The bank branch as we know it, with tellers behind windows and bankers huddled in cubicles with desktop computers, needs reinvention. Most customers now carry a bank in their pockets in the form of a smartphone and only visit an actual branch to get cash or, occasionally, advice. Globally, financial institutions now process far more transactions digitally than in branches, and since the financial crisis of the late 2000s, more than 10,000 US bank branches have closed—an average of three a day.1 1.“Withdrawal symptoms: The closing of American bank branches,” Economist
Despite such systemic changes, branches remain an essential part of banks’ operations and customer-advisory functions. Brick-and-mortar locations are still one of the leading sales channels. Even in digitally advanced European nations, between 30 and 60 percent of customers prefer doing at least some of their banking at branches, according to McKinsey research (Exhibit 1).
Changing customer behavior and the emergence of new technologies spell not the end of the branch but rather the advent of the “smart branch.” Smart branches use technology to boost sales and improve customer experience significantly. When done right, applying the concept transforms the way a bank branch operates (reduced staffing), significantly lowers real-estate requirements, and alters customer interaction (targeted, relevant sales and service-to-sales programs)—with a resulting 60 to 70 percent improvement in branch effectiveness, as measured by cost savings and increased sales.
Our research shows that although many banks have started to adopt elements of the smart-branch model, most are not extracting the full value potential. Making branches smart is not a matter of simply installing new machines or buying a suite of tablet computers. Smart-branch transformation builds on three pillars: the seamless integration of cutting-edge branch technology, which has become cheaper, more reliable, and more accessible; the adoption of radically new, teller- and desk-free branch formats at every location; and the use of digital technology and advanced analytics to improve the operating model in branches, including personalized, data-driven sales and real-time performance management and skill development.
For retail banks, technology has several goals: the migration of transactions and sales to digital channels, 24/7 customer access for every interaction, a personalized approach to sales, and a unified, omnichannel user experience—meaning that customers get a seamless experience whether they are online, on an app, or at the branch. Customers should be able to come into a smart branch any time of day or night and get anything they need, from new products like loans or credit cards to service, quickly. And no matter what device they use, the user experience should be consistent. A number of technology solutions can enable these goals (Exhibit 2).
Next-generation banker tablets
Tablets give bankers the freedom to roam the branch—much in the way that Apple Store employees do—enabling them to increase sales and provide superior customer service. The following four critical features allow bankers to be truly effective:
- Live customer-transparency dashboards. These dashboards alert bankers when customers make transactions at branch machines, like ATMs, so they can offer support or personalized offers.
- Advanced customer-relationship-management software. This software gives bankers a holistic view of a customer relationship and history of interactions with the bank, including applications, payments, and product holdings. New customer-relationship-management platforms use comprehensive customer data and next-generation, analytics-based models to generate real-time, next-best-product recommendations. Using this approach, a bank in the Middle East increased its service-to-sales conversion to more than 4 percent, from 1 percent.
- Digital sales modules. These modules allow bankers to use their tablets to meet customer product needs, including credit cards, automobile loans, mortgages, insurance, overdraft protection, and deposit accounts. They also support new-customer onboarding. The tablets are equipped to scan and upload documents onto bank systems; read fingerprints, ID cards, and passports; and perform credit scoring. These capabilities are also integrated with branch technologies such as instant credit- and bank-card printing and back-office automation. A number of banks across Europe, the Middle East, and the United States have seen significant improvements in customer experience as a result of fully digital, two-minute current account openings.
- Assisted migration modules. These modules allow bankers to migrate customers to digital channels for services such as money transfers, address and email updates, check cashing, and large-check deposits and withdrawals. Several banks have designed a “self-service” experience in which a banker can walk the customer through the process, leading to higher digital adoption and customer education.
Interactive teller machines
Interactive teller machines (ITMs) embed most branch services into a machine; in remote locations, they can function as a “branch in a box.” By incorporating remote connection to a human banker, ITMs effectively extend branch hours to 24/7 and allow customers to do most of the things they would normally come to a branch for, such as making deposits, performing account transfers, cashing checks, getting statements, and authenticating over-the-limit cash withdrawals and money transfers. Customers can also apply for and receive products like credit cards, debit cards, and loans. Customer-authentication technologies include national ID and passport readers, fingerprint scanners, two-step mobile authentication, digital-signature verification, and even facial recognition.
With fewer features than ITMs, service terminals are simple, inexpensive devices that can be placed both inside and outside of branches (for example, in shopping malls). Their main objective is to help less digitally inclined customers feel comfortable with the experience of digital banking. They provide the same user experience and interface customers would get on a mobile device and process nonfinancial transactions, such as statement requests; they can also transfer money between accounts and accept applications for new products, such as credit cards. Service terminals also present personalized offers that customers can respond to on the spot and use the same customer-authentication capabilities that ITMs use.
Located in the self-service area of the branch, a dedicated, secure room equipped with video-conference technology and co-browsing software is accessible at all hours. While most individual customers will gravitate toward ITMs, video-conferencing rooms mainly serve small and medium-size businesses or individual customers with complex product needs, such as mortgages. Customers can use video conferencing to get sophisticated advice, open lines of credit, sign letters of guarantee, and update their business details, all in a confidential environment. A number of banks in Scandinavia and the United Kingdom are already using video-conference rooms in advanced ways.
