The Future Model of Banking

The Branch Is Dead – Long Live the Branch

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When asked to give an opinion about the future of bank branches, I respectfully tell my banking friends I appreciate that consultants tend to make very difficult decisions seem straightforward and unemotional. But most of our toughest decisions aren't.

Many bankers have spent decades building branches and branch networks. They've invested heavily in equipment and processes to handle the mountains of paper transactions that came along with serving their customers. And they've spent equally large amounts of time hiring and training people to effectively run these financial services factories.

And now they're told, "Okay, it's a new day. Your branches are too big, and you almost assuredly have more than you need. You also have too many employees, and many of them have job functions that won't be needed much going forward."

I understand the urge to point to the still-respectable financial results being generated by these dinosaur branches and tell the consultants to jump into a large body of water of their choosing.

It's easy for folks who don't have to implement divestment and workforce reduction decisions to make them sound as simple as their blank sheets of paper apparently suggest. These choices are far from simple. But putting the right decisions off can be as ineffective and damaging as making the wrong ones altogether.

The business world is littered with examples of companies that saw their industries changing and became more focused on justifying the way they'd always done things than in proactively adapting to those changes. These businesses tend to become their most efficient just before the roof falls in.

One of management consultant Peter Drucker's more famous quotes comes to mind: "The last buggy whip factory was no doubt a model of efficiency." We currently have some of the best-run and leanest-staffed traditional branches our industry has ever produced. And the number of customers choosing to use these best-in-class branches continues to fall each year.

I frequently remind bankers that the same technologies that have changed the way we interact with any number of our favorite and most-relied upon service providers are obviously transforming how we deliver ours as well. What we do is as important as ever. The way we've historically done it is not.

Tomorrow's banking winners will be those who find ways to give customers personal touch points the most efficiently. In a technology-driven and commoditized industry, human interaction actually becomes more important than ever in differentiating from the pack.

Our branch bankers continue to evolve into the human interface of an online operation.

The same technologies that lessen the need for branch visits will allow banks to provide staffed, fully-functional branches in newly feasible locations. Placing smaller bank branches where people already shop and work will be the new normal. In-store and on-site branches will proliferate, and banks will find their ways into unexplored high-traffic locales.

New brick-and-mortar branches will be a fraction of the size once required. Banks will also become pretty creative in carving out and repurposing existing larger branches in prime locations that they do not wish to exit, but can no longer fully utilize. Mini-business centers with various professional offices will begin dotting the landscape with banks being the anchor tenant of their own buildings.

After a period of net-branch reductions, look for the number of branches to begin ticking up again as larger locations give way to considerably smaller ones. Branch numbers will grow again while the industry's total branch square footage will go down.

As the teller functions of banking are shifted from bank staff to customers, our teams' problem resolution skills will rival sales skills in importance. While branch traffic may be lessened, the percentage of customers visiting a branch for problem resolution or complex transactions will rise.

In fact, more customers than ever will choose their banks based on the availability of a branch that they don't plan to use all that much. But it will be there with live bankers if and when they need it.

And those are actually some of the very best opportunities for a bank to strengthen and expand customer relationships.

Evolution does not mean elimination; however, failure to evolve guarantees elimination.

The branch is dead. Long live the branch.

Dave Martin is an executive vice president and chief development officer at Financial Supermarkets Inc., a Market Contractors subsidiary that offers design, construction, consulting and training services for retail banking programs. He can be reached at dmartin@supermarketbank.com.

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Comments (2)
People spend most of their lives in 4 places: Where they live, work, shop, and recreate. Adapting to the customers is easy. Technology enabled mobile banking simply allows them to add one more element which is that they can do banking in transit to one of their 4 primary locations. The challenge in banking is how to adapt to the various fluctuations as people change their time allocations to their 4 primary locations; and, brick and mortar locations are changeable less frequently than customer life behaviors. The part that is missing is the ability of the banks to drive traffic into the branches and to have competent employees available to help the customers get fatter wallets. Last week my son received a nice offer of $175 to open a new savings account ($15,000 minimum) at a top 4 bank. While the fine print said "new money required", he asked the college educated personal financial rep if he really needed to take $15000 from their bank and open an account elsewhere, then write a check on that account to get his "new money" reward? Answer- yes! So he is being asked by his current bank to go to a competitor and give them a chance at all his business. A competent financial rep would have jumped on the opportunity to have a face to face conversation with an upwardly mobile existing customer (recent grad from a major law school about to start a very high-paying job at a major law firm) who could be engaged for a multitude of services. It is that face-to-face opportunity that branch banks provide.

Any bank that cannot drive traffic to their branches and have competent staff ready to "help" them will eventually have to downsize or sell them. But if you are a big four bank - who cares? If you are not a big 4 bank and do care, then get busy turning lemons into lemonade!
Posted by FrankRauscher | Wednesday, July 17 2013 at 12:46PM ET
Dave, I agree with your take on the future of branch banking. I suppose, technically, one could argue that branch banking is most definitely a dying breed. However, this argument only applies to traditional bank branches. These "dinosaur branches" are certainly heading for extinction. However, financial institutions (FIs) have a huge opportunity during this shift to capitalize on what they have always done best: designing and running successful branches. The difference this time around will simply be the size and scale. By focusing on their core competencies banks can most definitely compete with the Movens, PayPals, and Squares of today. Yes, failure to evolve means extinction, but banks attempting to evolve in the wrong arena could spell death to the branch as well.
Posted by Alex Johnson | Tuesday, July 23 2013 at 10:52AM ET
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