The Future of the Bank Branch

Washington Mutual’s experiment in futuristic branch design-at a costof $1 billion-has come to an ignominious end. The new owner, JPMorganChase, considers the open floor-plan design confusing to customers andlacking in privacy, so it’s ripping out all 900 and replacing the freestanding stations and cash-dispensing machines with teller windowscomplete with bullet-proof glass. Charles Sharf, who runs the Chaseunit of J.P. Morgan has bluntly said that traditional branches are“superior in every way. They might be boring, but they’re practical.”

Bankshave been experimenting with branch design for 30 years now, but WaMu’sOccasio branches (which in Latin means favorable opportunity) werestill a significant leap. By creating teller pods stationed in themiddle of the branch, and using cash recyclers, tellers were free togreet customers as they came in the door and create a more retail feelto the bank experience. Curving floor plans, softer color schemes, andquirky touches like selling teller “action figures” wearing WaMuinsignias sent a message that this was a different kind of bank.

Now, with the collapse of WaMu and a chastened industry eager to earnback the public’s respect, some argue that WaMu’s unconventional branchdesign represented the kind of flamboyant experimentation that gotbanking into such trouble. “Customers want knowledgeable friendlybankers in an environment that’s convenient and reassuring,” says TomKelly, a Chase spokesman. “Customers aren’t interested in lingering;they want to do their business and go.” So, in the end, is Chase’straditional branch design more appropriate for the serious-business ofbanking?

Getting the answer right to this question is important for the industryas it emerges from the current crisis. Branches are expensive tooperate, and Bob Meara, a senior analyst at Celent says they’re gettingless profitable all the time as branch traffic ebbs and moretransactions move to the Web and other channels. At most banks, saysRon Shevlin, a senior analyst at Aite, people go to branches to resolveproblems they can’t resolve elsewhere, or because they have privacyconcerns using the Internet, or just out of habit-and this is not aprofitable business model. “For most bank transactions, what’sconvenient for the customer, and cheap for the bank, is not thebranch.” To turn this around, he says, banks must find a way to makethe bank branch the channel of choice for certain customerinteractions, not just the default choice for problem resolution andLuddites.

In fact, some bankers are thinking along these lines, and they repeat asimilar mantra: innovative branch design and technology must encourageengagement with employees, not to discourage human interaction.Executives at Barclays, Umpqua, Key Bank and TD Bank, to name a few,view the branch as the channel of choice to build customerrelationships. “The biggest thing in banking is the relationship, andyou can’t do that online,” says Lani Hayward, evp of creativestrategies at Umpqua Bank. “You can make mistake after mistake aftermistake, and the customer will stay with you if they believe you’lltake care of them.”

Viewed in the light of building customerrelationships, Chase’s move to dismantle the Occasio branches makessense. Jeffry Pilcher, president of ICONiQ, a financial brandconsultancy, says “Everyone in the financial industry is looking for asingle blueprint, and it doesn’t work; it depends on who you areserving, what products you are offering, where you are located and whatcompetition you face.” In Chase’s case, the bank has two importantbusinesses that WaMu didn’t, business banking and private banking.“Both of these require people to sit down. These are private,consultative relationships. Occasio’s were built for cash transactions.It’s was not a sit down, it was get in and get out. They wanted tobuild a lot of branches, collect deposits, and use those deposits toserve their mortgage operation.”

Thus, according to Pilcher, itis a mistake to characterize Chase’s decision to dismantle the Occasiobranches as a retro move by a stuffy bank unwilling to try new ways toreach the customers. Chase’s business strategy is fundamentallydifferent than WaMu’s. It needs efficient teller lines for quicktransactions, but also privacy for customers to sit down withinvestment reps. Likewise, it is a mistake to characterize WaMu’sbranch design as a failure because the bank failed. “People get thewrong idea that this is some kind of cosmetic thing; there’s a strategybehind it,” he says, and for WaMu it was to gather deposits for itsmortgage arm.

Despite WaMu’s high profile demise, some banks havepushed unconventional branch design even further-so far that actualtransactions aren’t even possible; the sole goal is relationshipbuilding. ING Direct is an online bank, but management realized thebank needed some physical presence to reassure the public the bank wasmore than a billboard. So execs devised the ING café, which look likeStarbucks; people can go have coffee, smoothies, use a free-wirelessconnection, and learn about ING if they choose. But the eight“branches” have no transactional ability whatsoever; people still mustsign up and do transactions online. For example, the ING café inChicago had “Bike to Work Week Specials” in mid-June. “Every bicyclistthat rides to the ING DIRECT Café during Bike to Work Week will betreated to a free bike valet, beverage and tune up. While you’re there,ask a Café Associate about other simple ways to save your money.”

