We’ve all heard the parables — cautionary tales about Netflix killing Blockbuster, and Amazon’s retail takeover. And yes, more and more Americans bank digitally. But branches remain a critical component in the retail banking delivery model. Banks and credit unions just need to find ways to build digital-physical synergy. Complementary roles for digital and physical channels must play to the strengths of each.
Financial institutions now process far more transactions digitally than they do in branches. And according to McKinsey & Co, more than 10,000 U.S. bank branches have closed since the financial crisis of the late 2000s — an average of three per day.
“Despite such systemic changes,” McKinsey says, “branches remain an essential part of banks’ operations and customer-advisory functions. Brick-and-mortar locations are still one of the leading sales channels.”
“Most bank and credit union executives scoff at the idea that branches are dead or irrelevant.”
Indeed, executives of banks and credit unions mostly scoff at the idea that branches are dead or irrelevant — a millstone. The brick-and-mortar channel remains an essential link for good consumer service, and can actually help build an institution’s digital audience. By clearing transactions out of branches, digital channels return the favor by enabling branches to do the heavy lifting when it comes to advising consumers on decisions where they still want a human touch.
Increasingly banking executives seem to agree that the two channels — digital and physical — are running together. Regional player BBVA Compass, for example, insists on operating from one P&L because digital and physical work jointly.
As branch networks are consolidated, the branch experience is also being reimagined and redesigned. Branches today now provide a “face” in consumer consciousness that strengthens the digital channel when consumers search the web or the App Store and Google Play for options. And where branch consolidation cuts costs, that provides more fuel for improving digital.
According to Samsung, retail banks and credit unions need to use technology to “offer a more compelling customer experience.” In a white paper on the future of branches, Samsung speaks to the need to “digitally transform branches into immersive, advice-driven financial center that give customers what they can’t access on their own.”
Increasingly, banks and credit unions grasp that reality, while bringing a depth and breadth of service and options to the table that most narrow fintech disruptors aren’t able to match — now or in the future. It’s like comparing restaurants with a full menu versus a burger stand that only specializes in one thing.
“Some pundits assert that the only reason customers visit your branch is because you force them to do so. Not true.”
“Some pundits assert that the only reason customers visit your branch is because you force them to do so,” says Celent consultant Bob Meara. “Not true.” Meara draws similarities between the consumers’s mindset to his own experience when he recently decided to have his kitchen replaced. He researched costs and such online. He searched for contractors on the web, too. However, before he was going to let anybody gut his house, said Meara, “I wanted to meet the final two contractors in person. I was not content with digital interactions.”
PwC has coined a term to specifically capture the marriage and symbiosis between physical and digital channels. Their “phygital” phrase quite literally represents the blending of digital and physical into a single strategy.
“Many banks still analyze the customer journey within a single channel,” the report says. “But we increasingly live in this phygital world, where the journey is more convoluted.”
Here’s how the top five retail banks, a major regional, and the nation’s largest credit union view the digital versus physical dilemma and the relevancy of branches.
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Why Megabanks Haven’t Shunned Branches in Favor of Digital
Financial institutions’ on-again, off-again affair with branches seems to bring out the skepticism in Jamie Dimon, Chairman and CEO of JPMorgan Chase. with analysts, Dimon recalled his days at Bank One, later acquired by Chase.
“Bank One and Chase were closing branches that were making $1 million a year,” said Dimon, all based on “the hypothetical thinking that maybe you don’t need branches.”
“Bank One and Chase were closing branches that were making $1 million a year, based on hypothetical thinking that maybe you don’t need branches.”
Dimon won’t abide such thinking. “Our branches make a lot of money,” said Dimon. “They open accounts for a million people a day.”
While branch transactions have fallen, those locations are where lucrative business such as mortgages and investment relationships begin, said Dimon. Ultimately, he said, what players do “has got to work for the customer, not what works for our expense line.”
Two relevant statistics from Chase: three quarters of its deposit growth comes from people using branches, and half of all households banking with Chase are branch-centric or multi-channel.
So actual business results are a major part of the thinking behind Jamie Dimon’s plans for opening 400 new branches in 15-20 new markets over the next five years. That, and two additional factors. First, Dimon said regulators have made it clear that they don’t want institutions like his to go branchless. Second, “big banks can’t acquire anymore, so the thing for us is to open branches,” as he explained.
Could a national digital-only institution work? Dimon believes that is an interesting concept to test, and it can first be tried in markets that are already oversaturated with branches. You might say Dimon is putting chips on both lines.
Shifting To ‘Mobile-First’ Thinking
The ongoing evolution between the blend of digital and human touch via branches that financial institutions have today varies among banks and credit unions according to the philosophy, budget, and the consumers each institution serves. Models will continue to skew increasingly in the digital direction, believes Julien Courbe, Financial Services Advisory Leader at PwC.
