Is it time for banks to change their branch strategies? Yes.
Major players are already spearheading new models. Bank of America is testing new branch designs and service styles. In fact, they have launched three different types of pilot branches: express branches, financial centers, and renewed traditional branches. Many are now familiar with Washington Mutual's Occasio branches with cafes and children centers. Finally, Keycorp and Fleet are launching new employee incentive plans and training programs.
Branch innovation in some ways pre-dated the push to renew branch technology. New branch designs and service styles took hold in the late 1990s, but lost momentum. Initial efforts at new branch designs often overlooked customers' priorities in attempts to mimic retail merchandising. The vital key they missed was the people. Retail bankers all agree that, in the end, the branch is all about leveraging the face-to-face interaction. Many customers still prefer personal interactions when they are making larger financial decisions, such as taking out a mortgage or a personal loan.
Branch renewal has been building momentum for a few years, but has really taken off in the last six to twelve months. In the last year, bank after bank has announced branch renewal initiatives, including upgrading technology, adding de novo branches, and testing new branch services.
Pessimists warn that the importance of the branch is overestimated as poor markets are pushing investors toward lower risk options. The downturn in the economy certainly is one of the factors contributing to increased core banking activity. There are, however, also long-term trends underlying the revival in branch banking. For example, top executive leadership is now backing moves to institutionalize processes, employee training, and employee incentive plans to support a shift from transaction-based branch banking to customer-centric financial advising. Moreover, banks increasingly recognize that the branch can be an especially effective tool for attracting and retaining customers, and improving cross-selling ratios.
Likewise, banks are using their branches to distinguish themselves from their competition. Pressure on banks to differentiate will only increase with further market concentration and as core banking products (checking, savings, loans) become pure commodities. In addition, it is difficult to differentiate products and services through pricing alone. As a result, banks are redesigning their branches and building new branches. This will support continued investment in next-generation branch applications and enterprise technology for at least the next five years.
Most banks agree that they inevitably will integrate their disparate technology systems. Many banks view the branch and call centers as the core from which to begin their channel integration projects. In addition, Web-based enterprise platforms are gaining traction. Banks almost universally agree on the value proposition of a Web-based architecture, but most are waiting for a few large banks to successfully implement such a system before launching their own. In some cases, channel integration will underwrite investment in branch technology. More often though, spending on branch technology will prompt channel integration initiatives. Overall, even with a return to a bull market, banks will continue investing in their branches.
Anjalee Davis is an analyst within the banking group at Celent Communications, a financial services technology research firm based in Boston. She can be reached at [email protected].