NTT DATA welcomed Dell Services into the family in 2016. Together, we offer one of the industry’s most comprehensive services portfolios designed to modernize business and technology to deliver the outcomes that matter most to our clients.The Branch of the Future

Introduction Bank branches have always been a welcome and reassuring sight on high street. Although the precise impact is difficult to measure, having a bank’s brand in such a prominent location — and often in solid and imposing bank-designed buildings that reflect the underlying strength and security of the bank itself — has been an asset for banks for many years. This rosy picture may have taken a knock since the economic crisis of 2008, but even so, customer sentiment runs high when banks announce branch closures.

Yet, there is no doubt about it: Transactions in branches are falling as customers take advantage of self-service channels now available to them, primarily internet and mobile banking. And more importantly, the value of the many transactions undertaken in branches raises real questions about the future of branch banking.

The numbers tell a similar story. A 2015 Accenture survey found that four out of five consumers considered their banking relationship to be transactional — up 8% from 2014.1 Four in 10 Americans didn’t visit a branch in the second half of 2015, according to Bankrate,2 which could well reflect a move to using alternative digital channels. The Campaign for Community Banking Services found that branch closures in the U.K. have accelerated over the past few years, from 222 in 2013, to 500 in 2014, to around 650 in 2015.3 And BBA predicts that branch transactions in the U.K. will steadily decrease by 2020, from some 502 million in 2010 to an anticipated 286 million in 2020.4

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Introduction 1

Table of contents

But does this mean the end of branches as part of an enterprise omnichannel strategy? 3

The current branch network 4

What do customers want from bank branches? 5

What role will the branch of the future fulfil? 6

Future branch models 7

The location of the branch of the future 9

Introducing robotics 10

Branch services 11

Financial implications for property portfolio management 12

Customer experience 13

Security of the branch/networks 14

Develop an enterprise omnichannel ability across the bank 15

Conclusion 16

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But does this mean the end of branches as part of an enterprise omnichannel strategy?

Not necessarily. What it does mean is that in the next 10 to 15 years, banks need to position branches as an integral part of the bank’s channel strategy, designed to deliver superior customer service whilst simultaneously growing the share of a customer’s wallet. Banks also need to account for branch customers that are not consumers. A large number of valued small and medium businesses regularly use branches to deposit their business takings, together with some large businesses, utilities and institutions.

This white paper lays out a practical approach to ensure that banks’ existing brick-and-mortar branch networks can compete with online-only banks and financial technology companies such as Simple, Moven and GoBank in the United States; Number26 in Europe; UBank in Australia; Tandem Bank in the U.K.; Fidor in Germany; and mBank in Poland.

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The current branch network

Many branch networks of banks have been around for hundreds of years, which can pose a challenge when it comes to modern digital banking. Designed in a different era and built as a sign of financial strength, branches’ prominent locations on expensive town and city high streets have proven to be a magnet to attract new customers shopping or working nearby.

Imposing banking halls welcomed customers, extensive teller areas serviced them and large, out-of-sight back offices processed all the paper transactions. A locked vault, often below ground, secured cash and various securities held as collateral, as well as bank ledgers used to record transactions. Customer folders held all the branch’s customer records, and a branch manager and his team had various offices to meet with customers.

But these older branch layouts do not offer the open and welcoming feeling that many banks are now trying to create with modern, eye-catching designs. Computerisation has slowly replaced the need for paper vouchers and cheques. And the arrival of internet and mobile banking delivered to customers easy, convenient, self-service methods for most transactions, further contributing to the decline in branch visits necessary to perform simple transactions.

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What do customers want from bank branches?

Customers value the fact that bank branches are near to where they live or work. They open new accounts via branches. In particular, customers like that they can go into a branch to request information and seek advice from an agent about a complex bank product or a service, such as tax-efficient savings accounts or home loans.

And as banks start to think about providing lifetime value to their customers by offering multiple complementary and third-party products rather than just individual product sales, banks need to position branches as a key differentiator to forging true customer relationships.

