Imagine an urban bank where a customer takes an elevator to the fourth floor to enter the branch, takes a number, and sits down on a couch to wait. And wait. Eventually a teller approaches and takes the transaction paperwork, then disappears behind a low counter into an area that resembles a government office. Five, 10 or 15 minutes later, the banker emerges, transaction complete, and hands the receipt or cash to the customer with a bow. By this time 20 or more minutes may have passed and new product sales weren't even on the table.

This is the anachronism that is today's retail banking environment in Japan. In a culture renowned for its hyper embrace of technology, branch banking is mired in old processes, outdated branch design, and bank-centric ways of operating.

"The thing with branches in Japan is they are rather inefficient and haven't changed in years and years," says Red Gillen, a Celent analyst and Japanese-speaking expert on the country, who notes that many Japanese still utilize passbook accounts. "Branches there are really, really slow. A lot of the modernization in Japanese retail banking has taken place outside the branch."

For Citibank, this antiquated environment represents opportunity on two fronts: Despite having operations there for more than 100 years, the bank's retail presence in the country is nominal. And the outmoded branch model means improvements that would be incremental elsewhere seem revolutionary in Japan.

The answer to the Japanese challenge comes from Citi's Growth Ventures & Innovation team. Unveiled in April after more than a year of research and development, Citi's "smart banking" strategy couples the most advanced retail technology-envision a cross between Umpqua Bank's Innovation Lab and an Apple Store-with reengineered products, paperless processes, and an overall bank-anywhere approach.

While the question of whether the retail bank branch is alive or dead is frequent fodder for debate in the States, Citi has invested millions of dollars in two high-tech, self-serve branches in Tokyo, and has professed plans to expand the model across Asia, and potentially in the U.S. But the strategy isn't about maintaining foot traffic into a future in which customer behavior trends increasingly mobile. Instead, says Chris Kay, Citi's head of Innovation, it's about offering customers a seamless experience from branch, to online, to mobile to ATM, and figuring out how the model might scale to the American market.

"We think about Japan as the lab for the world," says Kay, a former real estate manager for Target who's part of Citi's 14 person Growth Ventures & Innovation team that created the concept. "The underpinning of this was to try to understand for the customer's benefit the convergence of digital and physical. ...How can we be where our customers are instead of them coming to us?"



Citi stumbled mightily in Japan the past several years. The bank was forced by Japanese regulators to shut down its private bank in 2004, sold its Tokyo headquarters to Morgan Stanley in 2008 to raise cash, and just last summer had to suspend retail sales operations for a month as punishment for AML failings. But the bank has a long history of bringing innovation to the country; in 1987 its newly established retail bank brought the first 24-hour ATMs to Japan, along with the first telephone banking.

Hoping for a fresh start in Japan, the market challenge was simple: Citi is relatively unknown to Japanese consumers, not too surprising given that it has just 17 branches in Tokyo, 32 in all of Japan. (That is likely to change. Stephen Bird, Citi's co-CEO in Asia Pacific, says the institution will open 70 new branches in the region in the next year. Last year, Asia delivered about a third of Citi's global profits.)

In Japan, the plan is to focus on three affluent segments of the Japanese market: "dankai," who are essentially baby-boomers approaching retirement; their wives who are almost always traditional homemakers; and "achievers," or mid-level executives in urban areas. What Citi's researchers found, however, is that many in these segments were apprehensive about branch banking. "Customers said, 'We don't like to go to the bank; in a branch you feel a lot of pressure to buy something you don't want'," says Yumi Kobayashi, head of the market intelligence and customer experience group in Citi's Japanese retail division.

From this emerged the self-service model, which is combination of the slick, new branches that are not coincidentally reminiscent of Apple's retail stores (Citi hired Apple's design firm, Eight Inc.), a 24/7 approach to banking, and new products tailored to these segments. "We've taken the pain out of banking," Kay says. "The customer is left with time to have a conversation with bank colleagues about what their needs are."

The change comes at a time when other Japanese competitors are also starting to take a retail approach. Shinsei Bank co-locates branches with Starbucks in major metropolitan areas. Other banks are opening supermarket branches; and the omni-present 7-11 and Lawson convenience stores allow customers to pay utility and other bills in the store.



