Good afternoon, and thank you for joining us at today's session. I'm very fortunate to have with me David Faulkner, managing partner of NexBranch Strategies. David, thank you very much for coming over here and sharing. I think we're going to be talking about the pitfalls of transforming banks. Yes, we are. And thanks so much for having me. I really appreciate the opportunity. Well, we've had a lot of conversation before this webinar. I think the banking industry is going through a lot of change, and a lot of it's exciting, a lot of it's pretty scary. And obviously, maybe you can talk a little bit about your background. So I started out life as an architect working for retailers, and then went to work directly with Nordstrom for about seven years and got to really understand customer experience from the Nordstrom perspective. Went on to be director of corporate architecture for Gap, and then was hired
by Bank of America to develop new retail concepts for them. I went on to work for Wells Fargo through Wachovia, and then finally for Capital One, really helping those banks understand how to connect their business objectives with the retail experience. So pretty varied both in the banking and non-banking industry. Are there parallels between the two industries? I think the parallel really comes from the customer, right? That customers of retailers and banks are still the same people, right? And they still want the same things. They want to be recognized and valued. They want to feel that they can trust the retailer to deliver the right thing, and they want to feel that if something goes wrong, that the retailer will take care of them. And those are all things people care about for banks as well. So what are the big issues facing financial institutions right now? I think the biggest issue is that with the rise of
mobile adoption, which has removed a huge pain point from consumer banking, bank branches are empty. And this is where banks sell most of their products. So what bankers are now confronting is how to draw customers back into the branch, because they're no longer transacting anywhere except on their phone. Yeah. What I've heard of is, we did a study, a mobile zombie study, on the use of mobile in banking, specifically for the bank industry. And I was still quite surprised that millennials, where a lot of conversations, I call it myth, talked about that they don't go to branches. And our study clear identified that they significantly go to branches to build relationships. And so, how is all of this changing the role of financial institution and branches specifically? So I think you're right. 70% of millennials open checking accounts in a branch, and some of them say, "That's because you forced me
to." Right? So they're going back to the branch. But most significantly, millennials are most likely to follow the advice they get in a branch, much more likely than baby boomers, for example. I think that at the crux of that is the understanding that the role of the branch is now consultative. But if you walk into most branches, they feel like the same old transactional branch that they always were. So reframing the customer's expectations about what a branch experience will be is the first step. We talked a lot this morning about universal bankers and video ATMs, and are they friends or foes in building those relationships? What's your point of view on that? Technology is a great tool, right? And that if I'm coming into a branch just to do a simple transaction because I happen to be there, that's a great, quick way for me to get the transaction done. But for the most part, that's not why I'm going to get in my car and drive to a
branch. I'm going to get in my car and drive to the branch because I want more than a machine can offer me. So while they're great tools, I think you need to back them up with a sales and service value proposition that involves that human connection and the kind of deeper relationships that humans build with each other than they do with technology. It's interesting. We finished a major channel strategy for a major bank in the US, last year. And obviously, video ATMs is hot topic because everyone are acquiring them and installing them in their branches. And the insight we had was, the most effective place to have video ATM is at the drive-through. And it does get used significantly by customers wanting to resolve issues when the banks are closed. Any insights, does that follow some of what you've noticed in the marketplace? I think that makes the most sense. So, in talking to people from two of the biggest banks in the US,
they found that where video tellers or video ATMs fell down the most was in the timeframe it took. So it took people much longer to use video ATMs, and they didn't get any more satisfaction than they did using a regular ATM. I think the after hours is a great example. So people using video tellers at drive-throughs after hours are now getting accesses to resources that they couldn't get otherwise. And so I think that's a terrific difference. Most of the issue resolution, if people walk into a branch with a video teller, is still going to go to a person. So they're still going to walk that through a greeter or somebody else. But when there's no choice, then the video teller suddenly has a huge value add. Yeah. I make fun of our banking clients as-
... that they've been attracted to the really shiny toys, the video ATMs, the cash recyclers, and all of this new technology. And I feel that they didn't ask the most fundamental question is, what job are we solving? Not for us, because obviously it's about lowering the transaction cost, but they forgot to ask, what job are we solving for the customer, and are we truly solving that job? And are you seeing more of these conversations coming up? Because the market is now saturated and the distribution of video ATMs and cash recyclers, it's kind of maxed out or hitting its critical peak. Yeah, I would agree. I think that a lot of the technology did not deliver as promised from the banker's perspective. So, one of the things that wasn't considered in the initial calculus was the idea that transactions would continue to drop. And so the value or the cost reduction per transaction didn't pan out because there were so many fewer transactions, right?
