“The person who doesn’t scatter the morning dew will not comb grey hairs.”
-Hunter S. Thompson
When we think about the future and what technology will bring, many of us experience a hailstorm of uncertainty coupled with higher expectations than those of a man lining up an eagle putt. If we let our imaginations run free, we might envision seamlessly integrated systems requiring no maintenance … marketing that hunts down customers like a wolf in the night … and hordes of self-servicing customers – exactly the sorts of things that immediately confirm we are no longer in 1984.
There’s no doubt that when these visions become reality (note I said when, and not if), they will attack the predictable branch model prevalent in most organizations today. Branches are getting so much attention that the daily influx of articles spewing about threatens to exceed what most I.T. managers allow an inbox to handle. And yet, something is causing executive teams across the country to throw a lazy eye at one another during stalemate discussions about the fate of the branch network.
Ready or not, we are at a turning point that will define the future of branches for some time to come. The big piñata that everyone is trying to beat with a billy club is the squeeze on revenue mingled with a need to drive down expenses. Further adding to the debacle is the already diminished retail staff as nearly every over-manned teller line in the nation has already been whittled to nil. And let’s not forget the massive mental hurdle the vast majority of financial institutions need to jump over to break away from the traditional branch model. From online banking to remote deposit capture to mobile banking and teller terminals, the delivery landscape has been forever altered. Considering the shift in expectations and behavior among today’s customer base, there’s no denying the growth in these channels will continue.
So if there is such a thing as a “branch of the future,” what does it look like? Smell like? Would it make customers wonder why no one had thought of it before? Below is a discussion of the three biggest emerging branch trends and some considerations of each.
The “Social Branch”. The social branch is the model most people immediately associate with the “branch of the future” concept. Queue the tranquil lobby music! This is the open, inviting atmosphere with amenities so abundant that customers will come to hang out, drink free coffee, receive amazing personal service from new account reps floating about the lobby with tablets in hand, and get the fastest service available by tellers perched proudly behind their teller pods. However, for the most part, organizations implementing this concept as a tactic to drive more customers through the door have struggled to justify the effort spent. The social branch is likely to be a hit with FIs in urban markets that have a strong brand and a level of customer loyalty high enough to drive feet through the door for more than just routine transactions. Rural markets will be hard pressed to get this to succeed.
There was an announcement earlier this year by Sir Branson himself revealing that Virgin Money will ramp up the stakes by rolling out its lounge concept throughout the United Kingdom in an attempt to perfect the customer experience. Thus far, Virgin Money’s lounge concept hasn’t offered any groundbreaking insights and reveals a “branch of the future” approach similar to what others have been attempting for quite some time. But, the jury is still out here – if anyone has a shot of bringing some extra “gonzo” to banking, it would be Sir Branson. I can already picture the GonzoBanker invitations for a swanky party down on Necker Island.
This concept does have potential, but it needs focus. We can roll out the welcome mat, turn on the gourmet coffee, stock the bookshelves, and complete every item on the innovative retail-space checklist recently perfected by Apple, but we’re missing the sexy product that drives people through the door. The go-forward product in banking must be service. Fellow GonzoBanker Steve Williams covered this quite well in “Conversations in the Branch and Transactions in the Cloud.” Unparalleled service must be perfected for the “social branch” to thrive.
The “Tech Branch”. Tech branches are quickly gaining momentum as they utilize recent advances in branch technology, such as teller terminal stations by uGenius, which are getting all the accolades. Another concept that is getting some press is the micro-branch, which enables an organization to deploy more, smaller locations with a focus on providing only basic services and getting deeper into neighborhoods with lower overhead. An effective approach, considering that most customers choose their FI based on location, and when they need to do their banking they want to make as few stops as possible. So, increasing the number of convenient locations to perform common transactions in a low-cost model is a no-brainer. This model is a great fit for FIs that need to service smaller, rural markets but don’t want to deploy an army of branches to reach those customers. However, markets with an older client base may struggle with such a change. This trend got a nice shot in the arm from a recent NCUA announcement allowing credit unions to utilize remote teller technology at standalone service facilities. But in the long run, these branches will allow FIs to provide more efficient customer service with lower overhead than the tired traditional model.
“No Branch.” The “no branch” trend has been popularized mostly by Ally Bank and more recently the Movenbank initiative hyped by Brett King. There’s no denying Ally’s success with its branchless model; however the approach taken by Movenbank is going to have more emphasis on delivery through electronic channels. Again, the jury is still out on this one. But, not a lot of FIs are taking this approach because there’s a huge dichotomy between this vision and the prevalent “branch of the future” vision, which, as mentioned earlier, is predominantly the “social branch.” And frankly, adopting this “no branch” trend is not a fit for everyone. It will clearly not work as well for older demographics, or help the traditional community bank or credit union obtain better penetration in targeted, rural markets. The “no branch” model will likely continue to serve as a supplement to the physical branch, with a few exceptions.
For most FIs there is a legitimate fear of altering the traditional branch model and adopting any of these trends. But the environment is forcing a change. Locations must be proactively assessed to determine which are viable to remain open, and for those that do, which of these trends will best fit the business model and client base. The final solution for any FI is very likely to be a blend of all three. Candidly, the “social branch” trend has the best-near term appeal as it offers the easiest transition without the drastic change that might imply leadership is half-mad. Sure, there will be some outliers who focus on one delivery model, but for the vast majority, the solution is likely to be derived on a case-by-case basis – by region, by branch. The stakes are simply too high to not clearly define and execute a new delivery model. Dipping a toe in the water to gauge the temperature here will lead to a late arrival at this party. Early adopters will reap the spoils. Until then, we will have to say that the “branch of the future” is still a work in progress.
Till next time,
-DJ
OK, so maybe it takes more than comfy couches and free coffee to create the ultimate customer experience. And maybe it’s been a while since anyone looked at the institution’s Delivery Channel Roadmap.
Now might be a good time to take stock of the organization’s Strategic Plan.
For more than a decade, Cornerstone Advisors has been singularly focused on assisting banks and credit unions develop and implement focused strategies to improve their competitive position and bottom line. So what are we waiting for? Let’s get a conversation started!
This is right on the mark, good job Hunter. The branch of the future is coming and there will be efficiencies realized in Retail Banking. However, Retail Banking is not dying nor is it going away, it is evolving.
Yes, there will be a few online banks that do just that and banks like Ally will gain some marketshare but will be limited to their overall client base. Banks like Moven aren’t really new, Brett King has simply place a new accounts GUI over another bank and he is not running a bank, just an online account opening solution. Don’t expect banks like Moven to grow, just expect them to be acquired.
Teller Currency Recyclers, fewer offices, smaller offices and offices staffed with more knowledgeable employees is what you should expect. The key for success in this area will be execution. We have seen attempts going on for years by many, but we have seen only a few execute well on the strategy!
Great article Daryl.
We absolutely do need branches for decades to come but social branches in most areas of the US just aren’t going to be utilized. I may be crazy but I still think in 10 years, people will be walking into a bank for banking service – a transaction or some help. They aren’t going to be interested in “hanging out” at their bank.
I see a future in the heartland of America of smaller branches where employees are just as comfortable running a transaction for a client across a teller line or a desk and then walking their next client through how to install and use mobile banking on their smartphone. The service that we all talk about will be how to use technology to manage clients’ financial lives.