Optimizing branch banking in the digital age

Optimizing Branch Banking in the Digital Age

June 2014

Optimizing Branch Banking in the Digital Age Introduction In the age of depositing check with smartphone and withdrawing cash through ATMs, branch banking looks outdated. A cumulative count of bank branches in the US is on the decline and so is the number of customer visit per branch.

Despite its fading significance as a customer touch point, physical branch remains important for the US banks for certain transactions like loan application and investment management. Hence, it would not be wise for the banks to completely shut down their branch network. In fact, they can turn this situation around in their favor by rebuilding the branch network by optimizing the count and redesigning it with technology, turning it into the backbone.

Migration to mobile, online services has led to branch closings‌ Most banks have realized that their current branch network is not in harmony with the need and behavior of customers.

Customers’ adoption of online and mobile technology for their banking needs has grown rapidly and visits to branches have declined.

By 2016, an average customer is expected to use mobile phone to access the bank 20 to 30 times a month and internet 7 to 10 times per month, a cumulative 400 times a year through these digital channels.

However, the same customer is likely to visit a branch just once or twice a year.

Due to its staffing and real estate requirements, cost for operating a branch is significantly higher compared to other channels of customer interaction. With fewer sales opportunities due to declining customer visits, banks are finding little room to better branch operation economics.

With declining customer preference for branch and higher operating cost, the value proposition of branches is rightly questionable. A sharpened focus on reducing cost by the US banks will result in further decline in the number of bank branches as well as rethinking of branch operations in coming years.

‌But online banking is still not a substitute to all banking needs As the US banks optimize their operations by closing branches, customers still have a preference for branch banking for certain banking needs. Account opening and closing, mortgage origination and investment management are few of the key functions where branch banking score over online or mobile banking. Also, for senior citizens and customers skeptical to digital channels, branch remains the preferred mode of interaction with a bank.

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Banks cannot ignore these segments of the customer base or rather any customer category. Loss of this wallet share to competition may have a cascading effect as family members prefer to deal with the same banks rather than manage account with different banks. Also, branch plays an important role in increasing bank visibility, reinforcing brand recognition and trust, thereby, undercutting marketing and customer acquisition cost.

Banks have to rethink their branch network strategy Banks are increasingly looking for innovative ideas to provide customized and targeted solutions by optimizing branch operations. Not all ideas or branch models will perfectly suit all banks. In fact, each branch will need customized restructuring.

Rather than increasing the branch network, banks should focus on optimizing the branch count and area size of a branch.

They must change or configure the branch layout with a distinct flair – one that is different from what consumers traditionally expect of branches. For instance, Umpqua Bank uses digital media walls to provide information about their products and services. Customers can interact with these walls (looking like giant tablet devices) to get more information.

Banks can also tie up with coffee shops and supermarkets to open in-store branches.

This will help them mobilize their offerings to the customer point, leading to better customer interaction and satisfaction levels.

Banks should empower their branch employees by giving them cross-functional training, covering all processes to minimize time spent per customer.

Banks also need to re-evaluate the merits of existing branch location and use geospatial analysis to merge, close or open bank branches. Profit potential, number and monetary value of active customers and distance to the nearest branch are few of the parameters that should influence the findings of the branch network analysis.

Conclusion Despite the fact that adoption of digital banking is fast gaining ground, branch will still remain extant. But with rising margin pressure, banks are cautious about making capital expenditure in the branch channel.

Optimizing the branch footprint is just a part solution. A blend of best in the latest technology and optimized branch network will enhance the customer experience at a branch at a more affordable cost, reinventing branch as a robust alternative to digital banking.

Optimum size of a branch in combination with adoption of emerging technology will improve productivity and effectively serve customers. Also, the branch must be designed based on demographics and location of the target branch.

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