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The changing nature of the branch channel and its transformation. Presentation at American Banker/Source Media Retail Banking 2014 conference.
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Peak Performance Consulting Groupwww.ppcgroup.com
March 13, 2014
Transforming Branches – and the branch network
Retail banking is facing a difficult challenge…
Consumers and businesses are changing the way they interact with financial institutions, shifting to non-branch channels
But customers still value branch convenience― It is the most important factor in bank selection― Branches are still the primary channel for customer acquisition and consultative sales for both
consumers and small business
Significant opportunity to improve branch efficiency/reduce cost… ― Redefine the model: the right branch configuration to efficiently meet customer needs― Enable more efficient service through improved technology― Shift branch staffing toward more flexible, “Universal Banker” model
…and grow revenue by refocusing away from declining transactions and toward sales growth
But banks must evolve their retail distribution strategies― What kind of branches - and what kind of branch network – do we need for the future?― Video banking, pop-up branches and other new formats: What is the “branch of the future?”― Combining traditional, digital, and self-service – making it work on the front lines?― Is the Universal Associate the answer to staffing retail branches?
Page 1
Our panelists…
Andy HarmeningSEVP, Regional Banking Group Head
Mark IniguezSVP, Director of Retail Network Strategy
Brent TischlerSVP, Director of Channel Optimization
Page 2
“New Normal” requires change in strategy
Primary role of the retail branch: drive customer acquisition and support consultative sales― Drive new customer acquisition and provide sales and for existing customers― Support business customers, who are more dependent on branch services― Build and reinforce bank’s brand
Customers still value branch presence: ― 64% identify branch convenience as primary reason for choosing their bank― 61% still visit a bank branch at least once per quarter
Channel preferences are changing― Transactions conducted in bank branches are declining 5-6% per year due to direct deposit, debit,
electronic bill pay and other check displacement― Transaction behavior and routine servicing shifting to other channels
Shrinking branch traffic leaves fewer sales opportunities― New accounts opened per branch FTE declined 23% since 1997
Page 3
20%
46%
34%
0%5%
10%15%20%25%30%35%40%45%50%
Branch dominant Multi Channel Web/phone dominant
Actual Channel Usage: Shifting Away from Branch
0%5%
10%15%20%25%30%35%40%45%
Age 18-34 Age 35-54 Age 55+
Branch Preference Declining Among All Age Groups(% listing branch as preferred banking method)
2008 2010 2012
Source: ABA Source: PNC Investor Presentation
The changing dynamic of how people bank meansthe design of retail branches must evolve
Redefine branch operating model
Enhance multi-channel experience
Migrate customers to self service and digital channels
Reshape physical distribution model
Page 4
Physical: bank at the branch
Automated: ATMs/self service grows
Virtual: on-line, mobile
Personal: omni-channel
Managing branch transformation
Branches will be designed differently. They’ll be smaller, and fit into typical retail footprints. There will be fewer free standing branches (less need for large branches with drive-ups).
Branches will be staffed differently. There will be greater utilization of universal staff who can handle sales, service and transactions — we won’t need as many tellers.
Branches need different marketing support. Smaller, lower traffic branches will be more like sales centers, and this means greater micro-market promotion and calling efforts to improve trade area sales penetration.
Successful financial institutions will have more robust front-line relationship management technology to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet.
Page 5
Four new branch models emerging
Programs actively underway at most major banks Early adopters are moving from pilot to rollout, with at least one “top 10” institution
planning to convert 15% of total branch network into Universal Banker model in 2014 Driving down costs: 50-60% lower expense, 6+ months faster break even than traditional
model
Page 6
Archetype Typical Size
Technology Staffing Utilization
Self Service 500-1,000sq. ft.
• Full self service• Advanced function ATM • Video teller
• Full self service• Not staffed, but may
have video teller link for live support
• Urban core
Express 1,000-2,000 sq. ft.
• Full self service or assisted self service
• Concierge (1-2 FTE)• No dedicated teller
• Urban core• Rural replacement as substitute for
closing branch
Neighborhood 2,000-3,000 sq. ft.
• Assisted self service or cash recycler pods
• Video conferencing access to business line partners (business banking, mortgage, investments, etc.)
• 3-4 UniversalAssociates
• No dedicated tellers
• Urban core• Suburban strip center and
neighborhood “life style” centers• Rural replacement as substitute for
closing branch
Traditional 4,000+ sq. ft.
• Cash recyclers to supplement or replace traditional teller lines
• Assisted self service in high volume locations
• 6-8 FTE• UA as component part
of total branch staffing
• Hub branch• Center of expertise, staffed with
business line partners
Migrating transactions away from the teller line
JP Morgan Chase Deposits decreased 11% CAGR through
targeted efforts to increase self service usage
Branch staff decreased 20% (same store) Reinvested savings in new locations,
improved sales process to fuel growth
Large Regional Bank (>1,000 branches): Pilot to improve self service acceptance
resulted in 50% increase in deposits through ATMs in test market
Opportunity: 70% of all teller transactions could have been done through self service
Potentially shift 1/3 of branches to self-service format
Page 7
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
% Consumer Deposit Transactions through Tellers: Chase Bank
CAGR (11%)
90%
51%
Micro and mini branches provide very low cost, fill-in opportunities
Page 8
1,250 sq. ft. Wells Fargo branch in Washington DC has enhanced self service, walls that seal off consultation rooms for 24 hr. access
Fifth Third 2,000 sq. ft. teller-less branch in downtown Cincinnati
BofA branches with Video Teller Assist in Atlanta, Boston, Charlotte, Dallas, Houston, New York
Temporary branches: go where the customers are
Page 9
PNC “Pop Up” Branch Frost Bank mobile branch
Create attraction: re-establish branch as a destination, not an infrequent errand
Page 10
Branches don’t create their own gravity – they need intrusive programs to drive traffic, providing opportunities for conversion Fewer customers visiting branches = fewer natural sales opportunities Smaller branches lose “billboard” impact PNC: Utilizing mobile stores, street teams and educational events to drive branch
traffic and acquire accounts at lower cost Umpqua Bank: hyper-local, branch based and community events drive traffic, create
engagement and sales conversion
Re-thinking staff efficiency and service delivery
Issue is not whether teller staffing can be reduced or eliminated, it is how to manage transformation― Decreased need for specialized teller role― Changes in branch mix requires staffing flexibility, not role rigidity— Establishing the optimal configuration based on trade area potential and transaction
activity— Defining the baseline for technology: how much (or how little) is needed to eliminate
barriers to change and prevent reversion to traditional roles
Sales improve, when combined with the right marketing paradigm and disciplined sales/service process
Universal Associate model is not just a training program but a major shift in focus, staff roles, and customer experience— Branch design and technology— Marketing— Measurements, rewards and recognition
Page 11
Moving forward…
Managing the network mix What technology do we need? How do we manage the overall mix of branch types (large, small, mini, etc.) Balancing lease vs. own, CRA and other requirementsManaging the customer transition Many customer use branches because they like personal interaction, or at least
the opportunity to interact Too much change can be disruptive: Banks have tried new designs before, and
results have often been disappointing— WAMU’s converted over 1,000 branches to its’ patented Occasio design, but many
customers found it too “different” and confusing
Managing the staff transition New roles require new skills and new career paths Not everyone will be happy: “Bank of America Tellers Picket ATM Machines”
(ABC News, November 23, 2013)
Page 12