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Branch Transformation: Strategies to Enhance Profitability and the Customer Experience
Chris Gill Senior Director, Diebold Consulting
Key Trends That Are Impacting Retail Financial Services
Future Role of the Branch and Opportunities to Improve Efficiency and the Customer Experience
Branch Transformation Framework
2
Today’s Discussion
Changing Channel Mix
4
Source: CEB TowerGroup 2011, 2012
0
5
10
15
20
25
30
35
2010 2011 2012E 2013E 2014E 2015E
Tra
nsa
ctio
ns
(B)
Retail Financial Services Transactionsby Channel (2010 – 2015E)
Online Teller ATM Mobile
Evolution of the “Experience Economy”
5
Customer expectations are evolving rapidly and being shaped by innovation in other industries
Smartphones and tablets increasingly used to interact with retailers
Use of physical retail outlets to reinforce brand and capture member attention
Use of data analytics to improve the customer experience through preference identification
ONLINE SHOPPING
TRAVEL SERVICES
RETAIL
Increasing Consumer Power
6
ONLINE CONSUMER
RATINGS
NON-TRADITIONAL
COMPETITORS
ELECTRONIC
PAYMENTS
MOBILE BANKING SOCIAL MEDIA RAPID INFORMATION
DISSEMINATION
Social media amplifies the voice of the consumer in significant ways
The leading players in mobile payments are not Fis
Merchants are influencing consumer purchase method selection
Older consumers are rapidly adopting online, mobile and social media
Rise of Gen Y and the Millennials
7
• Will make up 75 percent of the global workforce in 2025
• Expected Gen Y & Millennials inheritance is $17.8 trillion
• $300 Billion in annual spending power
• Will conduct 40 percent of total transactions in five years
• Will have the greatest spending power of all generations by 2017
8%
15%
29%
33%
Use Mobile
Remote Deposit
Deposit a Check
at an ATM
Try New
PaymentMethods
Use Mobile
Banking
As compared to the Boomer generation, Millennials are _% More Likely to…
The “New Normal” in Retail Financial Services
8
Source: Morgan Stanley, SNL Financial, 2012
55% 55% 53%
56% 58%
60% 61%
$0
$100
$200
$300
$400
$500
$600
$700
2005 2006 2007 2008 2009 2010 2011
Retail Financial Services Revenue and Efficiency Ratio Performance (2005-2011)
Revenue ($B) Industry Average Efficiency Ratio
Significant decline in non-interest revenue due to regulatory constraints
Higher operating costs due to increasing labor costs and greater compliance requirements
Typically, branches account for 50% of a retail banking institution’s operating cost and personnel accounts for 54%
10
Branches Remain a Key Delivery Channel
Source: Forrester/Diebold research, Fall 2011
2% 3%
27%
6%
20% 23%
14%
67%
73%
67%
53%
21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Makea deposit
Open adeposit account
Apply for a loan Resolvea problem
Call center Web/Online banking Branch ATM
Consumer Channel Preference for Select Interactions
11
Branches Important in FI Selection
23.8%
44.5%
55.1%
55.6%
56.9%
63.5%
70.1%
83.9%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Mobile banking offering
Local ownership/decision making
ATM locations
Products offered
Branch locations
Web banking offering
Brand reputation
Attractive rates and fees
Importance in choosing a Financial Institution (Important or Very Important)
Source: Forrester/Diebold research, Fall 2011
12
Branches Need to Change
• One-size-fits-all branch designs
• Little in-branch technology enabling self-service
• Rigid staff roles based on transactions, service and sales
Today
• Multiple formats based on demographics and volume
• More self-service and assisted-service options
• Universal staffing models to increase efficiency and effectiveness
Tomorrow
13
Branch Role in a Multi-channel Strategy F
RE
QU
EN
CY
OF
IN
TE
RA
CT
ION
RICHNESS OF EXPERIENCE
THE NEW ROLE OF THE BRANCH
• Financial planning and advising
• One-to-one marketing and sales
• Customer service and issue resolution
• Complex transaction handling
• Local community branch presence
14
Multiple Branch Formats
FLAGSHIP SPOKE HUB IN-STORE/MICRO
• 4,000-5,000 square feet
• High visibility/traffic location
• Full service with full range of product specialists on site
• Showcase for technology
• 2,500-3,500 square feet
• Full service with some product specialists on site
• Located in a high traffic area
• 1,000-1,500 square feet
• Limited service
• Greater use of self-service automation
• Supports hub branches in market
• 300-500 square feet
• Limited service
• Highly automated
• Specialty/high volume locations (e.g. hospitals, supermarkets, malls, urban locations)
15
Hub Branch
In-Lobby Transaction Kiosks
Cash Recycler
Deposit Automation ATMs
Concierge Desk Technology Bar Digital Signage
Community Space
Video Conferencing For Sales & Service
Staffing levels consist of 5-6 tellers/platform staff and product specialists providing most services to customers. Commercial and small business services are offered in the branch through video conference technology.
2,500-3,500 square feet
16
Spoke Branch
Staffing levels at 4-5 tellers/platform staff. Investment, mortgage and small business product specialists available via video conferencing. High emphasis on technology and self-service training and education.
