With all of the chatter about the demise of branches, how branches suck and the branch of the future I couldn’t help but offer a few of my own thoughts about the subject. First of all, the argument about branches going away has been around for at least 20 years with little to no visible change in the number of branches. Branch experiences are generally deficient because of the people working in them seem to have conflicting priorities, and the branches of the future will continue to bomb until they figure out the people aspect. One of my favorite questions to ask a vendor prior to forming CU Succeed, llc was if they ever visited a branch of their financial institution. The overwhelming majority said “no”, and the predominant reason cited for those who did visit a branch was to conduct a small business transaction.
Let’s start with the most frequent reason people go to a branch – to conduct a transaction. Personally, I’m not going to make the effort to get to a branch just to do a transaction unless it’s too complicated or unable to be conducted via one of the various alternative delivery channels (online, VRU, ATM & mobile being the predominant). These channels provide a consistent, convenient and efficient experience so I’m content to use them when I can. That means when I show up in the branch I’m going need the employees assistance for something out of the ordinary – for me at least. At the credit union I used to run the number of our branch transactions were down 25% over the 5 years prior and this figure was consistent with our peers. The kicker was that because of the more complex nature of the transactions still being conducted they were taking longer. The employees appeared to be doing less and consequently these in-branch transactions were becoming even more costly. Compound this situation with inconsistency because of the human emotional element and the results do at times suck.
So why did we continue to invest in the branch structure? Because that’s where the vast majority of the interactions that actually generated revenue for us allegedly took place. Yet this approach is fraught with pitfalls as well. The first one has been covered in detail above -the majority of your branch staff is busy conducting expensive, inefficient transactions. When someone actually shows up in your lobby to apply for a loan, open a business account or seek financial advice they’re typically asked to wait in the lobby until someone is free to meet with them. While we typically don’t offer those standing in the teller line a comfortable chair to wait in and a cup of coffee it seems we have our priorities backwards. The biggest obstacle in overcoming this isn’t in branch design, but instead in the employee’s perception of what their priorities are and what good service means. It isn’t how fast they can get them in and out. I know I didn’t have to look in the eyes of all those members standing in line to conduct a simple transaction. But at what cost do we defer to them over the potential new member who just moved here from out of town and wants to open a checking account, get a mortgage and rollover her 401k? (A banker’s wet dream)
The simple fact is this – branches were built in order to provide convenience to facilitate in person exchanges periodically required to conduct our financial affairs. The need for this hasn’t changed. What has changed is the nature of these exchanges or interactions. Unless and until the employees responsible for the actual branch results understand that this fundamental shift in the nature of dealings has taken place the branch will continue to be an earnings drain. Conversely, the better the ability to correctly identify and capitalize upon the most significant opportunities that occur in the branch while minimizing the effects of those resource eating trans-actors the greater the chance exists for profitability.
While this seems incredibly fundamental there are very few institutions that I’ve come across who have successfully made the transition. Much more common are institutions whose model completely eliminates or generally avoids in-branch transaction activity. While this approach doesn’t necessarily guarantee success the reduction in operating expenses associated with “cashless” branch facilities provides a significant advantage in addition to placing the focus where it should be.
Up next in the Branch Experience – Part II, I will explore the branch activities that generate revenue & why the branch is allegedly where these activities should occur.