I think also that the initial cost of developing these things didn't take into account the customer. So, for example, at some of the more high-functioning ATMs, the teller referral, which had been a core part of the cross-sell play in a branch, didn't really occur. They flashed things on the screen, but people didn't grab on the way they did when they talked to a live teller. And missing that meant that they lost revenue. Even though they saved money, they lost revenue in those branches. Would you say that the cost reduction is kind of peaked, they kind of maximized other than closing even more branches? The biggest sort of cost reduction play is still going to be in overall branch reduction. But the banks that do it in a smart way are going to not just close branches, but they're going to replace branches, maybe two or three branches, with a smarter branch, a more relevant concept that's better located given the current demographics.
So David, for the last, I'd say 10 years, the pain point of banks has been to reduce their cost of transaction. And technology has done a great job of doing that for them. When you look at the challenges and risks that are driving the need for transformation now in the financial institutions, has that evolved from lowering cost of transaction to something else? Absolutely. I think that the core of that evolution has been the removal of geographic boundaries, right? So now a regional bank might be threatened by a fintech, who's a non-bank entity, but it might also be threatened by a global or national bank who can come in their territory without spending a lot of money building expensive branches or acquiring a bank in that area because they can use digital means to acquire new customers. Can you give some examples, David, of banks that have had issues during their transformation, so that other banks can avoid those pitfalls?
Some of the pitfalls are very basic. For example, landing on an idea rather than a strategy. One of the examples that I know about is a credit union in Georgia, where a local coffee purveyor dropped into their offices and floated the idea of doing a hybrid coffee shop and bank with them. They accepted the idea and built a bank, and they saved about a million bucks over building a normal new branch because they co-located with this coffee shop who shared the cost. But then they realized that they were in the mezzanine. The coffee shop was downstairs, so they had almost no exposure. That their best customers really didn't like walking through a coffee shop to get to their bank, and that the coffee shop wasn't really drawing in the kind of traffic that they needed to sustain their business. But they only thought about those things after the fact because they hadn't created a strategy first, which had some specific goals in
mind. And so that's a big pitfall. I think there are other concepts that people have landed on, like micro branches, for example, that can backfire on you because though they're smaller and less expensive, they haven't really changed the journey. They haven't become a new branch concept that responds to the new way people bank. And they're small, and when you get eight people in a 900 square foot branch, it feels crowded and it doesn't feel very private. When you look at financial institutions that have gone through transformation, have done it right, who would they be? Any come to mind? I think some of the-- and I'd say there are some visionary banks. So in Europe, I think ING has done a great job maintaining a little bit of a foothold in traditional banking for their customers while really being a digital-first bank. I think that Che Banca in Italy has also done a great job, and they're a digital bank, right?