For that to happen, Courbe says that an ongoing cultural shift will need to occur within financial institutions themselves towards what PwC calls “mobile first” thinking. In from PwC, the firm advocates beginning product design with the mobile channel, in recognition of its expected longevity. But Courbe says branch employees must first become comfortable with mobile services. The more comfortable they are, the more easily they can persuade consumers to use mobile. This also helps erode walls between branches and digital.
Other analysts and consultants specializing in retail banking have been hearing similar themes from other top, digitally advanced banks. For instance, Bank of America, the top “digital bank” as rated by J.D. Power, is closing branches in some markets, but they are pursuing a high-tech/high-touch model blending digital and physical. BofA is leveraging technology to increase customer engagement, such as using the bank’s mobile app to set appointments with professionals in branches (1.5 million appointments were made that way in 2017.) “Digital Ambassadors” in branches introduce digital channels to consumers.
Today, digital is driving about one in four consumer sales at BofA, and today only around one quarter of deposits come to the bank over the branch counter, according to Dean Athanasia, who helps lead the consumer division at the bank.
Overall branch volume is down by roughly 25%, but “there’s ‘good volume’ and ‘not-so-good volume’,” Athanasia said. “Good volume,” he explains, consists of visits that can lead to sales, rather than transactional volume. That “good volume” is up 70%, Athanasia said.
That’s why BofA is opening some 500 new branches and renovations are slated for another 1,500 locations over the next few years.
Similarly, U.S. Bancorp is taking a mixed approach. 70% of its consumer service transactions take place on mobile devices now, and 20% of sales take place on mobile phones, according to Andrew Cecere, Chairman/President and CEO at US Bank. With numbers like that, “the whole calculus around traditional bank acquisition has changed quite a bit,” he explained. “It’s not just moving in physically.”
Cecere says he personally checks the rating on the bank’s mobile app every week (a 4.8 out of 5.0, last time he checked). Cool front ends are great, he said, but U.S. Bank is sweating the back end too, in order to deliver loan decisions in ten minutes and more.
“When you close a branch without a solution, you are going to lose deposits… and you don’t want to lose deposits.”
“The branch will still be important for consultation,” Cecere cautions. “People still want to talk to other people eyeball-to-eyeball when they have questions about what type of mortgage and about retirement.”
“The branch is still an important part of the equation,” added Terrance Dolan, US Bank’s Vice-Chairman and CFO. “It’s a matter of how you end up integrating digital capabilities with the physical assets.”‘
Cecere noted the his bank has been slower to shrink its branch system than others. “When you close a branch without a solution, you are going to lose deposits… and you don’t want to lose deposits.
Over at Citicorp, execs in charge of consumer retail see nationwide digital banking as its next big step. But John Gerspach, Citi’s CFO, says branches are still important.
“The uptake on mobile technologies is greater than what we had anticipated,” Gerspach said. “But we still need branches. There’s still a lot of value in branches. They’re going to be important, but there’s going to be less of them. And they’re going to be smaller.”
As it hones its network drastically, Citi has concentrated branches in metro areas where they have the most impact, and “we’ve asked the branches to leverage more technology.”
Then there’s Wells Fargo. John Shrewsbury, Senior EVP/CFO, said that they are operating all retail businesses from one, united consumer strategy. This ties in with an effort to continue improving the bank’s digital channel customer experience and widening the self-service capabilities given to consumers.
Shrewsbury said the bank is aiming for a “soup-to-nuts” menu of what can be done digitally. One goal is to slash the amount of re-keying of data that typically happens, leading to less human error and greater overall accuracy, he told analysts. “That data can then be redeployed,” Shrewsbury said.
One banking analyst asked if the planned closure of hundreds of branches that will trim the Wells Fargo network to about 5,000 locations was foreshadowing more closures in the future. But Shrewsbury characterized the move as “one and done.”
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Navy Federal Seeks Digital+Branch Continuity
To illustrate the synergy of digital and physical, a Navy Federal Credit Union executive outlines this hypothetical scenario: It’s late evening and a Navy Fed member is checking his mobile app. A charge shows up that he didn’t make. Using the app, he freezes the card. But the next morning, he wants more information on how to protect his account and how to file a fraud claim. For this he heads to his Navy Federal branch to speak to an expert who can help. The expert can quickly pull up the member’s records, so that the two can dive right into the solution.
Sun Bayless, AVP for Process Improvement and Technology at Navy Federal, says this is the kind of service their credit union strives for, and why the credit union doesn’t think in terms of branch and digital channels being distinct.
