As a growing number of banks embrace the trend of smaller, automated and more efficient retail bank branches, they would be wise to proceed with caution. Micro space means a micro customer experience. And that equation carries serious ramifications for banks.
One of the primary factors driving bankers towards microbranches is the belief that smaller outlets require a reduced capital investment while simultaneously lowering operating costs. It's easy to see why this idea is appealing. However, as banks plan for the future, they should ground their retail distribution strategies in customer experience not potential cost savings.
There is a direct correlation between a branch's size and its ability to drive sales, provide helpful service build deeper relationships with consumers. Large, full-service branches have greater opportunities to achieve these objectives, while the primary advantage of microbranches lies in convenience. This is why many banks are exploring a hub-and-spoke strategy in which their network includes a combination of branch sizes, each capable of managing different customer needs.
Banks should also consider the inherent risks of investing in microbranches given the fast pace of technological progress. I call it the leapfrog effect: technology and consumer preferences move so quickly that banks can't afford to keep up. Future technological breakthroughs are likely to cause existing channels, equipment and delivery methods to become obsolete. The airline industry offers one excellent example of this issue. Delta invested millions of dollars in installing self-serve kiosks several years ago, only to be leapfrogged by mobile check-ins.
The question banks need to ask is whether the microbranch could be replaced by a new technology in the near future. After all, customers who need to perform complex transactions or are in search of advice would be better served by a full-size branch, and few people would travel to a physical site to complete a transaction if they can do the exact same thing remotely.
While microbranches certainly offer advantages, the issues of customer experience and technological progress should be front and center in any discussion about retail distribution strategies.
Kevin Blair is the chief executive of NewGround, which designs and builds bank branches and other retail facilities.