We all know the nature of a bank/credit union branch is going to change. All industries evolve and that time for retail financial is now. There is a lot of serious and interesting discussion of Micro-branches, the Experiential Branch, the Digital Branch, and other competing visions of the “Branch of the Future.” As a facility person, two parts of this discussion are of the most interest:
- Why do we think there is a single, right “Branch of the Future” for our organization?
- How can we get started on a successful transformation?
One of the reasons that pundits argue branches are dead is the rise of digital. Many smarter folks than me are pointing out that branches can be competitive with digital on relationship banking and there is still a role for this channel. The purpose of this post is not to discuss if branches should be part of your organization’s strategy, it is about being smart on your facility transition once you decide how. (I included a baker’s dozen list of links to articles on the future of the branch at the end of this post if that is what you are seeking.)
This post will use the sea changes in bank and credit union branches to show how you can use an Agile Facility Strategy approach.
There is no Branch of the Future
How can we possibly believe in this day and age, that there is a single “right” branch design that universally works in: SoHo, the South Loop, Georgetown, South Congress Ave, Little Five Points, The Mission District, Wynwood, and all the small towns in-between? Also, exactly when is this future – next year? five years? ten? It seems more useful to think about how to make our “Branch of Today” more relevant to the customer/member each and every day.
We have gotten away from the perception of a single “best” product offering (listen to Malcolm Gladwell’s TED talk for good explanation of this). It’s time to embrace that people search for the same range of “flavors” in the services they want and the places they go for them. Add in the regional and cultural differences as well if you really want branches that connect with your customers. Why are in-store branches more successful in the southeast and drive-thru’s a staple in the northeast?
Yes, I get the design and operational efficiencies of the “standard footprint.” So instead of the single right answer, let’s discuss a manageable range of branch templates on a spectrum from the lowly ATM (sure that’s a physical branch subject to change) to the full-service main office? Then match the template to the local market and evolve with the trends. (More below in the section on transition.)
OpEx – The Forgotten Part of Branch Transformation
The first part of the discussion of branch transformation has been on the design, which is good. This attention to what the branch is like as part of the customer experience is the most important part. Early adopters are starting to roll out some of these new types of branches and I expect most mid-size banks and credit unions have been watching closely and will start some branch transformation of their own very soon.
Now it is time to pay some attention to the branch operating costs. We have found the spending on building operating costs is significant: a median of 14% of total non-interest expenses. A smaller, smarter version of the branch will require less size, but more infrastructure so we can reasonably think it will be less – still likely to be substantial. And it has long been demonstrated in Facilities Management that the lifetime operating cost of a building is much higher than the capital investment to create it.
Because it will take some time to make the branch transformation, there is no reason to ignore opportunities with your current building expenses. In addition to the potential short term savings opportunities, this can be a low risk learning opportunity. (More below in the section on transition.)
Now is also the time to take all these facilities to the edge of your organization’s sustainability objectives. Shame on you if you miss this chance to leverage your facility re-investment for this purpose. I will presume for this article that this is part of your organizational branding (enough said on that).
Making the Transition
If you are not familiar with Agile methodology, a prior post describes its applicability to facilities. In summary, it is an incremental approach you use with frequent feedback from your customers than can be ideal to harness as part of your branch transformation program.
You need to focus on today’s customer, not look past them to chase some vision of the future. Engage your customers in your transition and let them help you find the way – this is the ideal application for an agile approach! (Let’s face it, the customer that only wants digital transactions is gone anyway)
Where do your branches stand right now?
Assess the current situation of each branch. Do you have leases coming due, roofs falling in, or other major reconstruction/relocation coming up? If so, decide whether to keep or close the location. Which branches are at risk and which are pretty solid and busy? Which are closest to the new model you are considering? Maybe these don’t need attention for a while.
Outline a draft transition plan and refine it as you go.
Make your first guess at which branch model(s) your organization selected is going to apply to which existing or new branch location. Unless your organization is very unusual, you are not going to do this overnight and the multi-year budget will determine how many can get done in a year. Based on your branch assessment above you should be able to put them in a preliminary sequence to get a tentative schedule.
You also should come up with a real estate plan. Unless all these locations have short term leases, you need to identify how to re-purpose surplus space, gain additional/new space, or develop exit strategies that maximize the real estate value of your property asset.
Start right away!
Why wait until you build a new branch to start making changes? Identify some low risk things that you are considering in your new model, start to roll them out in your existing facilities and learn how well they work. Some examples:
- Better tools/automation for your employees (back end systems).
- New self-service displays for customers to test and provide feedback, with roving staff support.
- Semi-automated service kiosks operated by on-site staff (as test for future remote staff).
- Better cross-training of staff.
- Cafe style seating areas in underutilized space.
- Separate lines for non-transaction visits.
Meanwhile you can make a traditional start on your transition plan or on properties where the lease or capital improvement requires immediate action.
Start benchmarking and other measuring/tracking activities
If you are confident enough in your plan that you want to go all-in, then do a big bang roll-out. Maybe there are alternative options you want to test or just want to identify refinements based on customer feedback. Either way, it can be very useful to do some ongoing benchmarking to track the actual impact of the changes and see how they compare with your legacy facilities.
Things that seem most useful to measure are:
- Average number of annual visits per customer per branch.
- Types of transactions that occur per branch.
- Customer/member satisfaction with the experience.
- Staff observations on customer behavior and ease of new methods.
- The complete set of branch facility operating costs.
I deliberately used the term benchmarking for this measurement as the purpose will be not just to identify a “score” but to relate changes in the metrics to the underlying design and operating practices of both the banking operation and the facility operation. (More about benchmarking…)
Apply lessons learned, and repeat.
Articles on the changing nature of bank/credit union branches (in no particular order):
- Bank Branches Have a Future
- From Traditional to Experiential Branch
- Three ways banks are creating the “Branch of the Future”
- 14 ‘Branch of the Future’ Designs
- The Future of Branch Banking: Four Things to Know
- How to avoid common pitfalls that hold back the power of your bank branch
- Building the retail bank of the future
- On the fast track from bricks to clicks
- The Future of Banking
- Rebooting the branch: Branch strategy in a multi-channel, global environment
- Banking 2.0 and The Future of Bank Branches
- The future of the bank branch is in trouble — here’s why
- The Future of Bank Branches
- Repurposing the Branch