For example, the technology giant Apple, which has disrupted the PC, telephony and music industries with its digital offerings and introduced the world to tablets, has launched its own branch store network. Consumers can touch, feel and try their products before they buy them. They can also speak to subject matter experts (SMEs) and have faulty devices repaired at the Genius Bar. Apple’s flagship store in New York’s Grand Central Station is visited by hundreds of thousands of loyal customers each year.

But when a branch is closed, the bank faces the risk of losing customer segments (such as the elderly, under-privileged and disabled who might have difficulty either accessing or using other channels) as well as personalised customer experience.

In the U.K., the elderly show the most reliance on branches than other customer segments, according to a BBA report. The average person aged 80 and older visits a bank branch 14.8 times a year (compared to 8.5 for the average adult) and uses ATMs 63.8 times a year (versus 60 visits for the average adult). And more than 600,000 are registered for online banking with the main U.K. high street banks.4

This segment often has large deposits of money with the bank, which should be borne in mind when modelling a revised branch network. Recategorising these valued customers to qualify for certain private banking facilities, such as cash facilities, may reduce potential account switching. Mobile bankers could also step in to provide a very personal service for this segment.

Banks also need to contend with evolving customer segments. Millennials, for example, do not bank where their parents bank and begrudge having to visit a branch to do anything. But as they are growing up, getting married, advancing in their chosen careers and starting families, they are now welcoming and valuing good financial advice. And while baby boomers have mostly adapted to new technology and appreciate its convenience, they do still visit branches to seek advice and would travel to relocated branches because of the history they have with their bank, believing that the bank values them in the same way.

From 2010 to 2015:1,921 bank branches closed — but most of those closures were in towns served by more than one branch

212 new branches opened

2,274 branches were refurbished

600 locations were visited by mobile bank branches

Over 11,500 post offices offered banking services

Figure 1: Branch trends in the U.K. from 2010 to 20154

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What role will the branch of the future fulfil?

Customers have proven wary of using smart ATMs or Quick Deposit boxes to deposit cash and cheques. Branches will need to provide further education on using these deposit functions to reassure customers about their safety and security. The introduction of robotics (discussed later in this paper) is an ideal opportunity to promote self-service functions like this.

With most banking transactions now available via digital channels and with mobile banking literally in customers’ hands, the need for typical teller transactions is disappearing. Branches, however, will still require traditional teller services to handle cash and cheque deposits from businesses, so long as cash remains an accepted medium of payment.

Given that customers welcome the ability to use branches to open accounts and seek advice about bank products and services, the branch’s primary role has already been transforming into a sales and advisory channel. With this, branches will need confidential areas or meeting rooms from which specialist agents can deliver the sales and advisory services. Mobile bankers are another option to consider, as they would provide the

same sales and advisory services, but at customers’ own homes or places of work. They may or may not need to have a branch base in their area, but access to a confidential meeting room in a branch would complement their daily routine.

Providing certain customer emergency services, such as reporting lost wallets, credit cards not working or the incapacity of a customer, are valued as branch services. In practice, providing a confidential area and video link to a dedicated agent in the bank’s call/contact centre to report any problems will normally suffice.

Customers also welcome the addition of self-service kiosks within a branch that offer the processes found in internet and mobile banking. And with the growing number of employers that block access to personal banking websites at their place of work, or if a customer’s mobile phone has a flat battery, these branch kiosks can provide customers with the ability to make an immediate payment or research a more complex product offering before speaking to an agent.

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Future branch models

Numerous model branches have been trialled over the years. The Financial Brand has outlined some of these models, detailed in the following chart in Figure 2.5

Bank Model branch key features

CIBC • State-of-the-art branch design acts as a template for future full-service and small teller-free convenience stores, including airport kiosks.

• Digital displays deliver product advertising as well as local community information.

Odeabank • An efficient, rewarding customer experience is provided by using the latest technology throughout the banking process.

• Customers can use a range of digital tools — such as touch tables, tablets, iPhones and interactive screens — available in waiting lounges and entrance halls to learn more about the bank’s products and services

HSBC • The flagship branch covers two levels and 12,000 square feet.• With the branch’s design and use of technology, customers

can spend time discussing their financial needs for a unique experience.

