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Branch bank of the future – Transforming to stay relevant

- Anil Palakeizh Radhakrishnan, Abhinav Kishore Jaipuriar, Naga Madhavi Chintalapudi

With the proliferation of internet, mobile devices, smartphones, tablets and social media, branch banking has been facing competition like never before. According to a 2011 survey by the American Bankers Association, 62% of bank customers preferred banking online vis-à-vis other channels while only 20% preferred using a branch. Many experts have sounded the death-knell for branch banking. 30 years since their advent, direct channels like ATM and telephone banking have not been able to make branches obsolete and there is no reason to believe that newer self-service channels would replace branches. The argument of higher operating costs compared to direct channels is unsustainable as most direct-channel customers are not profit making compared to branch customers. We believe that technology, innovation and channel integration will play a key role in re-engineering and re-energizing the branch as one of the preferred modes of banking.

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There are varying views that banks and customers carry in this regards. While customers feel - why should we drive for 15-20 minutes and then wait in line at the branch? One can easily log-on to online banking from the web. Banks also have a similar opinion– why should we not cut the number of branches when most of the customers are showing an inclination towards online banking? We can save significant operational costs.

While all this is true, one needs to understand that there is still significant opportunity in branch banking and a new model is needed to give branch banking the much needed boost.

Relevance of branch banking• Sales and advisory services will be the major focus areas for the banks and move away from just servicing customers.

• Customers would not only get a physical distribution point to deposit cash (could be an individual or small retail business customer) but they would also get advice or recommendation on any financial product that they are unable to comprehend.

• Bank customers like the Internet and the phone for checking balances and paying bills but, for more important things like encashing cheques or for cash withdrawals, they need to go to the branch.

• In addition, banks tend to be more successful in cross-selling services such as a mutual fund etc. when the customer visits the bank branch because these products are difficult to sell over the phone.

Despite the emphasis on alternative banking channels, customers remain branch loyal. Today’s branch transformation projects are about making basic alterations to the way business is done in the bank branch. By enabling technology, banks make the networking of applications, processes, systems and people easier, thus providing branch employees, an integrated access to all the stuff related to their role. This helps in enhancing the tools and elements that the employee requires in daily business activities. Banks are realizing that it is wrong to look at branches as transaction centers. They are evolving as ‘customer engagement channels’.

The below chart shows the number of Federal Deposit Insurance Corporation (FDIC) insured commercial banks and their branches from 2001 to 2011. A quick glance suggests that the number of banking institutions have decreased gradually, but in the last three to four years, the number of branches remained the same and even increased in 2011 compared to 2010. The number of branches per institution has gone up from 8.13 in 2001 to 13.23 in 2011. That is a 62% increase! Is there a catch somewhere? Is there still hope for a turn-around in branch banking? Can it still be among the preferred choices of the new age banking customers, a customer fed on mobility and social media?

Source: FDIC (Federal Deposit Insurance Corporation) Historical Statistics on Banking

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Emerging technologies in branch banking

Digitally-enabled branch

The core function of the bank in future will be about creating the association with the customer and extending the same through excellent customer support systems. To anticipate the requirements of the customer proactively and present simple and targeted offers, Banks can collaborate with social media sites through which the branch bank can serve their customers.

For example, ABN AMRO has introduced a high tech teleportal branch. The branch works on interactive technology, that doesn’t require the presence of any staff. The branch can perform most of the functions of a traditional branch. In this branch, customer gets to experience a live meeting while interacting with a 3-D screen, which provides a different but effective branch experience.

Modernization of ATM’s

ATM’s will have a more modern look and feel wherein it can have voice prompts, automated door with sensors to detect a person entering and close the door once the transaction is done.

NCR has introduced the SelfServ ATM which is designed to accept cheques, make bill payments, mobile top-up etc. NCR SelfServ 32 can automatically recover from software failures and downtime in 10 to 15 minutes. This kind of modernization of ATM’s will definitely help the branch banks to gain more momentum in the long run.

Video banking in bank branches

Video technology can be integrated with almost all the banking channels to enable a personalized banking experience for remote as well as branch banking customers. Branch banking, phone banking, self-service and online banking have already seen video-enabled services provided by different banks. Video-enabled branches using PTM’s is a new way of attracting new customers and retaining the existing ones.

Few banks like NAB (online loan processing through video chat), SNS Bank (video web conferencing for instructing the customers through multi-media presentations) and Bank Sabadell (video-enabled phone banking for addressing customer queries) are implementing the video banking techniques for attracting customers to the branch.

