Some banks are disappointed in the performance of their in-store branches, according to recent studies. This poses a dilemma: Should banks stay the course, or should they shutter the branches and risk losing business?
Or is there another option?
Scuttling delivery channels is high-risk, because customers demand choices. In every industry, consumers-not companies-are driving delivery systems. And consumers want every means of access available.
Satisfying the "we want it all" demand is expensive. According to the Council on Financial Competition, the average number of transactions per bank customer increased by 60% from 1991 to 1996. At the same time the average cost of serving the customer increased by 23%. Customers are using lower-cost systems more, but delivery costs still are going up.
Instead of closing branches or maintaining an unsatisfactory status quo, banks have a better option. They can reevaluate how they define roles and set expectations for different delivery systems, and how they measure success for each.
In-store branches are successful at banks that have learned to tap the channel's potential and maximize its productivity as part of an overall business plan.
In a traditional sense, the role of a branch seems obvious: attract and serve customers, generate revenues, and earn profits.
How to manage an in-store branch seems clear as well: put it in a visible spot the front of the store and market it to a captive audience of 20,000-plus weekly shoppers.
But these are not traditional times. The role and management of a branch are far more complicated when considered as part of a multichannel delivery network that delivers its potential only when the parts work together.
Often management lacks a clear vision for what the in-store branch is supposed to do, apart from reducing delivery costs and reaching a supermarket's customers. Or the branch is not designed - or is not being managed - to fulfill the strategic purpose that management intended.
We also find banks that are trying to measure profitability branch by branch, when such measurements have been rendered anachronistic by the customer's use of multiple channels.
A customer's profits could, for example, be credited to a branch where the account was opened, even though the customer has migrated to an in- store branch, PC banking, or a call center. Traditional branch profitability models ignore the cost of not offering a delivery option that the customer wants.
A delivery channel's effectiveness should be measured against whatever the bank wants it to do. For in-store branches, measures could include sales per full-time equivalent, balances per account opened, mix of products sold per customer or household, loans to low- and moderate-income customers.
Before assigning realistic roles and expectations, management must understand what each channel can productively do.
In-store branches, for instance, are productive at service, sales, prospecting, and education. They should be managed to one or more of those strengths, consistent with the bank's strategic plan. Distractions from the branch's role should be removed; operational functions, for instance, should be centralized away from the branch.
When the delivery channel's productivity is maximized and integrated with other channels in support of the strategic plan, the retail bank's profitability is best served. This assumes, of course, that the bank's products and customers and households are profitable.
The in-store branch must be designed to perform its assigned role.
The first such branches were designed to look like banks, so shoppers would recognize them. Since the dominant feature was a customer service window, the branches primarily produced transactions.
This transaction-heavy beginning spawned early conventional wisdom that in-store branches would never be profit drivers.
But banks such as National Bank of Commerce, Barnett, KeyBank, and Wells Fargo began de-emphasizing teller windows in favor of walk-in areas where customers were greeted and encouraged to have all their financial needs met at the in-store location. The result was higher volumes of consumer loans, investments, and other nontransaction services.
Encouraged, these and other banks added education to the role of the in- store branch. To drive transactions to lower-cost systems, they dedicated space for teaching customers how to use PC and Internet banking, call centers, interactive computers, and next-generation ATMs.
An in-store branch's layout affects how customers interact with the bank. If the design appears to ask for transactions, the branch will get transactions. Or the design can invite customers to walk into the branch and browse, get information, and make purchases - just as they would at any other retail store.
Another key productivity driver is knowledgeable, sales-oriented employees. Without them, a branch that is expected to sell products and expand relationships will fall short of expectations.
Sales-oriented individuals are found more often in retail sales than in financial services, but recruiting from or for retail is difficult.
A key axiom is to hire personality-which can't be taught-and then commit to the training necessary to teach banking skills.
In-store bankers should receive training for the distracting supermarket environment. They need to be taught the nuances of aisle prospecting and relationship building.
Branch managers should also receive specialized training for coaching and monitoring performance in the in-store atmosphere.
The bank should do three other things to help and motivate employees:
Minimize operational activities that divert staff members from their core duties. The more activities you ask your bankers to do, the less time they have to devote to sales.
Set monthly and weekly sales goals for employees, and hold them accountable. And allocate ample marketing resources that support the sales program.
Provide incentives and align them with activities that drive profitability versus those that attract low-margin, high-service, nonscalable business.
Properly designed and implemented recruiting, training, communications, and incentive programs will create and maintain a sales mentality-an understanding that expectations begin and end with sales, education, and appropriate service.
Banking has a new learning curve for an old function: distribution. The delivery of financial services today bears little resemblance to that of recent memory and requires new methods of management and evaluation. Bankers have no option but to negotiate this curve if they are to continue being relevant to consumers' needs and lifestyles.