BMO Harris Bank • Smart ATMs allow customers to withdraw cash without using their debit card.

• Video tellers provide customers with instant access to bankers and a wide variety of specialised bank professionals for help with services such as mortgages and retirement planning.

• Bankers use tablets to help customers understand the branch’s new technology and provide assistance for any of their banking needs.

Umpqua Bank • The smaller location — just 2,782 square feet — includes meeting rooms, an electronic recharging station, free WiFi and a lounge area to provide a central meeting space for customers as well as local businesses and organisations.

• A large-format interactive touchscreen features information about bank products and services, along with a collection of in-house and staff-recommended mobile apps.

• Using laptops, staff can open accounts or serve customers anywhere within the branch.

• Customers can enjoy a cup of coffee or tea while reading a selection of books and periodicals in the branch’s library.

Ascend FCU • A virtual greeter equipped with iPads allows members to sign in, and lets staff begin talking about the bank’s solutions.

• A curved feature wall provides information about bank services, giving customers another avenue for learning.

• Customers can sit where they feel most comfortable with multiple seating options, from lounge to high-bar.

• Busy parents get some relief with a kids’ section, which also promotes early adoption for young members.

Figure 2: Model branch trials

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So while in-person banking may be declining, it is also evolving — and so must a bank’s strategies. Some banks have recast their branches, such as Citi’s Apple Store-like branch in the U.S., to draw in younger customers. Australia’s Bank of Queensland is a year into its retail redesign, which merges a coffee shop aesthetic and experience with more traditional branch features.

The profitable future of the branch lies in its integration into the omnichannel experience. When developing a multichannel consumer engagement strategy, the most important element is a diagnostic assessment of the different customer acquisition channels to set up an observation process and record areas of improvement. Those improvements can focus on physical branches as well as the mobile channel for online interactions.

Although there is no perfect branch network model that caters to all the different lines of business offered by banks in their exiting branch networks, a network based on a hub-and-spoke model in each of the bank’s key areas offers the best framework to consider, adapting where required.

Each area’s main branch could replicate many of the successful design features introduced by National Australia Bank (NAB) in the early 1990s, which coincided with the time when the bank also led Australia’s banking industry.

NAB created and located a district commercial branch, now just referred to as a district branch, in the midst of a commercial area rather than on a busy high street, with ample customer parking for convenience. Although primarily commercial in nature, the district branch was staffed by senior bankers empowered with high credit approval limits to enable most lending decisions to be made at the branch level. It also had traditional teller stations for handling cash and foreign exchanges.

Customers’ key attraction to district branches was the convenience of ample customer parking balanced against the extra time required to drive to the branch. And while the district branch was designed to process business cash and cheque takings, the model could be extended to act as an area’s main, full-service branch in a branch network for both commercial and consumer cash-handling purposes.

With this model in place, existing branches on busy high streets in city locations would be redesignated as spoke branches that provide sales and advisory services, and are equipped to optimise the delivery of these services. They may be staffed by several advisors and have several meeting areas and/or rooms. However, spoke branches would no longer provide cash-handling services.

A further category of a much smaller branch, or sub-branch, and a temporary pop-up branch (such as for certain one-off events like university open days) would also be appropriate to deliver sales and advisory services. These would typically be staffed by a couple of bank agents and located in smaller towns, with a catchment area covering surrounding villages.

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The location of the branch of the future

Before making any decisions about an existing branch network, it is essential to analyse and understand customer usage of each branch, then model the various what-if changes to help predict what the results would be to the branch network. Decisions can then be made about consolidating and closing certain branches, and what the likely outcome of these decisions might be in terms of customer acceptance and defection.

Then, the focus should switch to finding the right size, location and staff, as well as optimising the branch footprint to provide the right level of sales and advisory services, plus cash-handling services primarily for business customers. Smaller numbers of highly trained and empowered resources will be required to staff the new model branches.