Citi's "smart banking" strategy breaks into three segments: attract, engage, and connect with customers. At the branch, the attract component begins on the sidewalk in front of the store, or even across the street, where viewers can see a massive video wall with time, temperature, and graphic news displays interspersed with Citibank ads and imagery. Inside the branch is another video wall, this version a touch screen that allows customers to open and close windows, finding out more information about news stories or stock prices by interacting with the sixteen 46-inch screens that comprise the wall.

In front of the giant screen are the couches you might see in other Japanese bank branches, but these are black leather and chrome ottoman-style pieces. On the right and left sides of the branch are tables with touch-screen tops that Citi calls "service browsers," which allow customers to research products and services in a non-authenticated environment. On the walls behind these are flat screens that show the usual in-branch advertising messaging, along with compliance notices.

To one side, and definitely not the centerpiece of the branch, is a teller line with just two stations behind it. Nearby are three ATMs that feature video-conferencing screens connected to a call center in another part of Japan. The on-demand video sessions allow customer to have telephone and video conversations with specialists in certain areas, like foreign exchange. "We've really integrated video into all elements," Kay says, adding, "Connection to expertise can be very difficult to scale."

Occupying the central position in the lobby area are what Citi calls its "work bench." This is a flat counter with four stools and tabletop touch screens. Separated by privacy screens, and with keyboards mounted underneath, the work stations allow customers to log-in and conduct a variety of transactions, either on their own, or with the help of bankers that roam the branch. Help can also be summoned during a transaction by pressing a help button, which causes a small spotlight to shine on the work station, and activates a pager in a roaming banker's pocket. These bankers-who are licensed in several areas of sales-are connected to back office staff via wireless headsets for answering questions that can't be answered from the floor. Most of the transactions here can be handled paperlessly, part of Citi's goal to do away with as many paper forms as possible.

The heart of the workbench approach is that the technology enables customers to serve themselves thanks to the re-engineered processes behind some products. Citi redesigned its most common branch transactions, with straight-through-processing now allowing account opening and other transactions to take place as unassisted, or minimally assisted, at the workbench. "The promise to the customer is once you've started and know what you need, we will deliver for you quick, seamlessly, straight through," Kay says.

But getting to this point wasn't easy.

"This was a real trial for us," Kobayashi says. "We had to go through the categorization of each process, asking, 'Is this the regulation, is this the law, is this the internal procedure or policy? Or is it because we have always been doing it that way?'"

Many customers take quickly to the work benches, but not all. Mindful that some will not feel comfortable discussing their finances in an airy, open floor plan branch, or conducting transactions on their own in a center island, Citi built a series of small conference rooms down a back hall. These rooms allow for private consultation with a banker, or videoconference connection with a specialist off site. "The set of experiences is designed to acknowledge the fact that customers want to have different depths of interaction with their banks at different times," Kay says.

Like Apple's retail stores in the U.S., Citi no longer views its branches as a destination, Kobayashi says. Instead, they are just one possible location in which a customer can learn more about the bank's products, perform a transaction or close a deal. "We wanted to start to have this as a hub for the customer to start knowing about us," she says.

The new store concept is also modular, allowing for the addition or subtraction of components based on the size of the retail space available. No matter what the size, Kobayashi says, the bank will work to make 80 percent of the space "customer space" and 20 percent for back-office operations. In Japan, Citi is also changing its location strategy. These days, bank branches in Japan-along with prominent restaurants and shops-are often located on buildings' upper floors. Vertical signs that ascend the height of the building indicate what businesses are located on each floor. Now Citi is focusing on prime, street level retail space to increase its visibility.

Citi will judge the first year performance of the model by the number of new accounts opened in the first six months, the increase of total balances at the branch and the total number of channels and times each customer interacts with the bank, Kobayashi says. Very early indicators show the bank has twice as many new accounts as other branches, with three times the usual foot traffic. "We're not only looking at the profitability of our branches, but also looking at measuring customer experience, customer satisfaction," Kay says. "We are deeply committed to making sure we are driving a very strong branded experience."