Interactive welcome screens and walls
Imagine a customer passing by a large video monitor inside her bank branch. She is recognized by facial-recognition software and identified through data analytics as not owning a car. Immediately, her image is superimposed in front of a new vehicle; the screen prompts her to knock on the window, which opens the “car door” and gives her a view from the driver’s seat. She is asked if she is interested in a car like the one shown, and if she replies, “Yes,” she is offered a low-cost loan, based on the bank’s existing data on her. A nearby banker, alerted by his tablet’s customer-transparency dashboard, comes over to provide more information. This is one example of how interactive walls can capture customers’ attention and gamify interactions and product marketing. On a more basic level, interactive welcome screens can greet customers and immediately direct them to appropriate channels.
In a traditional bank branch, 70 percent of the floor space is devoted to tellers and other assisted-sales and -servicing areas, with 30 percent dedicated to self-service. Smart branches flip this ratio and have a significantly smaller, simpler, and more streamlined footprint. Instead of wandering around trying to figure out where they need to go, customers are immediately approached by employees who guide them to intuitive pieces of technology or assist them directly on their tablets. Except for a few large, flagship branches, teller counters and most of the back offices are gone. In their place is a distinctive layout constructed from the following three building blocks:
- Self-service area. Located at the entrance of the branch and taking up most of the space, the self-service area is the core of the smart branch. It is open 24 hours a day and offers ATMs, ITMs, service terminals, interactive digital walls, robot greeters, and a video-conferencing room.
- Standing-desk zone. Within the self-service area, bankers at standing desks can proactively approach customers for sales and assisted services. Standing desks also signal to customers that transactions will be quick and efficient—with no need for a long sit-down.
- Priority lounge. Larger branches can include priority areas for customers and businesses to receive premium advisory services and support.
Smart branches will all share a streamlined, more efficient design, but there are several archetypes banks can use based on what is most effective for a particular location (Exhibit 3). Booth-sized, fully self-service box branches with no full-time employees will be ideal for remote or rural areas. Standard branches with three to four full-time employees will comprise most (85 percent) of a bank’s network. Segment branches will have a few more employees and several relationship managers who help serve customers in specific segments, such as those requiring affluent banking services. Located in more populated, urban areas, large flagship branches will be only about 5 percent of the network and will typically have more than eight employees and one rotational banker double functioning as a teller.
A new operating model for a new branch
The advent of the smart branch has implications beyond the redesign and reformatting of customer interactions. It also requires fundamental shifts in how banks think about and support the branch and its employees.
A technology-first and needs-focused mind-set
Digital technology should not be an add-on to existing practices and processes. It should be built into customer interactions and employees’ day-to-day work. The goal should be to migrate more than 90 percent of simple customer activities to assisted or self-service formats; to have simple, unified, paperless processes for sales and service; and to use next-generation analytics to deliver personalized offers that are truly relevant for customers. While traditional bank branches are reactive and service oriented, smart branches are proactive and focused squarely on customer needs.
Transformed roles and capabilities
In the smart-branch model, almost all branch employees will be multiskilled sales and service bankers and will spend 90 percent of their time on targeted, analytics-driven activities. With most simple sales and service customer needs met through self-service tools, the need for greeters or tellers will be reduced. And the employees that do staff the branch will be equipped to deliver more for customers when they need it.
Importantly, technology doesn’t just make life easier for customers; there are effective tools to train bankers in the higher-value functions of delivering advice and sales offers. Gamified training videos on tablets make instruction engaging and efficient and can be tailored to an individual banker’s needs based on his or her performance with actual customers so that time is not wasted on irrelevant training. Chatbots can give bankers instant access to information about a bank’s latest product offerings and policies as well as details about their own performance metrics.
Digital performance management
Digital tools can improve performance of branch employees and the branches themselves. Digital huddle boards, for instance, can be highly effective for planning the daily goals and strategies of both individual bankers and teams. They add to self-reported performance metrics by looping in data from sources such as ITMs and tablets with an analysis of customer movements within a branch that are generated from facial-recognition software. Branch managers can get transparency into employee performance through a simplified command center on their tablets. The command center can include live feeds, tracking of which employee is using which tablet module, status updates on a banker’s adherence to standards, and daily management briefings automatically prioritized for the most pressing problems.
Recent time and motion studies have shown that the expectations of branch-resourcing models are considerably out of line with the actual workload. An accurate view of the duration of common activities, such as transactions, and untracked customer demand leads to more realistic resourcing models. Advanced management dashboards that track real-time workloads and sales results give managers the flexibility to shift resources as required in a fact-based manner.
With the right tools and models in place, bank branches can deliver radically improved, inspiring customer experiences. The bottom-line impact from a shift to smart branches will also be significant—considering that physical branches account for the majority of a bank’s operating expenses. Cost-saving elements include transaction migration, self-service technologies, and smaller branch footprints. On the revenue side, analytics-driven service-to-sales programs; digital sales-support tools; near-real-time, digital performance management; and enhanced banker capabilities all contribute to increased sales (Exhibit 4).
Far from rendering the bank branch obsolete, technology holds the key to the branch of the future. To reap the full value potential, a bank needs to commit fully to the smart-branch model and equip its bankers—and their branches—with the tools they need to succeed.
All Rights Reserved for Klaus Dallerup