Developing a physical presence where they can offer advice and help onboard customers without having to operate a full-scale branch. And then one of my favorites is Hello Bank, BNP Paribas concept, where they focus their physical presence on creating a cultural, emotional, and intellectual connection with their customers in these fantastic pop-up stores. So that's an interesting... That's a major shift in the way banks see themselves. They're no longer in the transaction or providing access to money. They're now selling knowledge. Do you see more of that popping up as being a way of repositioning the services? And how do banks monetize that? Let's take an example like Bank Simple, which sort of started in the Northeast in a very simple way, right? Right. Yeah. And they were all about turning the customer perspective into a bank. And so if you think about how they monetize that, maybe they
didn't get the traditional deposits. They didn't become as big as one might have traditionally thought about a bank needing to be. But they certainly did something that made them strong enough to be purchased by BBVA. And so they did add value, and they created something of value by really just sort of saying, "How can we create a manifestation of the customer point of view and make that into a bank?" You brought up BBVA. For me, they're one of my favorite examples, specifically when it comes to fintech. I've been tracking them as a financial institution, and they've embraced fintech by providing a forum for these startup organizations to leverage their banking network to provide better service to their customers and solving some of the pain points that customers have with conventional banking. Are there other examples of banks that have really embraced fintech startups and technologies head-on to leverage it
to their advantage? BNP Paribas does a great job. And they've always had this little innovation strain going through all their banks. I'm very excited to see how they continue to shape Bank of the West in California, for example.
But BNP Paribas really used a nice combination, and they did a great video about five or six years ago, together with, I believe it was with Microsoft- Yes ... to kind of walk through how do you interlace the virtual banking capabilities with the physical and the interpersonal banking into one seamless kind of experience. So I think they're more quiet about it than others. They don't yell fintech all the time, but I think they've made some great investments in technology. In the US, I think that Wachovia did a great job integrating machine learning into their ATM processes that made the ATM experience get better every time you use the ATM, and Wells Fargo now has that technology. But I don't think that the technology innovation has really made as great strides in the US as it could. So as you look at this challenge of being disruptive, fintech industries, new startup banks that are virtual,
are challenging the conventional banking model. How do conventional banks respond to these threats? What are the initiatives? We talked a bit about that this morning, about some of the customer journeys. Talk a little bit more about that. So I think that conventional banks need to make a little bit of a shift where they look at the relationship as the product they're selling and not the individual products. I think everybody who's been to a banking conference over the last 10 years has heard about silos, right? And that different lines of business- Portables? Different lines of business within the bank are all independently driving initiatives and getting attention, and sort of vying for the paternal or maternal attention of the senior executive. Or where the money needs to be spent. Right. And the budgets that come with that attention, right? Yeah. So, I think that if you start to look at the relationship as the product,
and that all of those folks are contributing to a good relationship, that's going to be what really disrupts the way banks treat their customers. But I don't think it'll be disruptive in an Uber or an Airbnb way. It's going to be disruptive in a quieter way, but you'll start to see the results in market share. I believe that the biggest challenge facing banks is not disruption of their services and their revenues. I believe that the biggest disruption is in their business model. So it goes far beyond just revenue. It goes, how do they go to market? How do they create value for their customers? Any thoughts on that? I think that we hear a lot about being a platform, right? Instead of, or a service, banking as a service or sales as a service or whatever. I think that we need to start thinking more about the ecosystem, right? That our products live in an ecosystem, that our services live in an ecosystem, and how is that structure
all working together, right?
We mentioned geography earlier. Geographies don't exist for virtual users, but they do exist for people. You live and work in a geography, so how do the touchpoints in your geography matter to you? I think we mentioned also earlier that issue resolution is something that you want to do with a person. Mm. Whereas transacting is something you're perfectly comfortable doing with your phone. So redividing and redistributing those kind of elements within the ecosystem are going to make for the efficiencies that'll make banks successful in the future. So David, you talk about silos, and every organization has a whole bunch of initiatives going on. They've got IT, security, the facilities group, real estate. It all has to come together as part of the brand experience. How does organizations balance these different priorities and levels of importance? I think priorities are the key word here, and we talked a little bit
