Pushing Consumers Away From the Bank Branch

Why make the trip to a physical ticket office when you can purchase baseball tickets on your smartphone? Similarly, the trip to an auto dealership just to learn about specs on a sedan isn’t imperative when that information is available on the web. Your bank probably wouldn’t mind its customers adopting this kind of mentality as they continue to support expensive branch networks amidst the industry’s digital revolution.

Just because a bank has been slow to migrate in-person services to digital channels does not mean that its leadership is oblivious to the digital trends in the industry. Chances are good that they are aware of the substantial cost gap between physical and digital channels but are fearful of losing their generally-profitable Boomer and Generation X segments that tend to favor branch banking.

jpmcThese older generation customers happen to have higher disposable income and accumulated wealth, on average – wealth that translates into revenue for the banks willing to sit down with them in person and talk through financial needs. Compare that to the typically unprofitable college-aged segment that wants nothing to do with the branch but is only good for an occasional student loan or credit card. Suddenly, the move to digital isn’t so cut-and-dry.

Fortunately, banks have a number of levers at their side to help optimize customer use of distribution channels, starting inside the branch. The use of ‘smart’ ATMs can support a reshuffling of branch-based personnel (and in many cases a reduction in headcount) as tellers and other transaction-oriented positions are up-skilled into more cross-functional roles. While tellers tend to lack the qualification necessary to advise customers on loan or investment products, they can be equipped with tablets to educate branch-centric consumers on the benefits of mobile and online banking.

These educational sessions are vital for older generation segments that may not otherwise gain sufficient exposure to digital tools. As humans naturally resist change, banks will need to be creative on how best to market digital channels in breaking these segments from their traditional roots. Banks may create a ‘mock-up’ of a customer’s online banking dashboard as a way of personalizing the digital pitch. The conversation with a long-time branch customer quickly becomes profitable when the associate is able to create an online username or download the bank’s mobile app on the customer’s behalf.

These types of migration tactics take time, however, prompting banks to initiate cost cutting efforts in the interim that ease the burden of managing multiple distribution networks. In addition to simply closing branches, banks have trimmed overhead costs by transforming large outlets into smaller, in-store offices with less floor space and more self-service tools like ATMs. Much of this transformation in physical infrastructure is part of a broader ‘efficiency maximization’ strategy that aligns branch service offerings with surrounding communities and their consumer demographics.

wfcA bank may only staff two ‘universal bankers’ alongside two full-service ATMs at a branch that handles a large volume of transactional activity and fewer high-value financial decisions. Branches that capture a large portion of foot traffic from odd-hour workers may be open for extended hours, with video-based support from remote tellers. This type of innovation is becoming popular within the big bank community, evident in Wells Fargo’s Neighborhood Store, Bank of America’s Express Center and PNC’s Pop-Up Branch.

And still banks have grown impatient with the gentle approach to channel optimization. Many have slapped slow-to-change customers with a ‘branch banking’ fee, justifying branch banking as a premium service. While the incremental revenue can be used to offset costs related to supporting multiple distribution networks, the penalty-oriented charge for a ‘premium’ service (that used to be the only way to bank) is sure to produce some attrition and an even higher number of disgruntled customers. At the same time, this method is arguably the quickest way to migrate consumers to digital.

But perhaps banks should be viewing the migration to digital as less of a race and more of an opportunity to establish operating models of the future. The penalty-based approach yields a transient stream of revenue, in contrast to the forward-looking redesign of physical infrastructure that could give banks a head start on the omnichannel future. Banks should focus on deploying self-service technology in smaller branches that handles the vast majority of account management functions, maximizing staff’s capacity to address high-value financial transactions.

One thing to note is that the migration to digital is not absolute. The key for banks is to shift transactional banking functions to the self-service channels of web, mobile and ATM. Minimally, banks must alleviate branches of fundamental self-service tasks like balance inquiry and check deposit. Though visionaries talk up video-based consultation with personal bankers, the reality is that the majority of cross-sell and advisory functions will remain at the branch for the foreseeable future.

Yes, the branch will continue to exist, but banks must maximize efficiency in both physical infrastructure and productivity of staff. Retaining profitable customers should remain a priority rather than diluting these relationships through penalty fees. Following the two-fold approach of educating customers on the benefits of digital and redesigning physical infrastructure will allow banks to manage industry transformation in a sustainable fashion.

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One Response to Pushing Consumers Away From the Bank Branch

  1. Ann Davidsen says:

    Hi Michael- this is an interesting article. As Baby Boomers, we still occasionally enjoy physical bank concierge services (a teller for deposits, a safe deposit box, a notary, a drive through ATM for cash etc…). Mobile banking, though convenient, lacks the human interaction and bank affiliation of our generation. But we can learn a new way to bank, it just may take longer! LOL

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