From focus groups and brainstorming sessions to virtual reality and neuroscience, Jean-Pierre Lacroix’s newest book, Think: The Future of Retail Banking, leverages extensive research and design concepts to present a hypothesis on what the bank of the future could look like. In celebration of the new book, which is available for free download, we sat down with SLD’s president to discuss what he calls The Next Branch.
Interviewer: What was the impetus behind researching and designing The Next Branch concept?
Jean-Pierre: The impetus for The Next Branch concept was based on a question. When you look at Millennials and Gen Z, and you look at how they view the banking industry and how they have a very different lifestyle, how does the branch experience resonate with them? What’s the role of the branch experience? How can that experience build loyalty and affinity for Millennials and Gen Z? That really was the crux of the question that drove us to explore The Next Branch.
And the other factor was, you know, we’re heavily involved in branch strategy [at SLD]. A lot of organizations are looking at their branch network and optimizing, you know, their ATMs, and the ability of mobile and online to basically regain some margin on their financial transactions. Because the transaction cost has risen over the years.
And looking at that filter of technology and how technology has impacted behavior in the banking industry, how does the branch experience – which is a non-technology, human-based relationship – how does that play an important role? And those are really the questions that drove us to look at what we call The Next Branch, and ultimately compile all of our insights into this new book.
Interviewer: What is wrong with the current state of bank branches?
Jean-Pierre: If you look at the current state of the branch network and branch designs, they were designed with one thing in mind: transactions. They were designed to drive and reduce the friction points when it comes to transactions, from queuing and having the right number of ATMs and tellers, to the number of steps customers have to take in order to do what they intentionally want to do in a bank. Usually this is to have access to the money or resolve issues.
And when you look at that, that whole focus on transaction when a customer comes into the branch, the first thing that you notice in that branch experience is the fact that there is a teller line. And the things that drive revenue for a financial institution – which is wealth management, loans and mortgages – these are things that are actually hidden, are not visible to customers. And so for us, we needed to change that paradigm if the future growth of financial institutions is all about providing financial advice and financial products, and less about transactions.
10 years from now, what’s the role of physical money going to be with the growth of digital wallets and Millennials using their mobile phone more than any other device? Are consumers going to actually be going to banks to do their transactions? I doubt it very much. And you look at countries like Ireland where only 3 or 4 percent of banking transactions actually happen in the branch. They’ve had to rethink their entire customer journey and their customer experience, and the value the branch brings to the customer.
So for us, that was the trigger. When you look at the current banking model it’s transaction centric. It’s not based on building wealth or empowering customers as part of their financial journey of independence. And we view that as a huge opportunity with The Next Branch: exploring where are those leverages points so that we can use the branch to build relationships.
Interviewer: What’s your vision for The Next Branch, and how has it changed?
Jean-Pierre: Our vision of the The Next Branch is a very different business model. When we did our research on stealth attrition, what we discovered was only 4 percent of customers view their bank as a place for financial advice. That’s startling when you think about it. 96 percent of respondents view their bank as a place to access money or conduct transactions. And so when you need to flip that perception on its head, where the key reason for them to come to the branch is for financial advice, you need to think very differently.
You need to move from the same services offered in different size branches to a different model that talks about financial ecosystems, where it’s an ecosystem that is geared towards small business, for example. Not only is that financial institution, that location, that branch focusing on small business customers, but it’s also about building an ecosystem beyond financial products. Maybe it’s about how to hire talented people, or how to find talented people. Maybe it’s about technology. What’s the right IT infrastructure?
It’s all of those pain points that small businesses have that the bank can bring their expertise, and their buying clout, and their knowledge to the table. Ultimately, we view banks going from a one size fits all model to targeting unique personas and groups. Maybe wealth is another one, maybe Millennial families are another one, or maybe it’s a start-up incubator ecosystem that helps fuel start-ups. So essentially, we are looking at a shift, if you like, from one size fits all to a vertical ecosystem that provide more than just banking services. That’s where we see the model of the future.
Interviewer: What did you learn during this process?
Jean-Pierre: Throughout this journey, we’ve been very fortunate to have multiple brainstorming sessions with leaders in the industry. We also conducted, at the Retail Banking conference in Miami, a brainstorming session with about 100 of the top banking executives from around the world. And the exercise was, what does The Next Branch look like?
And the insight is that a lot of the decisions we’re making today are based on biases of how we view the business model in banking. A lot of the biases are banking-centric, about making money based on volume, number of customers, etc. And I believe that’s going to be the biggest challenge for financial institutions, moving from where they are to where they need to be. They have to overcome these internal cultural biases about what the future looks like, and how they currently make money, and how they will need to shift to make money in the future. And I think the insight we had was going be the biggest hurdle to overcome, not meeting customers’ needs, not having, you know, a channel strategy that’s working effectively in building a relationship. I truly believe it’s understanding that the biases we have today are limiting the growth of banks tomorrow.
Interviewer: Is there anything else that you want to say about Bank of the Future?
Jean-Pierre: Like every transformational assignment we work on, there is a series of hypothesis that we look at, and some of them are going to hold true and some of them are going to be refuted. And reality will set in that those ideas were not grounded in strong consumer insights, or not grounded in how customers will behave. The opportunity really for The Next Branch is to understand that this is an experiment. This is an opportunity for us to create a hypothesis, think outside the box, and explore options that typically banks would not be allowed to do. Because they would have responsibilities to the shareholders, responsibilities to a channel strategy, maybe responsibilities for their asset management, their real estate asset management platforms, and return on investment.
The Next Branch has allowed us to take a step back and take a look at the marketplace without these daily pressures that the bankers have, so that we are not driven by making decisions based on short-term needs, that we’re really focused on, where is that long-term view of the banking industry and where do branch networks need to go? And what does that look like? And how do we bring the customer along that journey through various iterative stages of transformation over the years?