On a recent Wednesday at Capital One’s flagship branch in San Francisco, a queue of people snaked around the open lobby. The crowd seemed upbeat and amicable, even as wait times stretched in excess of 30 minutes. But those customers weren’t waiting in line for financial advice or to make an ATM withdrawal — they were in line for waffles.
As consumers’ banking habits have shifted towards mobile and online services, the role of the physical bank branch has also shifted. According to the 2016 “Future of Financial Services” report from research firm Frost and Sullivan, the global number of physical bank branches will decrease by 30 percent by 2030. While the location of those remaining branches will always be important, retail footprints are expected to shrink by 40 percent as banks look to further reduce costs.
The industry is currently divided on how to overcome the dwindling importance of the physical branch while also building trust with customers, many of whom may not set foot inside of a bank for years at a time. It’s the type of challenge facing executives across many consumer-facing businesses, as they wrestle with evolving mobile applications, changing customer behavior, escalating digital security threats, and other disruptive forces.
"Banks and financial institutions have to reinvent the way they are doing business by re-becoming customer-centric."
On the flip side, in cities like Denver and Minneapolis, Bank of America is taking a very different approach.
Earlier this year, the company launched a pilot program to test three outlets that aren’t actually staffed by humans at all. Instead, the “Automated Centers,” as the company calls them, offer a bare-bones, technology-enabled middle ground between a corner ATM and a full-service branch. If a customer has a complex money transaction that can’t be handled through the ATM, they can videoconference with a Bank of America employee.
But industry researchers are quick to point out that many customers are still eager to connect with a teller in person.
“Confidence in banking systems has been seriously challenged after the 2007 economic crisis and the rise of Fintech (and the associated competition) negatively impacted the financial industry,” Frost and Sullivan analyst Jean-Noël Georges explains.
“Banks and financial institutions have to reinvent the way they are doing business by re-becoming customer-centric.“
More people, or fewer?
The Capital One outlet that straddles San Francisco’s busy downtown shopping and financial districts, for example, is part of a growing trend of retail banks that eliminate velvet ropes and teller windows in favor of a community-focused approach. Rather than glass-walled offices staffed by loan officers or financial advisors, the branch employs floating associates trained to answer financial questions, help customers open a new account or simply point them to the ATM.
For customers and non-customers alike, the branch offers a full-service Peet’s Coffee shop inside what is essentially a Capital One-branded co-working space with amenities like free WiFi and community meeting rooms, as well as public money coaching workshops and the aforementioned blockbuster Waffle Wednesdays. Capital One customers receive discounts on coffee, but everything else is free to the public. While the scent of batter hitting a warm waffle iron may get potential new account holders in the door, it doesn’t add much value for the customer who needs to refinance a loan.
“What I like about that concept,” says analyst Marc DeCastro of market intelligence firm IDC, “is not so much just the banking aspect of it, but it’s more involvement in the communities.”
While this approach can be a boon for the bank’s marketing team and a valuable resource for the people who make use of the space, these community-oriented branches don’t necessarily offer a full-service banking experience, DeCastro says. Customers hoping to do a complex transaction or apply for a mortgage might be out of luck, depending on the branch employee’s level of training.
According to a recent report from American Banker, salaries for tellers are actually increasing nationwide as the average pay for loan officers starts to shrink. According to DeCastro, the salary reversal speaks to a new staffing model — one that uses increasingly robust tellers while basic transactions become automated or are handled by customers directly.
“That model is called the universal banker oftentimes,” DeCastro says. Instead of a traditional individual teller, these skilled bankers can conduct more complex activities like refinancing a loan or making changes to an insurance policy.
Even so, DeCastro says this universal banker staffing model has limits. “You can’t really have this concept for investment advice,” he explains, and licensing requirements for certain transactions can prevent any banker from ever truly being a jack of all trades.
Banks taking this approach will have to experiment to find how much training and knowledge these “universal bankers” need in order to establish customer trust, regardless of whether those customers are doing their banking over coffee or by videoconference.
Customer trust translates into dollars
Back in San Francisco’s Financial District, where office rents can be prohibitively expensive for small business owners and independent contractors, Umpqua Bank sees its local flagship store as an opportunity to build trust with those very same people. The Portland-based bank began rebranding its branches as simply “stores” in the mid-nineties, but the concept has evolved along with the current needs of Umpqua’s customers. Today, the San Francisco branch boasts free coffee, WiFi, bookable conferences rooms, shared bicycles and a plain white landline phone with a direct line to the bank’s chief executive.
“Our CEO gets probably four or five calls a day,” Eve Callahan, Umpqua’s EVP of corporate communications, tells Connected Futures. “Most of them are people who are delighted with something and had a great experience with somebody in the store, want to just thank them for that kind of service.”
While not every phone call is a positive interaction, Callahan says, even the negative feedback can be a learning experience. Overall, this level of service, combined with the store design and staffing model is meant to announce the company values and culture as clearly as possible. An associate who greets customers near the front of the space can point you to the coffee maker, give you login info for the wireless network or get you started opening a new account.
Since introducing the store model, Umpqua Bank has grown from about $150 million in assets to $25 billion.
Free coffee may seem like a marketing gimmick, especially when compared to Bank of America’s cost-cutting experiments, but for Umpqua the shift to a community-focused spaces and a Universal Banker model has led to real, demonstrable results.
Before introducing the store model, Umpqua had five locations and about $150 million in assets. Since introducing the store model, the bank has grown to $25 billion and about 300 stores. “So the growth trajectory for us as a result of this really customer-centric model has been significant,” Callahan says.
These results reinforce the idea that in the era of digital business, focusing on continually improving customer experience delivers a real payoff.
“The design of the stores, our staffing model, the values and company culture, we really try to build all of that around that idea of being obsessed with providing the best possible customer experience,” Callahan says.
Aside from experimenting with store layouts and staffing models, banks are also exploring other technologies that can supplement any banking experience. Bank of America, for example, is currently testing a proprietary voice assistant named “Erica,” which could eventually serve as a customer’s primary point of contact with their bank, although the natural language processing and artificial intelligence behind such a service is still far from perfect. Augmented reality might serve to enhance customer experience at automated branches; blockchain technology may help allay security concerns that could undermine trust in automated branches and cafe-style locations.
Both the high-touch and high-tech approaches will benefit from continued evolution and experimentation.
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