Citi's U.S. branches aren't getting a makeover anytime soon, but if Citi doesn't move quickly they could wind up behind the curve on their home turf. Consultants and vendors to U.S. banks say there's a quiet undercurrent of change in the American branch-banking model, even as some say brick-and-mortar is breathing its last gasp.

"The branch is not dead, it's still alive and well," says Mike Colvin of Level 5, an Atlanta-based branch consultancy. "The institutions we work with and talk to are not seeing the branch go away. We still see for the foreseeable future a very strong need for branches."

Not surprisingly though, American banks are looking for ways to wring more sales out of branches. Recent research by Celent found that improving sales and service results is the highest branch priority among North American banks, with 60 percent ranking that highest, and 40 percent planning on installing CRM systems in the branch.

"It's increasingly challenging to earn a decent living as a retail banker," says Celent banking group senior analyst Bob Meara.

This focus on sales means that the interior design of US branches is also changing. When banks are looking to make changes, or build new branches, more than 80 percent of Level 5's customers are choosing models that do not include a teller line. Instead staff members move freely about the branch and use cash dispensers and recyclers to facilitate transactions. This jibes with Celent's research, which finds that the top branch technology initiatives in the past three years have been branch or teller capture (90 percent); among planned initiatives, 38 percent are planning imaging ATMs and 28 percent teller cash recyclers.

"It's not the old Washington Mutual model," Colvin insists. "We put this piece of millwork of any shape with a cash recycler in it, this allows you to have less of a barrier between the staff and the customer."

Level 5 has a demo center of the new concept in its Atlanta headquarters; Colvin claims that every potential customer that's visited the showcase has decided to implement that design. "It's because they're looking to differentiate themselves in the marketplace; there is no need with the technology that exists to have the staff behind a teller line," he says. "Why hold your staff hostage behind a teller line?"

This branch design means that tellers are no longer required to balance their cash drawer, and can presumably spend more time engaging the customer. Level 5's research indicates that it also speeds transactions by an average of 30 seconds. The catch is this approach to branch banking requires staff that's more sales oriented. "The whole point of this type of delivery system is a higher quality personal service that results in deepening wallet share," he says.

It's not just the branch design and staffing plans that are shifting, location selection is being transformed as well. North American banks are getting creative about how they utilize prime real estate. Institutions are looking to spend less by creating smaller, more efficient branches, Colvin says. These days a location that would have been too small before can be made usable with the installation of two-way video technology and pneumatic tubes to connect a drive-up teller station around the corner or across the street.

"Now you don't necessarily have to have a square or rectangular site," Colvin says. "You might find locations that have different geometries that would have been much more difficult to place a branch on years ago because where would you put the drive ups?"



The broad consensus in the industry is that the amount of branch traffic is declining, the number of branch transactions is declining, and with these the demand for teller stations also decreases. So hand-in-hand with the smaller branch concept comes the installation of self-service technology. Imaging ATMs, remote deposit capture, video ATMs all facilitate customers' transaction needs in a lower-cost delivery model.

"Not only is self service of growing importance, the ATM channel in particular is going to see a resurgence," Meara says. "Not in terms of ATMs deployed, but an acceleration of imaging, and cash and check intelligent deposits."

As this happens, and mini-branches become essentially service centers, where will banks turn for new sales and cross sales? In this scenario, a central selling engines connected to all channels become crucial. As the self-service model develops, consultants at Novantas envision a retail banking world in which the branch is a destination for self-service transactions and for consultative selling appointments, much like the way Mac users make an appointment online to visit an Apple store's "genius bar."

"If I want to talk to someone, I can go to the Website and get an appointment at the Citibank store," says Kevin Travis, a director at Novantas. Not all branches will have experts in house he predicts, but, "I'll drive further to solve a high-value problem."

Think this sounds like an evolution of the high tech/high touch approach banks were touting in the 90s? Perhaps. But it makes Citi's revolutionary strategy in Japan seem like the logical extension of the baby steps U.S. banks are taking. "It's a growth trend I think is inexorable," Meara says. "It's coming, and it's here to stay."

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