have to take action now, today, to create a banking environment that’s capable of taking on the challenges of a rapidly changing marketplace. I’m not suggesting change for the sake of change – but change for the sake of survival.

Having been in the financial services industry for 30 years – 20 of them as a banker myself, I’ve seen what works and what doesn’t. History and experience have shown me a clear vision of what the “bank of now” should be.

Changing customer needs = changing branch needs

Bigger just doesn’t mean better anymore. Look at technology, for example. Communication devices are continuing to shrink in size, yet are increasing productivity at an amazing rate. The reason for this isn’t just because of advances in technology. It’s also because smart, insightful companies took the time to understand that consumers needs were changing – and they took action to capitalize on those changes.

Bankers would be wise to follow suit, because the plain fact is, customer’s needs and expectations of bank branches have also changed dramatically in the past decade. Not only have technological advances provided customers with a tremendous amount of convenience, the customer base is more diverse than it’s ever been: 75 million Millenials rival the 80 million Baby Boomers also in the market. To remain successful, it will be critical for branch design and strategy to adapt to these changes

In order to decrease costs and increase profits, banks must address customers’ needs.

The good news is that despite all of these changes, particularly the increased number of banking channels available, the branch is still the #1 preference…for certain kinds of transactions. That’s the key differentiation in today’s market compared to 10 years ago. Gone are the days when teller lines were jam-packed on Fridays because everyone was cashing their payroll checks. Advances in technology such as ATMs and online banking have driven these types of transaction-based needs out of the branch. Customers now largely visit a branch for one simple reason: to talk to someone. Maybe they want advice, to apply for a loan, or they have a complex transaction to conduct. Whatever the reason, they made a concerted effort to talk to a person -- and the branch had better be ready to meet that need.

Smaller + smarter = more profitable

This paradigm shift represents a huge opportunity for banks. If the majority of actual transactions are being handled in other channels, why continue to build the same old 3,000 – 5,000 SF branches? A full-service branch that’s designed to meet the needs of customers just won’t need to be that big. Particularly for community banks, money is better spent on thoughtful enhancements that support community outreach programs, such as a boardroom that could be used by local small businesses or civic organizations.

I strongly believe that given the right operating model, a completely self-sufficient, full-service branch can be delivered in a 1,000-1,550 SF footprint.

Industry research supports this claim. A recent study produced by the Deloitte Center for Banking Solutions suggests that “U.S. branch changes over the next 10 years will likely center around five main areas: branch redesign to help customers better navigate the outlet; operating model and staffing changes to improve customer service by engaging the customer in new ways; technology enhancements to improve the customer experience and increase cost productivity; enhanced network management to increase customer convenience while improving flexibility and cost-effectiveness and better connecting the community and the customer to create greater brand loyalty.”

So if smaller branch size is the critical first step, a thoughtful, holistic design and staffing strategy is the necessary finishing touch. The environment is where the magic happens, so while a smaller branch size alone might offer significant returns in saved land, construction, and operating costs (in addition to being far more environmentally friendly), those benefits are negated if the interior of the branch and the staff aren’t given appropriate consideration.

A smaller, yet highly-performing retail environment that’s effectively designed to influence consumer buying behavior will rely on several key factors:

Technology
While the branch experience needs to be predominantly about creating personal relationships, technology can and should play a huge role in facilitating the experience. Allowing customers to leverage technology in the branch, such as self-service kiosks, discover walls or touch tables, can increase cross-selling opportunities significantly.

Appropriate Staffing
Smaller branches require less staff to operate – but that smaller staff can only be efficient with proper training. Arms your staff with the tools they need to handle all customer issues and involve them in the branch design so they understand the purposes of the changes and can be effective brand advocates.

Tailored Suite of Products & Services
Having a wide range of offerings isn’t useful if your customers don’t care about most of them. Know what your customers want, understand what they need, and offer them just that.

Streamlined Communication Strategy
Just as customers don’t care about products and services that aren’t relevant to them – they can’t care about relevant offerings that they don’t understand. Keep messaging clean, simple, and appropriate and customers will respond.

Effective Branching Strategy
Smaller branches can fit in a lot of places their larger counterparts cannot. Thinking outside the norm and considering non-traditional locations will open up a lot of opportunities. Nothing replaces sound market intelligence, however, so understand every nuance of any new expansion market before making a commitment.

The bottom line is simple: for banks to remain competitive, they need to think smarter and smaller, capitalizing on significant industry changes in customer need. The “bank of now” should be cost-effective and efficient, playing an effective, tactical role in the grand scheme of multi-channel management, which offers a multitude of benefits for institutions brave enough to chart a new course.

Jim VanderMale is executive vice president, Retail Market Strategy, for BrandPartners. He can be reached at 603-509-1505 or jvandermale@brandpartners.com.