earlier today about developing beacons. So if your beacon is trust, everybody needs to circle around those and show how their initiatives are working together with trust. But I think that the competing initiatives are really the responsibility of the senior staff, and they need to start to encourage collaboration and prioritization of efforts instead of simply picking the most- The sexiest, most sparkly ... the sexiest, most sparkly initiative amongst them, which unfortunately happens a little more often than we might wish. So when you look at Basically creating alignment within the organization and putting focus. So Beacon is really about creating a sense of focus. What are the biggest challenges for organizations to break those silos and to unite around a focused direction? In one bank I know, they created a chief experience officer who was in charge of both the physical and the virtual
experience, and really had the same authority as the CFO, or at least for a while, has the same authority. I don't know how long it'll last, but the same authority as the CFO or the CMO. But acted as an advocate for the customer experience. And I think keeping that kind of senior staff position with that authority to cross those silos and advocate for the customer is going to be one thing that needs to happen. We talked, thinking through the transformation process, we talked about disruption. And, we were joking, banks are risk-averse organizations. They built their business model around being risk-averse. But we talked about if we were a bank, wouldn't we want to disrupt the marketplace, and provide a different business model and a different way of approaching customers? Obviously, it's either disrupt or be disrupted. What's your thoughts on that? Well, I think that disruption is something that you can't really try to
do, right? Mm-hmm. You just are. Let's go back to that famous line from the movie, "The Graduate," plastics, right? Yeah. The people who invented plastics and started developing them didn't intend to be disruptive. They were just fascinated with all the things they could do, and they pursued it to the nth degree, maybe a little more now than they should have. But I think that if you think about what's going to be disruptive in banking, it's going to be something like that. It's going to be something like a customer experience that wasn't invented in order to be disruptive, but just ended up being that way. Because it met a customer need- Right ... that wasn't being met currently in the marketplace. Yeah. That it earnestly tried to solve a problem for the customer. And so what earnest problems do you think the banking industry is not solving today? Trust is still a core problem for banks. I think that
customers move now, or switch banks more often than they used to. But they don't switch to banks that they trust more, right? So some of the banks, the big five banks are the most likely that somebody who switches banks to switch to, but then after they switch, you'll ask them, "Do you trust your bank?" They'll say no. I think that that's something that could be very disruptive in terms of developing a brand that banking customers really thought had their backs. So more of an advocate bank. Yeah. So something a little bit like ING tried. I don't know if they pulled it off or not, but banks that disrupted the marketplace because they became consumer advocates. Well, think if you were going to become the Nordstrom of banking, right? Where Nordstrom let the one guy return a tire to the site where they had built on top of the old tire store. They, in everything they do, say, "We're empowering everybody who meets a customer to do right by that
customer." I think the problem to solve is how could a bank be that, right? And still comply with all the regulations and still make money. So in concluding, if we were to talk about brand transformation or customer experience transformation, what would be the three things that, three points that you would want to share with our audience, the things to watch out for? I think the thing to watch out for is putting your own business priorities ahead of the customer. You have to ultimately trust that the customer is the one that's going to have the experience, and the customer is the one in charge of buying your product. So you have to trust them to do well and not say, "You know what? We need to boost our profits." And banks quite often will say, "Look, all we have to do is punch our interest rates up a little bit, and we'll make a lot more money." Or create new accounts. Or create... Yeah. I think the same thing is let's close a bunch of branches.
The customers will tolerate this. They don't need to
go to the branch as often. And the customers realize that the customers are being taken for granted. So I think you need to watch out in transformation for whether or not the customer is really at the center of your effort. The other thing I think you need to watch out for in transformation is the trendy idea, right? The new- Shiny toy. Yeah, the shiny toy. The great new idea. The idea of being innovative for its own sake instead of just doing something that you think is good, and then finding out from others that it was innovative. So that goes back, rule number two is to look at rule number one. Yeah. And I think, you need to say, well, who are you getting your information about success from? Is it from yourselves, or is it from your customers and users? What would be the third one? I think the third one is to create a culture inside your organization that is a great incubator for new ideas. So you need to
create, and I think the chief experience officer example is a good one, where you say you create a place in your organization to advocate for the customer and to think about how to make that better, that experience better. If you don't carve out and you just have the traditional roles, eventually it'll end up back in those silos. Well, David, thank you very much for being here and sharing with our audience some of your insights. There's a phone number at the bottom of your screen. Please dial it. David and myself are going to be here for the next 15 minutes, answering your questions. You can also text us those messages, and we look forward to continuing the conversation. Thank you for joining us. I'm Jean-Pierre Lacroix, president of Chiquant Lacroix.