Branch staffingWith cash-handling/teller functionality only available in district branches and back-office roles removed and centralised, the remaining sales and advisory services will benefit from employing empowered and sales-focused staff. They will need to be highly trained and experienced, recompensed and rewarded in a way to ensure high-quality frontline employees. In larger branches and district branches, less experienced staff may be appropriate to perform a meet-and-greet role with customers and non-customers, as well as act as a guide and reference point to answer any initial questions that may need to be resolved before meeting with advisors.

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Introducing robotics

Advances in robotic technology, coupled with similar advances in artificial intelligence and machine learning, have already paid dividends in automating simple repetitive tasks. And now they are also engaging customers in more complex conversations.

The Hilton Hotel Group, for example, has combined various technologies to give birth to Connie, the robotic concierge. It’s only time before robots will be greeting customers at the front door of branches, assisting them in connecting with the right advisor for their needs or providing training on how to use deposit services in the bank’s new smart ATMs. Robotic technology also shows great promise to provide certain advisory services, potentially leading the way toward fully autonomous branches in the future — providing assistance when required, but no longer from staff.

In a recent study by Cognizant, 19% of the banks surveyed said they could reduce full-time equivalents (FTE) today by a quarter due to automated processes and robotics, with 28% saying they could achieve that same reduction in the next three to five years.6 Some of the jobs that could potentially be replaced using robots include bank tellers, loan officers, mortgage brokers, policy processing clerks, claims examiners and investigators, bookkeeping clerks and tax preparers.7

One example of utilising robots in financial services is the Bank of Tokyo-Mitsubishi UFJ, which introduced a customer service humanoid robot at its flagship Tokyo outlet in April 2015. Using various gestures and analysing facial expressions and behaviour, the robot can provide context-appropriate responses to questions.8

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Branch services

All branches will require agent access to the bank’s customer relationship management (CRM) application and advisory applications, plus any third-party complementary services provided by the bank’s partners. The CRM application should manage appointment bookings.

Self-service kiosks should be enabled with video links to the bank’s call/ contact centre and deliver the same level of self-service functionality as internet banking would to add value and convenience. Similarly, ATMs and smart ATMs should offer deposit functionality, cash withdrawal, and certain account and card services.

Certain sub-branches may be too small to house ATMs. In the absence of a convenient ATM, many supermarket stores are happy to offer cash back facilities to shoppers as a way to avoid the high cost of banking cash.

Agents would be provided with desktops or laptops to carry out their roles, as well as with tablets to use as advisory devices to answer simple queries and confirm appointment bookings. Larger interactive visual devices, such as Microsoft Surface devices, are also appropriate to aid with the discussion and demonstration of certain product features and options controlled by advisory applications; for example, using powerful and interactive graphs to illustrate investment management, or showing what-if simulations for complex customer investment portfolios and investment styles.

All branches should be able to provide different levels of WiFi access for the three different levels of service: bank agent intranet access, secure customer access and secure non-customer access. In addition, branches should also consider having electrical charging points that customers can use, accessible with a bank debit or credit card, for free or for a fee.

Where wall space allows, beacon technology can be employed to identify bank customers as they approach, and provide tailored and personalised product advertising on responsive poster signage displays both on the exterior and interior of the branch.

In large branches, more staff, equipment and meeting rooms will be required, as well as any additional kiosks, display signage and ATMs depending on their size. Larger district branches that provide cash-handling services will require traditional teller stations and staff and a teller application, plus an associated bank vault, over and above consumer and business banking services.

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Financial implications for property portfolio management

Given that banks already have an established branch network that is being reduced in size, financial advantage may be gained through prudent sales of expensive high street real estate and using the funds to relocate, design and build the branch of the future in lower cost locations.

Take BBVA, for instance. The bank achieved a €689 million profit during the fourth quarter of 2014 — compared to its loss of €849 million in Q4 of 2013 — after investing billions of euros in a digital transformation programme.9

Financial services analyst firm Novantas recommends putting all of the bank’s channels and capabilities into context when evaluating the financial contributions from digital. With this approach, banks need to improve relationship acquisition so consumers view them as a digital leader; improve wallet share by utilising digital channels; and migrate transactions (such as digitalising a branch or call centre) to facilitate cost savings.10

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Customer experience

As well as addressing the ways customers and non-customers can interact with the bank and bank agents whilst in the branch, it is important to consider how the branch environment itself feels to the customer. Considerable time, effort and money are being expended on a variety of different designs and approaches for the branch of the future.