Digital signage/customer knowledge centers

In-branch digital signages can be used to communicate promptly with customers. The same can be used for employee communication in pre-banking hours. Customer knowledge centers inside the branch are rooms or open spaces where audio-visuals play on various products, loan rates, special offers and can act as a great cross-selling and up-selling channel. HDFC Bank in India has been using digital signages across its branches. New product launches are communicated immediately to customers walking into the branch.

With the help of technology, transformation of the branch from a plain “brick and mortar” institution to relationship management center has been possible. Bank branches need to transform into an advisory channel to survive and flourish.

Self-service branch

Brick and Mortar Sales branchRelationship

management center

Wealth managementbranch

• Heavily sta�ed branches with low level of automation

• Concierge services, non-cash transactions through kiosks, video tellers

• Digital signages• Call centre

applications extended to the branch for cross-selling and up-selling

• Access to �nancial experts and relationship managers through inhouse video centres

• Sales sta� armed with tablets to cater to customers in queues. Tablets in sync with the bank's CRM

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Branch-banking trendsBanks need to re-work on their traditional bank-branching strategies and come up with innovative ways to improve services. Banks need to put the new social and mobile customer at the fore-front and make branch strategies focusing on their needs, instead of excluding them and focusing on traditional customers. Below are the branch-banking trends which will help restore customer confidence in branch banking.

Improve customer satisfaction through multiple services

Instead of pondering on increasing transaction volumes through single branch, the banks should focus on providing multiline branch service; wherein the customer can shop for all the required services like loans, payments, financial advice, brokerage services, investments or insurance which will enhance the customer satisfaction and compel or motivate them to use the branch banking channel.

For Instance, Barclays too, took a leaf out of the hospitality industry to improve the branch experience for its customer. They have introduced a credo card, similar to the one Ritz Carlton has, which reminds the staff of the level of service

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that they should provide. The Barclays staff is empowered so that, they don’t have to strive for irrelevant rules and hence can put the customer first. This policy change has seen customer complaints reduce by close to 65%. Example: If a customer pays in £530.60 and only £530.20 is credited in the account then, the bank first refunds and then goes about its investigation.

Similar to the 15 minute daily meeting in Ritz Carlton, Barclays too has its own meeting where Barclay corporates, across the organization inform their staff about what’s happening in Barclays, what is important and what the customers are saying. This fifteen minute meeting at Barclays, where the team reviews what they did all the while and any issues or blockers they are facing is similar to what happens in agile software development called the standup.

Focus on Gen Y customers

The Gen Y customers are moving away from the bank branches and believe mostly in the online and mobile activities but banks can still proactively attract the young customers by reaching out to them and providing them the advisory information for financial planning which otherwise is very difficult for them to fetch. This is one way the branch banks can strengthen their advisory business and can also attract business from existing and new customers in future. Banks also need to improve the turnaround times for various services for branches to become attractive banking destinations for Gen Y.

Hong Leong Bank has started modern lifestyle banking in Malaysia. The aim is to reduce the turn-around time for services. A normal car loan is approved in 15 minutes while a personal loan is approved and disbursed in 60 minutes flat at the branch.

Increase quality of Customer Service Representatives (CSR)

If branch employees could be empowered more, could be given cross-functional training, covering any operational processes, services etc., it could noticeably improve productivity and quality of service. An instance of this would be -

Metrobank has tried improving branch banking by looking at the minutest details when it noticed customer dissatisfaction with the present form of branch banking where; many a times, customers have either had to wait outside the bank, for it to open in the morning, or have been pressurized because it’s the close of the day and the bank was closed. So, Metro bank introduced a sense of flexibility, such that they would open a little earlier if people were waiting outside and would continue to stay open till the last customer leaves.

The bank also believes in empowering the staff and removing finicky guidelines that get in the way of delivering a compelling customer experience.

For that the bank believes in recruiting good people, so selected few get to work for Metro bank.

The bank gives more importance to attitude than skills. Like the representative who is facing customer day in and out has to have a smile of the face, if not they don’t get the job and hence in metrobank, even employee targets and remuneration are linked to customer satisfaction scores.

Rewriting branch strategy

Rather than building huge number of branches, banks need to create just the precise number, with the right competences in each market or rather right place. Less number of branches and more ATM’s will help to achieve a high level of productivity and also manage to effectively serve the customers. The branches will need to focus on drawing incoming traffic and capitalizing on each customer interaction to generate cross sales. As an alternative approach the banks can also focus to extend, to serve its customer through ‘in-store’ branches in supermarkets, coffee shops, etc. which would help them mobilize their services to the customer point leading to increased customer satisfaction levels. For instance, Co-operative Bank has opened five in-store bank branches at highstreet supermarkets operated by the co-operative group.