In-Lobby
Transaction Kiosks
Cash Recyclers
Deposit
Automation
ATMs
Technology Bar
Digital Signage
Video Conferencing For Sales &
Service
1,000-1,500 square feet
17
A New Branch Approach
Management Guidelines and Objectives – Branch Expansion
• Branch associates need to spend more time interacting with members and less time conducting transactions
• Leverage self-service technology for transactions
• Engage new members and get them to use their accounts more quickly
• New branches as part of a hub and spoke footprint – existing UFCU branches located with 3-5 miles of new branch locations
• New branches cannot meet every single customer need
Limited number of transaction types cannot be conducted at the branch and would require a trip to a traditional branch
UNIVERSITY FEDERAL CREDIT UNION (AUSTIN, TX)
18
Increased Focus on Customer Relationships
• Move from transactional to relationship activity
• Change staffing model – use of universal associates (Personal Financial Representatives) – 4 PFRs per branch along with a manager
• Reduce staff turnover and training expenses creating structure for a more defined career path
• Train consumers in self-service usage
• Greatly increase amount of time associates interact with customers rather than conducting transactions
• Seasoned PFRs to assist consumers with life events
• Structure allows an opportunity to explain this service model
NEW BRANCH MODEL
19
Implementing an ‘Assisted Service’ Model
WHAT DOES IT DO?
• Delivering a self-service or partially assisted service capability directly at the teller line, next to a teller pod, or as a stand-alone unit within the lobby.
WHAT VALUE DOES IT PROVIDE?
• Terminal to migrate additional transactions not currently addressed by the ATM
• Facilitate consumer education through partially assisted transactions in the branch, resulting in increased adoption
• Express lane alternative for consumers wanting quicker service
• Increased approachability due to location and proximity of staff
IN-LINE TRANSACTION KIOSK
20
Issues to Address Dimension
Operations
Defining the target customer experience
Changing policies and procedures Integrating with existing systems
Employee Preparation
Communications Training
Execution is Critical
Customer Adoption
Measurement / Tracking
Education / Communications Incentives
Customer behavior Return on investment
22
Drive Efficiencies
Improve Customer
Experience
Mitigate Risks
Improve Sales
Effectiveness
For most, the primary objective. Consider re-thinking your processes and opportunities to automate
Rethink how you address fraud, electronic security and physical intrusion. Minimize internal theft or errors without burdensome processes
Should be considered from the start when contemplating branch design, process improvement, and self-service automation
Capitalize on efficiency savings by re-purposing branch staff to sell more effectively. Deliver the tools and support needed
Branch Transformation Objectives May Vary
23
Adopt a Comprehensive Branch Transformation Approach
• What is the role of each delivery channel in our retail banking strategy?
• What is the optimal number of branches and ATMs we need to serve our markets?
• What is the target consumer experience in each channel?
• How can we operate our branches more efficiently in order to reduce costs while providing a high-quality consumer experience?
• How profitable are our branches and ATMs?
• How can we better mitigate operational risks?
• Which branch transformation solutions are going to have the greatest impact on our business?
• How do we prioritize various channel investments over the next three years?
• What is the most appropriate branch layout given our retail strategy?
• How do we ensure we maximize the value of investments in branch transformation solutions?
• How do we ensure consumers adopt new solutions?
• How do we engage employees to support new solutions?
• Did we achieve the ROI associated with the investments required?
• What impact did the new solutions have on transaction migration and consumer experience?
• What steps need to be taken to improve performance if expectations are not being met?
25
Identify Efficiency Improvement Opportunities
47%
70%
79% 85%
90% 92% 93% 95% 95%
0%
25%
50%
75%
100%
Seller Service Activity Volumes
Annual Transactions Cumulative %47%
70%
79% 85%
90% 92% 93% 95% 95%
0%
25%
50%
75%
100%
Teller Non-Customer Facing Transaction Volumes
Annual Transactions Cumulative %47%
70%
79% 85%
90% 92% 93% 95% 95%
0%
25%
50%
75%
100%
Teller Customer Facing Transaction Volumes
Annual Transactions Cumulative %
Activity Levels of Branch Processes
Average Annual Teller Transaction
Volume & Costs:
Note: assumes 4 Teller FTEs with S&B of $31K
1) Account maintenance, cash advance, and transfers
Source: Diebold Consulting Analysis
Other1
Trans. Detail / Bal. Inquiry
Payments
Cash Withdrawals
Check Cashing
Deposits
(Cash and Check)
120K $71K
26
Opportunities to Consider
• Network optimization planning
• Branch efficiency assessment and customer experience diagnostic
• ‘Test and learn’ for branch automation solutions
• Branch transformation roadmap development
• Implementation planning for new branch technology
28
Diebold Consulting
• Distribution network optimization, including planning for de novo branches
• ATM network optimization
• Market / site analysis
• Channel profiling
• Branch operational assessments
• Branch / ATM physical security risk assessment
• Branch / ATM physical security standards and procedures
• Fraud risk assessments
• Deployment strategy and business case development
• Deployment strategy and business case development for specific branch transformation solutions
• Branch design services and customer experience planning
• In branch self service solutions ‘test and learn’
• Deposit automation implementation
• Teller automation implementation
• Implementation of new branch formats
• Performance measurement and evaluation