What Will Retail Banking Look Like in 2020?

Opening a new bank branch used to be a matter of simply choosing a location and building out the structure according to a template design. But today, the definition of “bank branch” is being transformed by technology, competitive dynamics and economic pressures. As reported in Jones Lang LaSalle’s recently published Global Retail Banking 2020 study, up to 50 percent of branches in today’s U.S. bank networks may be declared obsolete -- although not necessarily defunct -- by 2020. Given that branches constitute 75 percent of a bank’s total retail distribution costs, according to research from Capgemini, implementing smart, technologically savvy retail strategies will be critical to driving shareholder value.

With these trends in mind, CIOs have the opportunity to be at the forefront of the retail banking evolution by collaborating with their corporate real estate peers in new thinking about branches. Forward-looking bank executives are beginning to consider branch real estate as an investment in the customer experience rather than an expense. Technology -- whether for boosting branch employee productivity, enhancing the consumer experience, or both -- will play a critical role in maximizing the return on a bank’s branch banking investments.

The Global Retail Banking 2020 report points to the evolution of branches as retail outlets. Following the experience of other retail sectors, many U.S. banks are adopting a mixed “bricks and clicks” strategy to provide consumers with mobile applications and other convenient channels for simple transactions, and “the human touch” in branches for more complex services. As a result, retail banking executives will increasingly look to their CIOs and real estate departments to work together to integrate these multiple service delivery channels.

While branches are expected to remain the cornerstone of the typical bank’s retail sales and service proposition as physical touch points for consumers, branch locations, formats and networks must recognize the widespread consumer adoption of mobile and online banking. With such features as touchscreens, biometrics-secured ATMs, interactive table computers and videoconferencing lounges, the branches of tomorrow will integrate real estate and technology to optimize the customer experience.

Beyond the Branches

Retail banking now encompasses not just branches, but also anywhere that banking services can be conveniently provided to consumers. Whether it means a service kiosk in a train station, a mini-branch in a grocery store, a premium branch in a central business district, or a bank-on-wheels that visits corporate workplaces, proximity to targeted customers ultimately matters more than having a traditional bank façade. Flexibility and agility will provide a competitive advantage for banks—but these new retail strategies will create challenges for IT and real estate departments charged with identifying nontraditional physical service locations.

Yesterday’s assumption that retail customer interactions require a branch is being discarded, replaced with a new assumption driving highly selective location strategies based on deeper analyses of micro-markets and target customers. This new joint technology and real estate approach delivers thoughtful considerations of what constitutes a trade area. Full-service branches will focus on selling complex services to high-value customers in locations where those customers are concentrated. For small and remote branches, some banks are creating self-service high-tech centers with minimum on-site staff, but high-touch service available via 24-hour videoconferencing.

Technology’s New Role in Location Selection, Offerings

Rather than being an afterthought, technology is becoming the centerpiece of branch banking, and retail bank executives will expect their IT departments to identify and implement technology-based solutions to enhance the customer experience. Corporate real estate managers also will look to their IT counterparts to ensure that branch facilities have the infrastructure and space configurations required to support large-format displays, cabling and equipment, along with heavy data, security and power demands.

Some banks, including Citibank, are even experimenting with quasi-Internet cafes, offering high-tech lounge environments with relaxing furnishings and wi-fi access along with ATMs, self-service kiosks, areas for plug-in consumer devices, tutorials for mobile and Web banking and videoconferencing for service consultations delivered by call center staff. Furthermore, the move to a cash-light society will trigger still more changes in how branches are deployed. Since the size and configuration of a retail bank branch traditionally has been conditioned upon the number of teller points at the counter, radically fewer cash and coin transactions will inevitably reduce branch size. Branch design will continue its shift from a focus on teller counters to a focus on sophisticated ATMs and other technology-enabled service delivery channels.

As banks seek to gain market share through new products, services or markets, CIOs will be tasked with getting ahead of these business unit strategies and working with their real estate counterparts to drive branch strategy implementation. To help their institutions succeed in the long term, CIOs should work with their real estate departments and service providers to proactively plan for and execute the branch strategies of the future.

Joe Brady is Managing Director, Corporate Solutions Banking Industry Group, at Jones Lang LaSalle