Leveraging the emerging technologies

Leveraging on the emerging technologies like modernizing ATM’s and video banking the branch banking will yield enormous growth opportunities in the coming time period. Banks could adopt interactive, self-discovery solutions using touch screens, Wi-Fi, interactive video kiosks, iPad desks etc., at their branches. For example, low end services like accounting can be provided by the branches through self-service kiosks instead of having a customer facing representative at the desk serving each customer.

An instance of this would be the Spanish banking group Banco Bilbao Vizcaya Argentaria which introduced an advanced teller machines to replace the conventional ATM functionality, thus creating a next gen full self-service branch based banking.

Security

Not always the internet banking or social media is a preferred mode of transactions by customers as most of the frequent banking customers are concerned about the data breaches, viruses, privacy and transaction authenticity aspects that will limit the banks to use social media and internet banking in their business. Banks are grappling with the issues like balancing privacy requirements of customers against use of new forms of marketing hence; technology will take a back seat enhancing the scope of branch banking.

Recently, HSBC one of the biggest bank in Britain, was exposed to impending fraud, because of flagrant security loophole concerning millions of online bank account users. As a result, 3.1 million UK customers registered to use the service have been vulnerable to attack for at least two years.

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Redesigning flagship branches

An apple store like approachThe apple store is one of the most innovative and beautiful retail stores in the market today. Interestingly, the legendary Steve Jobs, who wanted to improve the experience of the apple customer, faced stiff opposition within the company when he proposed the idea to open these stores. And though critics had forecasted the death of these stores, they survived; in fact they thrived, and today contribute immensely to the company’s revenues.

Banks too could take inspiration from the Apple store. They need to reinvent their branches such that, customers look at them as more than merely a bank branch. Citibank has started to do this. By introducing a few (apple store like) branches that are high on design and technology they believe that customer engagement has increased.

Since redesigning the branch and making it attractive to the consumer would be a costly affair, banks shouldn’t look at doing it for every branch. Instead, they should identify either a few existing flagship branches, to redesign or they could set up this new branch at strategically important locations, so that more people walk into them just to get a feel of what’s inside.

When Steve Jobs opened up the Apple store, he primarily envisioned a space where Apple would have complete control over customer experience. From the store design, to the sales people, Apple ensured that the experience was different and was under their control. If banks can redesign their branches, such that customers would want to walk into them, just to see what they are like, they would get the opportunity to have a higher control over customer experience.

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About the Authors

Anil Palakeizh Radhakrishnan is a Senior Associate Consultant with the Financial Services and Insurance Vertical in Infosys. He has 1 year of experience in banking and capital markets. His areas of interest include Financial Technologies , Analytics and Social Media.

He can be reached at Anil_Radhakrishnan@infosys.com

Abhinav Kishore Jaipuriar is a Senior Associate Consultant with the Financial Services and Insurance Vertical in Infosys. He has 5 years of experience in Banking and finance, pre-sales, Supply Chain Management and product development. His areas of expertise include banking, capital markets and risk and compliance. He has worked on developing business cases and building strategic solutions for banking, capital market and supply chain management clients.

He can be reached at Abhinav_Jaipuriar@infosys.com

Naga Madhavi Chintalapudi is a Consultant with the FSI Research Center team within the Financial Services and Insurance vertical in Infosys. She has overall 7 years of experience, with her work revolving around researching various companies, industry/market analysis, vendor/peer analysis focused on FSI and IT vertical. She has worked within a project for a leading UK based telecom player prior to working with FSI Research Center for conducting Market Analysis for various Telecom products and Company Research for various Companies in UK markets.

She can be reached at nagamadhavi_c@infosys.com

ConclusionDespite the mounting influence of direct banking, branch remains the preferred point of contact for the customer, for face to face interactions. Customers prefer the internet for getting information on the financial products but many still prefer visiting branches for buying and after sales. They also do not usually carry out intricate transactions or apply for complex products through direct channels.

The present day customer prefers the banker to be more proactive and is even ready to pay for professional advice. In such a scenario, banks need to be familiar with the customer’s requirement and introduce branches that provide the best experience to their customers. This approach will not only have a positive impact on sales, it will increase loyalty too.

© 2012 Infosys Limited, Bangalore, India. Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

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