Meanwhile,Umpqua Bank, which uses its branches more conventionally to collectdeposits and transact business, is also dedicated to innovative designand technology. Umpqua decided in the late 1990s to “sell products andservices like retailers and create a customer experience,” saysHayward. She says banks can be more than a “transactional place.” LikeING DIRECT, Umpqua’s neighborhood stores-not branches-are designed tofeel more like cafés and serve as a place for the neighborhood toconnect with community information.

In addition to bank products,stores feature electronic bulletin boards that provide communityinformation, and neighborhood calendars, as well as access to computercafés called MyBooth that are equipped with community and onlineresources. The stores also incorporate enhanced banking automationtechnologies, including cash recyclers that maximize space and improvestore efficiency and security. Umpqua’s neighborhood stores alsofeature an interactive Discover Wall that allows customers to print andtakeaway only the materials they want.

The bank will soon berolling out “ask an expert” video conferencing across a dozen branchesas well as touch screen technology for product information. These andother technologies are vetted at Umpqua’s Innovation Lab in Portland,which opened in late 2007. “Our intention is to innovate because wehave to,” says Hayward. “But it can’t be technology for technologiessake; it needs to be about the customer experience.”

To judge thesuccess of its branch strategy, Umpqua compares itself to peers.According to a Harland Clarke survey earlier this year, Umpqua’saverage deposit relationship and loan relationship are $27,700 and$39,200, rwespectively, versus the industry average for its peer groupof $17,800 and $22,900, respectively. Also, Umpqua’s average of 3.8accounts per household is better than its peer group’s 3.4 accounts perhousehold. Internally, Umpqua tracks products per household as part ofits Return on Quality program, and has found the scores consistentlyand significantly higher in its new/remodeled next generation branches.
When Deanna Oppenheimer, Barclays CEO of U.K. retail banks, arrivedfour years ago the entire network of 1,700 branches needed an upgrade.“We decided that rather than just change the carpet and paint thewalls, let’s create the next generation of bank branch,” she says. LikeUmpqua’s Hayward, she views technology as a way to “enable a customerexperience, not replace it.” Barclays used a warehouse in Northhamptonto build out prototype branches to see what worked and what didn’t, andended up with a modular design easily deployed across the network.

Alsolike Umpqua, Barclays uses a flagship branch, in Piccadilly, as a quasilab. Among the many high-tech touches in the branch was the first bankdeployment in the world using Microsoft’s Surface technology, whichallows users to grab digital content on a screen with their hands andnavigate information about products and services with simple gesturesand touches. The Surface technology is a 30-inch screen built into atable top. Customers and a bank employee sit across from each other andmove through the digital content together by touching and swiping thescreen.

The Piccadilly branch took inspiration from retail storessuch as Nike and Apple to redesign the space and engage the customer.One of the first aspects visitors see at the branch is “Being: London”,an interactive, evolving installation representing London and whatpeople in the capital are doing and talking about. A large video wallgraphically represents London using content from blogs and customerinterest. Personal consoles let people contribute to the installationand find information such as restaurant reviews, theatre openings andmuseum hours from Time Out, a guide to the goings on in London. Outsideof operating hours, the front of the branch is transformed into the“Night Life” screen. The installation picks up the images of passers-byusing face recognition technology and cameras and creates movingsilhouettes on the screen together with thought bubbles creating randommessages.

Inside the branch, to reduce wait times, employees usehand-held PCs they call “service angels.” With these PCs, they canintercept people waiting in line and conduct certain simpletransactions, such as balance inquiries, transfers, and change ofaddresses. This matchmaker system can also schedule an appointment witha financial advisor and give the person an approximate wait time. Theyare then free to leave the branch and come back, or explore otherinformation available in the branch.

While refusing divulgecompany-wide numbers, Barclays says the new branch design has increasedmarket share, and that customer usage of new technologies has steadilyincreased. Erin Biertzer, head of distribution services at Barclays, isa bit more specific about the results at the Piccadilly branch. In thefirst few months after the branch opened sales of its Premier Lifeproduct-the only product so sold via Surface at the time-increased 50percent, a gain she attributes largely to the Surface technology.

Ultimately,Oppenheimer and Hayward agree that branch design and technology canonly contribute so much to a customer experience. Relationship buildingrequires old-fashioned, face-to-face customer service. “Our greatestasset is the culture, that’s the crux of our success,” Hayward says.“What sets us apart is how we operate and how associates get trained.”Not only are employees educated across products so they can cross sell,she says, they are trained by the Ritz Carlton in service.

In theopinion of Aite’s Shevlin, the need to train employees in relationshipbuilding is not a message most banks have absorbed. “The problem mostbanks have in terms of building relationships will not be solved bybranch design.”