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Bricks-and-mortar locations arent yet obsolete. Leading banks are responding to changing consumer demands by developing specialized branch formats, increasing their focus on advice and emphasizing proactive engagement with customers.
October 17 -
It's been my experience that the closing of in-store branches generates more chatter than the fact that another bank often immediately opens and prospers in those exact spaces.
October 3 -
As branch traffic shrinks and the need to improve customer service grows, video-equipped ATMs are catching on. But is a small location with a video connection and non-existent staff a branch?
September 18
Mobile banking has finally come into its own. Almost one-third of the 5,200 consumers that Bain & Company surveyed recently used their smartphones or tablets for some type of banking interaction during the three months prior to the survey, up sharply from one-fifth of respondents in 2011.
Our survey finds that mobile banking is more likely to increase a customer's likelihood to recommend his or her bank to other people than any other channel interaction. Consumers love advanced features, such as remote deposit capture, and they value the convenience of mobile devices for straightforward tasks, such as checking their account balance. Interactions at the branch, by contrast, were far less likely to delight customers and more likely to annoy them.
For retail bankers battling to retain customers and sell more financial products, digital channels have become a powerful means of building loyalty — when these channels emphasize the right features and transactions, and when they dovetail tightly with other channels ranging from branches to phone centers to online.
Digital banking also reduces branch visits, setting the stage for major branch redesigns in order to serve a mass market efficiently. Some 90% of U.S. branch transactions still consist of routine tasks – the worst ratio of routine transactions to in-branch sales of all 14 country markets surveyed – and once customers turned to mobile banking, roughly half of them report that they made fewer visits to a branch.
But banks shouldn't assume they can build mobile platforms and loyal customers will follow. Mobile banking usage increases with income, our survey finds, yet the most affluent, high-value customers in the U.S. give their banks lower loyalty scores than do other income segments. Wealthy customers are more demanding. They are less impressed with mobile banking and tend to look for premium service and tailored, expert advice through personal banking relationships, not just convenient digital channels.
Why do affluent customers matter so much? We estimate moving affluent or mass-affluent customers from being "detractors" or "passives" to being "promoters" of the bank is worth roughly five times the economic value of turning mass-market customers into promoters. For a large national bank, turning just 1% of affluent detractors into promoters would generate an incremental $250 million in lifetime net present value. Affluent customers who are promoters own more products at a bank than do affluent detractors, and they tend to recommend their bank to affluent friends and family.
To woo affluent customers, U.S. banks can learn from Citigold, Axis Bank and other banks in Asia that serve these customers with differentiated offerings, personalized service and dedicated centers. Even though U.S. regulations make it more difficult to capture the full share of a customer's financial services spending, banks here can compete more effectively.
The two major themes of this year's survey findings — a surge in mobile banking and the tepid loyalty scores of affluent customers — point to a logical way forward. If U.S. banks can take out costs in the processes that handle routine transactions, they will be able to serve mass segments more profitably and invest disproportionately in high-margin services for the affluent.
Branches will not disappear, but their role must shift from high-cost processing of routine transactions to guidance, sales and high-value servicing, often through lighter, but sturdier formats. Coastal Federal, a credit union in North Carolina, no longer employs any tellers at its 15 branches, but instead relies on 64 video teller machines connected to tellers at headquarters. The move has allowed Coastal to shrink its branches, cut teller costs by 40% and reduce training time and turnover – all while customer satisfaction has increased because of shorter lines, extended hours and faster service.
The risk of radical branch redesign can be tempered through test-and-learn experiments in trial markets. USAA Bank, which for years served active and retired military members and their families only through mail, phone and online channels, (garnering top banking loyalty scores in the process) recently has been opening service centers near military bases and other key locations. At these centers, USAA associates don't handle routine transactions. Instead, associates orient members to the bank's services and technologies, show them how to complete routine transactions through various self-service channels and help them with more complicated transactions.
Most customers will embrace such formats if the self-service channels are intuitive and convenient. The challenge is to integrate disparate channels into a seamless "omnichannel" experience. Solid execution of the details will be critical. Does the bank prepopulate certain fields on application forms with customer data it already has? Do branch employees actively inform every walk-in customer about mobile applications? Does the core IT system provide a single master view of the customer?
Leading banks in other countries have already begun their network redesign. U.S. banks should start it now before outside disruptors do. Waiting to act until the branches are drained of all transactions will be too late.
Gerard du Toit is a partner with Bain & Company and leads the firm's banking practice for the Americas. Beth Johnson is a partner and a leader of the firm's customer strategy and marketing practice.
