Branch Of The Future Banking – Talk about a long slog. Retail banks have tried to automate consumer transactions for decades, usually for cost reasons: Each mobile interaction has a variable cost of about 10 cents, versus $4 for a teller or call-agent interaction. Mobile is also half as likely to disrupt customers, & show the company’s analysis. And in our experience, about 60% of the branch volume remains bad or avoided.
In recent years, opportunities have expanded beyond cost reduction to improve the customer banking experience. A typical large bank in Europe with more than 1,000 branches can expect to see a 50% increase in savings per branch (lower costs and higher revenue) through smart digital migration and branch network restructuring. But the pace of change in many markets remains glacial, and banks should not expect customers to migrate to digital alone (see Figure 1). While banks have benefited from the early adoption of digital tools by more tech-savvy customers, banks will now need greater investment and focus on changing the behavior of other customer groups.
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Branch Of The Future Banking
Should banks accelerate their digital transition? Consider a future client like Kate, a late-20s worker in the gig economy in 2025. She manages multiple sources of income and multiple loans, and receives a large inheritance. He communicates with his bank and pays for things mostly through a voice-enabled mobile device, using a variety of digital tools and alerts to manage his money. But he relies on the branch for deeper financial advice and coaching—and he wants these disparate channels to work together seamlessly (see graphic).
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To deliver an experience that will be appreciated by Kate and others, while also taking the cost of the branch network, the main banks are far from the laggards – in the US, for example, at four times the price. They followed a clear and proven playbook of three complementary paths:
While no bank has completed the transition on all three lines, the leading banks have made significant progress in each area, and have reaped the benefits of the interventions.
Almost all banks have moved their service transactions to digital channels, but the speed of change and the return on investment are very different. Leaders facilitate customers with care to help them adopt and use digital tools.
Citibanamex, for example, took the challenge of poor volume, which is especially vexing in Mexico. The bank calculates that its customers and employees spend 5 billion minutes each year in service transactions in the branches, and most of this time is at the customer’s end. This waste takes a toll on the bank’s cost-to-income ratio and ultimately on profits—not to mention customer and employee advocates. Through a combination of initiatives from simplifying online forms and printed formats, to migrating more transactions to ATMs, to reducing waiting time at teller windows, Citibanamex freed up 1 billion minutes-providing a huge increase in customer satisfaction and employee advocacy.
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Many customers are open to self-service to solve a question or complete a purchase, as long as they receive a prompt and a little advice. Branch employees should try to get out of the cabin to teach young people how to do banking in general, and adults how to do self-service banking, through simple demonstrations and interventions that mix education and encouragement-not ” Why don’t you use your phone?” but “Would you like to see how you can save time?”
The digital proposition has also held back sales, becoming a major source of leakage for banks. Hidden defections – when the customer buys another banking product from a competing bank or supplier – continue to occur everywhere, amounting to 22% to 49% of additional products in 2018, depending on the country, our survey analysis found. Credit cards, loans, insurance and investments are the categories most likely to lure consumers to competitors, while the main banks tend to hold a higher share of low-value deposit accounts. Since many consumers tend to buy high-end products through digital channels, it follows that banks should increase their digital marketing and sales efforts. Facilitating digital sales for consumers, and training for those on alert, can reduce diversion.
Even more complex products have moved to the proposal “simple and digital”. Quicken Loans grew from less than 1% of retail mortgage originations in the US in 2008 to nearly 6% at the end of 2017. Quicken Loans recently surpassed Wells Fargo as the nation’s leading direct-to-consumer mortgage lender. When the company launched Rocket Mortgage, Quicken Loans said it took a team of 500 software developers three years to streamline the mortgage process. This is the level of investment most banks are reluctant to commit to.
Done right, digital sales migration pays big dividends. Consider DBS in Singapore, which actively encourages its customers to switch to user-friendly digital channels. DBS separates financial reports for digital customers, and digital is defined in terms of transactions, product purchases or upgrades through digital channels. A bank’s digital customers can cost 1.5 times more to serve than traditional customers, because they have more products and communicate more online. But they generate almost twice as much income, because they also have larger deposits, loans and investments, and they cost less to sell.
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Digital training will not be a one-time effort but an ongoing challenge, as technology evolves rapidly. Consider the adoption of home voice assistants in the United States. It took just 3½ years to reach 30% household adoption after Amazon released its Echo in November 2014, compared to about 5½ years for 30% smartphone adoption. And most consumers in many of the countries we surveyed are open to banking through voice assistants. Clearly, voice assistance banking is poised to join the training agenda.
Video Pablo Sansuste: Reimagining the Bank’s Digital Branch at Future Partner Pablo Sansuste discusses how bank leaders can take three steps to accelerate digital migration.
In most banks, about a third of the branch network earns far greater returns and should be the focus of investment. This group consists of several types of branches: the flagship branch serves as a brand anchor, showroom for sales of complex products and place for reliable expert advice; branch “hub” in the central position of the smaller version of the boats; and specialist branches for different groups, such as small business owners or retirees.
Another third of the network is still a problem in many markets, at least in the near term. These “spoke” branches offer basic services such as cash handling, sales support (including video links to product specialists in other offices) and digital education.
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The final third includes the weakest link and the first candidate to be closed. Some of these branches may need to remain open for reasons of political or regional expansion, but most need to be closed due to the changing economy and lack of promise, and staff reassignment to better locations.
Leading banks have optimized their branch footprints by micro-marketing – areas with between 10 and 30 branches. They moved to an innovative format with five zones (see Figure 2), in a different mix depending on the type of branch:
Nordea’s network of branches in Europe’s Nordic countries, for example, has evolved from being full-service to focus on advice or service. Deutsche Bank in Germany reduced its branch footprint by 42% between 2010 and 2017, while innovating with a new format focused on advice and digital solutions. Regional advisory centers provide long-term advice through digital channels, and a larger local self-service network, and branches.
How the bank manages its employees through the evolution of the branch will make a difference in how quickly it can progress. Downsizing gradually becomes less important than redeploying employees in a way that will build a superior experience. Employees will play different roles, with many moving from service or sales positions to broader, digital relationship coaching roles, both in branch and outside the four walls via video chat and other virtual channels.
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With this in mind, banks should start planning the new skills, training, incentives and behaviors they require. The manual for new hires includes training to improve skills, both technical and related to coaching (see graphic). Bite-sized programs—adopted by a growing number of companies in other industries, such as Apple and The Cheesecake Factory—lend themselves to self-training on topics like blockchain and investing.
Some leading organizations are moving to a team-team model, where local marketing teams support each other to achieve customer results regardless of channel or product. These local teams serve as learning resources for central experience teams or centers of excellence. Compared to what most banks do today, the model has a different way of working in the organization. And the team will need a new type of digital support, starting from virtual assistants powered by artificial intelligence machines, which can anticipate customer needs and encourage employees to address them, to back-office systems that automate processes and forms.
Many banks have plans for the digital future, but these plans are often seen as distant goals, unrelated to actual initiatives. A view of the future is important, so everyone has a common vision—but it’s important to connect that view to today’s reality.
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