Rethinking Branch Strategy: The Front Line

Despite predictions of its demise, branch banking never went out of style. Customers still visit branches to conduct simple transactions as well as to seek advice about important financial decisions. Customers want to sit down with their bankers to discuss personal loans, mortgages, investing, and even insurance.

Banks never completely abandoned the branch either. Throughout the 1990s, banks continued to extend their geographic reach by adding branches. In 1990, there were 50,406 branches in the US; by 2000, there were 64,079. (Source: FDIC Historical Data).

While branches have remained important, the prevailing view among analysts and within the industry during the last decade was that new, less expensive channels could, and should, replace the more expensive branch. As a result, many banks ceased or reduced their investments in branch technology.

Currently, however, three factors are increasing investments in the branch:
1) inadequate technology,
2) industry recognition of the branch's role in retaining and acquiring customers, and
3) the shift from transaction completion to customer service and sales.

Considering the confluence of forces now promoting branch renewal, Celent predicts that branch technology spending will grow at a healthy rate. By 2006, branch IT spending will reach US$4.4 billion in North America.

Before making technology spending decisions, however, banks must evaluate the strategic role of the branch. Especially in a persistent bear market, banks must have a clear strategic vision before setting their IT goals.

Many North American banks are rethinking their branch strategies. For example, Bank of America, CIBC, and Washington Mutual already have significant branch transformation projects underway. Their initiatives illustrate three approaches to branch delivery and the accompanying branch technology used to achieve strategic objectives.

An important aspect of Bank of America's strategy is to offer the customer many options for completing transactions at the branch. To that end, they are testing branches that specialize in groups of services. Bank of America's Financial Centers offer more complex financial products and advice. These branches stress banker platforms, financial media centers, and online trading. Express branches are transaction-focused, offering multiple ways to complete simple transactions quickly. These branches offer new teller platforms, ATM kiosks, and online banking within the branch. Although the modified traditional branches have a familiar structure, their tellers and bankers use next-generation applications. Bank of America is propagating the successful aspects of these three types of branches throughout its branch network.

CIBC has taken an altogether different approach. Rather than tailor their branches according to customer service groups, CIBC uses a front-end application on all desktops in their branches so tellers and bankers can provide branch customers with the full range of CIBC's branch services. In contrast to Bank of America's approach of tailoring different types of branches to types of customer services, CIBC's "transformed" branches offer customers all available services at any point within a branch.

To achieve its strategic goals, CIBC is collaborating with Eontec to design a customer-focused teller/platform application. Their business and technology teams are working together to create a "unified customer view" for tellers and bankers. To do this, CIBC divided the end-user's screen into three parts: details about the customer's relationship with the bank (accounts, CDs, loans) are at the top of the screen, while options to complete transactions are in the middle, and relevant selling suggestions appear at the bottom. Although the application is customer-centered, it also facilitates the immediate linkage of services and sales.

Washington Mutual's focus is primarily on using technology to create a welcoming and less formal banking environment. To this end, Washington Mutual has adopted a 'retail delivery strategy' within the branch. Utilization of new technology allows tellers and bankers to move out from behind counters and desks to offer personalized and less formal service. Washington Mutual arranges teller and banker platforms so both customers and bankers can see the screen while sitting together in comfortable chairs to chat about financial plans.

All three banks began with a clear branch delivery strategy and then sought technology to facilitate their objectives. They also recognized that in order to leverage branch automation effectively, they had to train staff and implement new workflow processes. Finally, each bank uses incremental performance measurements to gauge success throughout implementation.

We have only briefly touched on the technology issues, which are far more complex than is possible to discuss here. While technical details are important, these key technology decisions must be guided by a clear business strategy. Otherwise, banks are very likely to fail to reach their branch delivery goals.

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]

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