No, Your Bank Doesn’t Need a Coffee Shop
There is a growing trend for banks to partner with millennial-friendly retailers in the hopes of driving traffic and relevancy for their branches. From credit unions to large banks, such as Capital One’s foray into cafe experiences that rival some of the best coffee chains, the allure of finding a complimentary partner to drive branch visits is tempting. And it goes beyond competing with coffee chains, with banks extending their ATM and drive-thru reach by co-locating with c-stores such as The Adirondack Trust partnership with Stewart’s Shops. In addition banks have co-located in grocery stores with varied success as these locations traditionally have resulted in lower margin transactional relationships at the cost of the higher valued financial advice and loan offerings. However with all of these various initiatives, it begs the questions, should banks partner with alternative retail service providers to drive new customers to their branch network?
The banking industry can learn a lot from the foodservice industry where co-branded locations has been trending for the past fifteen years, first pioneered by Yum! brands. Our own experience working with Tim Horton’s and Cold Stone Creamery has demonstrated that just because the shared brands compliment the customer occasion, this does not guarantee a partnership will lead to success. In the case of Tim Horton’s, although ice cream and donuts do compliment each other and appeal to different day parts, they do not necessarily appeal to the same customer or buying behavior. Ultimately the partnership failed to deliver on the expectations of both partners and was abandoned in many markets with only a few locations remaining, due to a lack of competitors in their markets.
In the case of Capital One cafe experience, the verdict is still out whether or not this initiative will be a success as this organization attempts to follow in the footsteps of ING Cafes. ING attempted to lure millennial consumers by not behaving as a bank is expected to behave, but becoming a place for consumers to relax with a very soft-sell atmosphere. As banks consider partnering with alternative retail brands or services, I have outlined some ideas worth considering to ensure the initiative will lead to brand loyalty and relevancy, and is not simply an attempt to cash in on a trend. Our stealth attrition study (link) has identified that banks are losing their credibility as the first and best place to receive financial advice, and any new co-location strategy must first focus on reinforcing knowledge and expertise over traditional transactional behaviors. Ideas worth considering are:
A community-centric experience
Most branches today are oversized due to the shift to online and mobile transactions. However right-sizing the branch and getting out of leases can be daunting and costly, especially in older markets. In addition there is a significant risk of customer attrition to competitors when branches close, making the risk of change greater than the business need. In some of the oldest markets these branches are considered supersize based on past banking needs, making it a challenge to optimize the branch network. There is a significant opportunity to convert some these branches to dual banking and community centers where local businesses can rent meeting rooms and access teleconferencing technology to augment their operating needs, reducing reliance on expensive hotel meeting rooms and conference centers.
A place for business incubation
With both Millennials and Gen Z driving an entrepreneurial spirit globally, an opportunity exists for banks to convert some of their retail space or adjacent real estate to create small business incubator centers. Shared office space organizations such as WeWork and Regus have realized the business potential of creating shared rentable spaces for new start-ups as a spring board to growth. All of these small businesses require loans, mortgages, payroll services and financial advice, which banks are well suited to provide, and additionally banks can offer guidance on how to grow their businesses by offering ongoing support. These individuals frequent their offices on a daily basis, providing branches with easy access to customers and foot traffic in addition to a pool of new potential customers.
Co-locate with residential builders
One of the growth opportunities for banks and one which is being quickly contested by fintech startups is residential mortgages. Offering builders a secondary sales centre where they can showcase their newest developments can help customers solve the dilemmas of both selecting a builder and a financial partner for their new home. Since most developers have ongoing projects in various markets, co-location could be relevant for a number of potential branch locations across a bank’s network. Similar consideration could be given to the growing the number of developers launching retirement homes for the elderly. The partnership may be the result of a bank’s business loan to the developer or a shared interest in driving sales.
For many the idea of co-locating with a fast food or coffee chain may appear to represent a risk-free approach to growing foot traffic. However, in spite of the perceived allure of the aroma, coffee drinking is ritualistic with a heavy emphasis on morning time, and this may well overshadow any potential benefits. Not to mention that coffee and fast food encourage transactional behavior, something the banks are trying hard to avoid as they move into more consultative services and higher margin sales. Ultimately the question to ask, would you buy a mortgage from someone who is also selling you a cappuccino?