“We want the member interaction to be as seamless as possible,” Bayless explains.
She says she hears other financial institutions speak of “branch versus digital, this department versus that department,” but doesn’t think that is the right perspective institutions should have.
“Service is the connection,” Bayless explains. “When you look through that lens, you see how the two channels, together, meet their needs. We take things from a ‘members-looking-in’ perspective.”
“Members don’t look at things as ‘I’m now talking to a branch representative’,” she continues. “They feel they are talking to Navy Federal.” That’s why — no matter where the interaction starts and where it may finish — Navy Federal wants systems and processes to ensure that any conversation picks up where it left off.
Training is conducted accordingly, and includes having staff from parts of the credit union that don’t typically face members periodically spend time in branches in order to see how things work. “Even our CEO does branch visits,” says Bayless.
Branches use an open plan that includes teller pods where consumers and member service representatives can look at screens side by side. Staff can walk consumers to wherever in the branch they need to go to take care of their need. The credit union makes iPads available so employees can demonstrate digital services for members who need help using their mobile services, such as check capture.
Bayless says companies like Amazon set the bar of consumer expectations today. People who enjoy the convenience of digital commerce assume that other providers will match that experience. As much as possible, Navy Federal makes branch services answer that demand, such as providing instant debit card issuance.
“You have to experiment,” says Bayless, “or you become stagnant.”
One shift Navy Federal won’t make is adopting the fully automated branch, where no staff resides.
“I can’t imagine showing up and having no expert present,” Bayless explains. “If someone drives to a branch, they should be able to speak directly to an expert.”
Blending Channels At BBVA Compass: How Branches Drive Digital
BBVA Compass is a known digital challenger, but management sees branches and digital services as two sides of the same coin.
“What we are seeing, in all segments, is that regardless of how digital and self-service our customers become, the human touch is always needed,” says Pepe Olalla, Head of Business Development at BBVA Compass.
Olalla says that ten years ago he would have predicted the demise of branches in favor of digital services. “And I would have been wrong.”
Olalla says the goal of BBVA Compass is to strike the right balance between human and digital service. Branches are about both real estate and people, he says, but really chiefly about people. The combination of branch and digital is in service.
At BBVA Compass branches are considered an increasingly important part of the bank’s adoption of digital techniques. It comes down to consumer education and face-to-face sales. Branches, says Olalla, are where many customers adapt to and adopt growing digital services.
“The branch is the hinge,” Olalla explains. The bank’s internal research revealed that most digital customers that BBVA Compass gains come from a radius of five miles from a branch and that markets with more of the bank’s branches tend to produce more digital sales.
As branches are reimagined, the days of cookie-cutter branch layouts and designs may be ending. Jeffrey Winter, Senior Vice-President-Business Development at Newground, says the hub-and-spoke model appears to be growing popular. Smaller branches — perhaps as small as 200 square feet — with limited but live service can feed to a larger, full-service location.
“The hubs are designed purposefully to be a big billboard statement both at night and during the day,” says Winter. “They are built almost as a beacon.”
The reset, as Winter terms it, affects the human element as well. Increasingly, he says, the people staffing the branches are universal bankers, able to handle most any challenge that comes through the door. He likens this to the typical “cell phone store,” where a greeter comes right up the consumer and speeds them to what they need. Or simply to hear their problems.
This addresses something so basic that it’s often forgotten, says Winter: “Often people just want to be listened to.”
Concerning greater sales of digital near branches, Olalla says there are two reasons. “Travel is one angle,” he explains, with customers who are closer to a branch more likely to sign up for digital services.
However, more important to the results, says Olalla, is brand awareness. There really is something to the “branch as billboard” ability to penetrate consumer consciousness in an increasingly noisy environment.
“For people who are searching online, brand is still relevant, and we don’t have huge brand awareness,” says Olalla. “We don’t run huge campaigns.” As a result, having seen a branch locally makes a connection for the online customer. “We have seen that behavior,” says Olalla.
Consumers who use more of the bank’s channels tend to also be more profitable, more engaged, and have higher net promoter scores, Olalla continues.
One tool to capitalize on the branch/brand connection are BBVA Compass’ “Blue Mavericks.” These blue-shirted branch staffers “are the ones who are up-to-date on all our digital services,” Olalla explains. Besides helping consumers in the branches, the Blue Mavericks keep their fellow branch staffers current on BBVA offerings.
Olalla doubts the need for human touch will be reduced. In time, he says, the branch may be supplanted by digital assistants, video, or some other technology delivered by digital means, but the “touch” will still be there.
“That will be one of our challenges, providing human touch at scale, without opening branches,” says Olalla. “The means might not always be an actual human, but it will look like a human, for human customers.”