Consultores para el sector financiero.

January 2011

Strategies for the New Future of Branch Banking

By Rick Spitler & Kevin Travis

Like a bulldozer through a forest, the recession has plowed a barren swath straight through the middle of retail branch banking. The principal casualties are all-purpose branches, the cookie-cutter outlets seen on street corners all across the U.S.

On the one hand, these branches aren’t sufficiently positioned for multi-line service supported by a consultative sales culture, limiting the revenue potential. On the other hand, they are over-weighted in floor space and manual transaction-handling activities, limiting the efficiency potential. These squeezed outlets are prominent among the estimated 40% of U.S. branches that are financially underwater today.

Intensifying the challenge, customer online migration is accelerating, with eroding emphasis on the physical branch as the primary destination — definitely for a variety of basics and progressively even for higher-value services. The bull-dozer is gaining momentum, in other words, with even more branches at risk of losing customer relevance and financial viability.

The acute pressure for branch cost reduction is much more than a temporary operating challenge. New strategies will be needed that will help to reposition retail banking distribution for future healthy growth in a permanently changed market.

One priority will be harnessing the bifurcation that already has occurred in branch banking, and turning it to advantage. High-traffic, high-potential locales will need to provide the robust, multi-line service needed to tap the fullest possible relationship potential with each customer. At the other end of the spectrum, branches in low-traffic locales will need to decisively reduce the burden of traditional manual processing.

As part of this transition, technology must become more of a transaction substitute, not just a supplement. In any kind of branch, there will be less justification for manual processing. Fortunately, as seen in the airline industry, many customers have proved quite willing to adopt electronic alternatives — online and kiosk — as the “official” destination for everyday transactions. Replicating this customer orientation in retail branch banking is critical.

Meanwhile, online banking now commands its own substantial customer center of gravity, as confirmed by recent Novantas research. This channel deserves studied attention and a much greater developmental resource commitment going forward. Banks can’t stand by passively as more high-value retail business moves online. Also, a progressive online offer is essential to support the emerging mobile space.

Customer segments will shape the future market. A recent national consumer survey conducted by Novantas found distinct differences in channel usage patterns among major customer groups. Detailed knowledge of these trends is essential in re-shaping distribution in accordance with what customers want and actually will pay for (not always neatly or rationally aligned in the customer’s mind).

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