Bank branch strategy is evolving as more routine banking transactions move to mobile and digital channels. With customers increasingly able to deposit checks, transfer money, pay bills, and manage accounts without visiting a physical location, financial institutions are reconsidering what role branches should play and how they can justify the significant expense of maintaining them.
Rather than eliminating branches, many banks are experimenting with new formats that emphasize financial advice, relationship building, and customer acquisition. From streamlined locations with fewer traditional tellers to café-style environments designed to encourage conversations, these approaches reflect an effort to redefine the branch around activities that are difficult to replicate through digital channels.
As more of the day-to-day transactional banking activity becomes self-directed via the increasingly ubiquitous personal smart device, the role of the branch office remains an “off the map” operational area with large financial service providers and community institutions alike. The search for what will resonate with consumers has launched a period of experimentation with branch set up, facilities and staffing.
But banks cannot do away with bricks and mortar entirely, as the best channel for picking up new depositors remains the humble branch. That is why some are retooling their branches as centres for advice, removing transactional staff completely — like BofA — or upgrading tellers to financial advisers.
Capital One, for example, has opened 18 branches masquerading as coffee shops, where young “ambassadors” clad in J Crew-style jeans and navy blazers offer no-strings consultations — along with a cut-price cup of Peet’s coffee.
Mercator Advisory Group has been tracking the rollout of the variety of approached, from Bank of America’s experiment the throwback to the “Auto-Mat” model to Capital One’s Financial Service Cafes, the trend of financial institutions seeking the solution to how best to maintain a productive physical presence in a cost efficient way. The acknowledgement of the shift to the advisory role FIs are increasingly playing for consumers appears to be the predominant central thought. What remains the be seen is how will most consumers want to engage with experts on the bigger more complex financial conversations, so we can expect to continue to see test marketing of the a wide variety of approaches. Community banks may have a leg up in that regard, with longstanding relationships already in place, they are in a much more trusted position to get the information, by asking.
The shift toward digital banking does not necessarily signal the end of the physical branch. Instead, it is forcing financial institutions to determine which activities benefit most from face-to-face interaction and how physical locations can complement increasingly capable digital channels.
Customer acquisition remains an important argument for maintaining a branch presence, particularly when consumers are choosing a new primary financial institution or making complex financial decisions. By reducing the emphasis on routine transactions, banks can potentially devote more branch resources to advisory services, financial education, lending, and deeper customer relationships.
Experiments from institutions such as Bank of America and Capital One demonstrate that there is unlikely to be one universal model for the future branch. Different customer segments and markets may respond to different combinations of technology, staffing, location size, and personal service. Testing these approaches will help financial institutions determine which formats provide sufficient customer value while controlling operating costs.
Community institutions may have an advantage because their existing customer relationships can provide valuable insight into how consumers want to interact with financial professionals. Ultimately, an effective bank branch strategy will depend on understanding which services customers still value in person and designing physical locations around those needs rather than simply maintaining the traditional transactional branch model.
Overview by Joseph Walent, Associate Director, Customer Interactions Advisory Service at Mercator Advisory Group
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