What is clear is that design ergonomics, furnishings, fixtures and fittings are specialist subjects and best left to advisors from consultancies who specialise in this area. The bank’s marketing department should also be involved to ensure that the bank’s corporate image is reflected accurately in any redesign exercise. Of course, once the template for a new design has been created, it needs to be trialled, changed and adapted to customer needs.Some of the key considerations to address in developing the branch environment relate to technology, infrastructure and related requirements, as shown in Figure 3.

The key branch in this proposed model is the district branch. Get this right (in the sense of gaining customer acceptance) and the smaller sales and advisory branches/sub-branches will follow.

It is, however, worth reflecting on some of the designs that have been trialled by banks. In 2000, Abbey National (now part of Santander) trialled having coffee shops in some of their branches. The idea was to attract customers to drop in to the branch and for them to stay longer to enjoy a cup of coffee. Analysis of customer behaviour in these branches revealed that customers simply wanted to go in to the branch, do their banking and leave as quickly as possible. Although coffee was available, a bank branch was

model by adding internet banking, followed by mobile banking in 2014. SME business banking was also added as a new target segment.

DomainBranch type

Typical requirements

Technology landscape

Spoke branches

• CRM applications• Advisory applications• Self-service kiosks• Smart ATMs• Visual presentation devices• Queuing devices

Building infrastructure

Spoke branches

• Small, but with extra meeting rooms • Electrical charging points• Free WiFi access

Internet of Things landscape

Spoke branches

• Beacon technology to display personalised content on digital signage

• Smart robotics to greet customers and handle basic front-office functions

Operational requirements

Spoke branches

• Highly trained bank staff• Staff equipped with tablets

Aesthetics requirements

Spoke branches

• Defined by design and marketing consultants

not considered a destination to meet with friends, unlike independent coffee shops.

Metro Bank’s first branch, opened in July 2010 in Holborn, London, heralded the launch of the first new branch-based bank onto the high streets in and around London in over 100 years. Targeting disenfranchised consumers, considerable investment was made on securing prime high street locations and lavish internal fixtures, fittings and décor for the newly refurbished premises.

The branches are open seven days a week with extended business hours, and superior customer service was seen as a key differentiator. Branches on their own are not enough to ensure the desired growth demanded by today’s banks. In 2013, Metro Bank adapted its business

Figure 3: Key considerations when developing the branch environment

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Security of the branch/networks

Out of scope This paper has focused on options to redefine, resize and relocate banks’ existing brick-and-mortar branches. But in order for banks to maximise their value in the new digital age, they need to evaluate a number of direct dependencies associated with branches, such as the wide range of customer-facing channels. We go into detail on these dependencies on the next page, but for more in-depth information, please read our “The Digital Bank of the Future: Maximising Customer Engagement” white paper.

Banks are well versed in managing the physical security of their branches — they are very much concerned with the safety and welfare of their staff from the threat posed by armed intruders as well as the cash, securities and other valuables secured on premises. This expertise will continue to be applied in all branches, particularly those that process cash.

However, organised criminals prefer to defraud bank customers by stealing their identities and account passwords or breaking their confidence by tricking them into doing something else with their accounts or funds. For customers wanting to use smart ATMs or kiosks, or otherwise identify and authenticate themselves, easy-to-use multifactor identification, usually in combination with their mobile phones, is the minimum requirement for many banks today.

Providing secure WiFi for bank agents, customers and non-customers is also a welcome service for most people, whether it be complimentary or chargeable.

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Develop an enterprise omnichannel ability across the bank

Develop an enterprise omnichannel ability across the bankHaving added new bank channels over the last 25 years as they became available, the customer experience in each of these was inevitably different because of the nature of the channel application supporting it, such as branch, ATM, agency, telephone banking, interactive voice response, internet banking, kiosk and mobile.

