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Cover Story

The Future of the Bank Branch

Washington Mutual’s experiment in futuristic branch design-at a cost of $1 billion-has come to an ignominious end. The new owner, JPMorgan Chase, considers the open floor-plan design confusing to customers and lacking in privacy, so it’s ripping out all 900 and replacing the free standing stations and cash-dispensing machines with teller windows complete with bullet-proof glass. Charles Sharf, who runs the Chase unit of J.P. Morgan has bluntly said that traditional branches are “superior in every way. They might be boring, but they’re practical.”

Banks have been experimenting with branch design for 30 years now, but WaMu’s Occasio branches (which in Latin means favorable opportunity) were still a significant leap. By creating teller pods stationed in the middle of the branch, and using cash recyclers, tellers were free to greet customers as they came in the door and create a more retail feel to the bank experience. Curving floor plans, softer color schemes, and quirky touches like selling teller “action figures” wearing WaMu insignias sent a message that this was a different kind of bank.

Now, with the collapse of WaMu and a chastened industry eager to earn back the public’s respect, some argue that WaMu’s unconventional branch design represented the kind of flamboyant experimentation that got banking into such trouble. “Customers want knowledgeable friendly bankers in an environment that’s convenient and reassuring,” says Tom Kelly, a Chase spokesman. “Customers aren’t interested in lingering; they want to do their business and go.” So, in the end, is Chase’s traditional branch design more appropriate for the serious-business of banking?

Getting the answer right to this question is important for the industry as it emerges from the current crisis. Branches are expensive to operate, and Bob Meara, a senior analyst at Celent says they’re getting less profitable all the time as branch traffic ebbs and more transactions move to the Web and other channels. At most banks, says Ron Shevlin, a senior analyst at Aite, people go to branches to resolve problems they can’t resolve elsewhere, or because they have privacy concerns using the Internet, or just out of habit-and this is not a profitable business model. “For most bank transactions, what’s convenient for the customer, and cheap for the bank, is not the branch.” To turn this around, he says, banks must find a way to make the bank branch the channel of choice for certain customer interactions, not just the default choice for problem resolution and Luddites.

In fact, some bankers are thinking along these lines, and they repeat a similar mantra: innovative branch design and technology must encourage engagement with employees, not to discourage human interaction. Executives at Barclays, Umpqua, Key Bank and TD Bank, to name a few, view the branch as the channel of choice to build customer relationships. “The biggest thing in banking is the relationship, and you can’t do that online,” says Lani Hayward, evp of creative strategies at Umpqua Bank. “You can make mistake after mistake after mistake, and the customer will stay with you if they believe you’ll take care of them.”

Viewed in the light of building customer relationships, Chase’s move to dismantle the Occasio branches makes sense. Jeffry Pilcher, president of ICONiQ, a financial brand consultancy, says “Everyone in the financial industry is looking for a single blueprint, and it doesn’t work; it depends on who you are serving, what products you are offering, where you are located and what competition you face.” In Chase’s case, the bank has two important businesses that WaMu didn’t, business banking and private banking. “Both of these require people to sit down. These are private, consultative relationships. Occasio’s were built for cash transactions. It’s was not a sit down, it was get in and get out. They wanted to build a lot of branches, collect deposits, and use those deposits to serve their mortgage operation.”

Thus, according to Pilcher, it is a mistake to characterize Chase’s decision to dismantle the Occasio branches as a retro move by a stuffy bank unwilling to try new ways to reach the customers. Chase’s business strategy is fundamentally different than WaMu’s. It needs efficient teller lines for quick transactions, but also privacy for customers to sit down with investment reps. Likewise, it is a mistake to characterize WaMu’s branch design as a failure because the bank failed. “People get the wrong idea that this is some kind of cosmetic thing; there’s a strategy behind it,” he says, and for WaMu it was to gather deposits for its mortgage arm.