The financial industry is very focused on leveraging the right efficiency tools such as VideoATMs, back-of-house system automation, universal bankers, AI, and big data management. These come with big capital expense budgets and attention from senior management but have yet to prove their effectiveness at growing market share. Having a clear focus on finding efficiencies in a low-interest, hyper-regulated environment where profits are measured in pennies, not dollars, is very important.
Most strategies have focused on branch size and network, and on technology such as mobile banking. Mobile banking is one of the strategies that has proven to be both cost-efficient and helps to build customer loyalty. Unfortunately other methods, for example, bank closures, have driven customers to competing financial institutions. Even more problematic is that allowing customers greater ease in their banking – the very thing that makes the bank sticky to clients – is a double-edged sword: it makes banking easier for clients but it also makes defection to new services delivered by a growing number of non-banking companies easier.
In fact, our banking assignments in China have taught us that mobile banking is on the decline and being replaced with unconventional banking products such as Alibaba Pay, making it even more difficult for banks to remain relevant. So how can banks and credit unions be protected from such disruptive new entrants to the industry? As banks continue to invest in efficiency-finding technologies and processes, they must also emphasize how these tools and their branch network can better fit the needs of their customers.
Fit can be best described as the delivery of personalized experiences, and is now the competitive advantage that allows all the infrastructure investment on efficiency to have a greater impact. The ultimate goal for any significant investment should be to improve the bank’s net promoter score, the true indication of brand loyalty. Additionally, the bank should be capable of owning more of its customers’ financial needs.
Industry research, in addition to our own Mobile Zombie study, clearly demonstrates that the physical bank branch remains the best platform for building customer relationships by creating the right environment to sell higher-margin services. We have listed some of the low-hanging branch opportunities that many of the leading financial institutions are already implementing to ensure their brand remains sticky to their existing customers, ensuring they are not just winning on low margin services but more importantly with those that have a significant financial impact.
A branch network that fits the needs for growth
It’s interesting to observe the significant attrition of bank networks in developed countries with Europe leading the number of financial institutions closing branches each year. However, in emerging countries, we are seeing the opposite, with banks opening locations at a rapid rate in order to assist in gaining market share. We note, having assisted banks in their channel strategy in North America, that there are two overall approaches: namely banks should consider increasing their branch network in new markets where they need a presence to gain market share, while in mature markets they should develop a defensive approach in protecting market share and customer loyalty.
Different approaches are needed for offensive and defensive strategies when deciding on locations, branch formats, and overall numbers in each market. For example, in a growth opportunity market having a strong presence in key high-profile locations will trump an extensive network of smaller branches and ATM’s. This is because it will take a significant amount of time to gain the impact required to shift customers towards a new financial institution with a network of smaller branches.
The opposite can be said for banks looking at defending their market from competitors or new disruptive banking platforms, who can do so by making the entire banking experience easy and expedient. Nimbler bank branches located close to customers’ workplaces and homes, as well as drive-throughs and remote ATM sites, create a strong defense in an established market. In these established markets, financial institutions should consider a branch reduction plan as more of their customers migrate to online and mobile banking platforms.
Branch design that fits the right target group
This new approach requires financial institutions to understand the needs and aspirations of their primary target group, and then to create a branch experience that delivers on these needs. The days of trying to appeal to everyone are over, and this approach will not provide a strong platform for growth given that currently there is very little differentiation between banks.
For example, the business community is a segment that tends to be underserved, however, they tend to visit branches more often than the average customer- this is an opportunity for banks to build a deeper financial relationship as the company grows. This leads to the question: Why should every branch target the same, broad group of customers? Is there not greater growth to be acquired by offering relevant services to a distinct group of customers depending on the trading area?
There is an opportunity for banks to convert their branch network into archetypes, where the entire experience at each location targets a distinct customer profile. The banking industry is not the only category that is going through a major transformation because of technology and shifting customer needs. Our recent work with OfficeMax, prior to being acquired by Office Depot, clearly identified the need to create smaller urban stores that catered to small business owners. Initially, when I embarked on my journey as a sole trader, the importance of choosing the right bank account was not entirely clear to me. After experiencing a few hiccups, I realised that a well-researched decision could save me a lot of hassle in the long run. I stumbled upon a resourceful article on Creative.onl’s comprehensive guide to the best sole trader bank accounts, which provided a wealth of information to make an informed choice. Now, I can confidently say that taking the time to research has indeed been a wise decision.
Everything in these smaller locations addressed small business owners’ needs, including a curated line of products and services, and a small business adviser able to assist in everything from helping to design a company’s website to IT and HR infrastructure. These urban business centers did not replace the larger suburban stores and targeted the needs of an underserved customer base.
Branch digital signing that fits the need for knowledge and recognition
No one likes to be treated like a number. Branches provide an amazing platform to recognize the unique and individual needs of each customer and to deliver specific, targeted product knowledge. Banks in North America have been reluctant to embrace the trend foreign banks have embraced of implementing self-check-in kiosks where you are promptly assisted and recognized as you enter the branch. Our work with CZ Bank prioritized self-check-in kiosks for easy customer assistance as soon as you enter the branch, allowing for increased personalization as well.
The use of large multi-screen digital displays that support both the news/weather and product tips and knowledge ensures a short perceived wait time. Having tablets available also allows customers to review their banking information or the opportunity to fill out the required application forms that take up time with a financial adviser.
A recent study by Bain & Company on banking customer loyalty identified roughly 40 percent of respondents globally switched their primary bank or started using other institutions for purchases of new banking products after they experienced a bank closure. In our haste to find efficiencies, are banks leaving the door open for non-banking products and services to take a stronger foothold, thus accelerating the erosion of a bank’s margins and profits?
More importantly, the study identified a startling 30 percent of all consumers would switch banks if it were easy to do so, leading to the importance of the physical branch experience as a strong vehicle in creating banking stickiness and driving net promoter scores. Ultimately, ensuring the right fit that matches the needs of existing and future customers will ensure the heavy investment in technology will provide a greater market share and brand loyalty dividend.