Advances in both technology and customer experience design has now allowed banks to develop an omnichannel capability across all channels, with the branch as one of these channels. The value of delivering an omnichannel customer experience is gained across all channels — a customer will have the option to start a bank process in one channel of their choice, continue the same process in another and complete it in a third.

It should be noted that not all processes should be made available in all channels, otherwise customers simply spread themselves evenly across all channels depending on their personal preferences.

Develop an enterprise sales analysis and sales campaign delivery capabilityBranches would be looked upon in a completely different light if banks had the capability to deliver effective cross-sell and upsell campaigns in their branches. Historically, few banks were capable of doing this for a variety of reasons, but advances in technology now make this possible.

Utilising new customer insights from big data and social media present the bank with a new outside-in customer view to complement the bank’s own inside-out view for a true 360-degree customer view. Tools exist to create highly targeted and relevant campaigns that need to be delivered into the optimum channel for a particular customer, which may also be the branch via the branch CRM application.

One example of such a tool is the NTT DATA Single Score engine, which identifies key life stage events before a customer approaches the bank — or worse, approaches a competitor. With the tool, branches can deliver effective and welcomed cross-sell and upsell campaigns.

Automate sales via CRM systemsModern CRM applications, such as Salesforce.com or Microsoft CRM Dynamics, utilise the advances in sales platforms and new customer insights, and are available to support branch staff in delivering true relationship management of the customer throughout the sale lifecycle. CRM applications can also reward the sales agent with different models on which to measure rewards. These same CRM applications can also support telephone banking and marketing, maximising sales opportunities across the enterprise.

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Conclusion

Customer visits to branches have fallen and continue to decline. Customers now find it easier to use self-service digital channels for simple transactions. However, customers still value the fact that a bank branch is available to them when they need it, particularly to seek information about bank products and services. This physical brick-and-mortar presence is something that the new digital-only banks and service providers do not have — nor do they have many customers right now to try and develop a relationship with.

In this light, banks must examine their existing branch networks as part of an enterprise omnichannel strategy that utilises and emphasises the advantages of having a physical presence. For example, focusing branch operations around sales and advisory services, as well as delivering superior customer service in these disciplines, may provide a significant competitive advantage for existing banks in the coming years. Similarly, advances in robotics and artificial intelligence will lead to more autonomous capabilities, including advisory services, and this may impact staffing requirements of new model of branches. This is where a partner with the right expertise can be invaluable.

NTT DATA Services helps banks achieve competitive advantage by enabling them to reduce operating costs, improve customer loyalty and reduce time-to-market, and by assisting them in complying with applicable regulations. We empower our clients with a proven, consulting-led, staged approach, wide range of specialised solutions and partnerships with leading third-party product vendors. Finding the fight formula for the branch of the future can be a challenge, but NTT DATA can help.

References1"2015 North America Consumer Digital Banking Survey: Banking Shaped by the Customer." Accenture. 2“10 Banking Trends for 2016,” by Maryalene LaPonsie. U.S. News and World Report. 7 January 2016. 3"Branch Network Reduction: 2014 Report." Campaign for Community Banking Services. 7 October 2015. 4"Access to Banking," by Ian Goodliffe. BBA Annual Retail Banking Conference. 18 June 2015. 5“10 Branches Designed To Wow The Digital Banking Consumer,” by Jim Marous. The Financial Brand. 15 June 2015. 6"The Robot and I: How New Digital Technologies Are Making Smart People and Businesses Smarter by Automating Rote Work." Cognizant. January 2015. 7“Advice and Paper Pushing in Banking will be Killed by AI,” by Brett King. Banking 4 Tomorrow. 29 June 2015. 8“Robots and AI Invade Banking,” by Jim Marous. The Financial Brand. 7 July 2015.9“Digital transformation: What can we learn from Spain’s BBVA bank?,” by Andreas Pouros. Econsultancy. 19 February 2015. 10"Digital Investment: Success Driver or Bottomless Pit?" by Chris Musto and Paul Kadin. Novantas. October 2015.