Branch traffic continues its journey on the bullet train from Anemic to Morose as study after study indicates increasing customer preference for electronic delivery and payment channels. Banks and credit unions have taken incremental steps to improve branch efficiency, but are those branch-protecting techniques just Band-Aids that don’t address the real problem?
As they look at their five-year strategic plans, many bankers are faced with a choice: should they confront the shift in customer delivery channel and payment preferences and consider business and distribution model changes, or stay in denial, saddled with the albatross of ROA-depleting, overstaffed and underutilized 4,000-square-foot mausoleums on every corner? 
Further complicating matters for those contemplating change, robust alternative delivery channel sales and service functionality must be in place (to support what currently takes place in a branch) before changes to the branch model are executed.
Have we reached the point where branch technology and process should follow mobile and Web technology instead of the other way around? If we’re not there yet we can see it on the horizon, and an alternative, delivery-centric approach will demand a reshuffling of technology investment and development priorities. I’m talking to you too, vendors.
After years of fattening branch networks to compete on convenience, many financial institutions are saddled with a network of locations that are misplaced (because Joe Customer had a Great Piece of Dirt), overly opulent (because Jim CEO loved him some marble), and oversized (because Jane Retail couldn’t stomach the thought of an endcap) to serve their customer base. All of these undesirable factors have created the legacy of a substantial fixed cost burden at a time when banks and credit unions can least afford it.
SNL Financial reported earlier this year that there are 98,913 bank branches in the United States, down slightly from last year. The decline of 300 branches, the first since 2002, is a harbinger of things to come as trends in payments and alternative delivery exacerbate the problem of branch bloat. Eventual outflows of low-cost deposits gathered during the recession will aggravate matters further.
Electronic payments continue to increase in utilization versus cash and plastic, driving teller transactions lower. And of the teller transactions still coming to the branch, how many of those wind up coming through the drive-through? Online account opening and funding, originally championed by credit unions and now widely adopted by banks, means there is even less reason to head into the branch. I visit branches on a regular basis to assess sales and service technology and can’t remember the last time I got to observe a live account opening process since there weren’t any customers in the branch.
While we’re talking about electronic payments’ impact on the branch, have you seen dead-tree-and-MICR-pimp Deluxe‘s campaign to encourage check-writing? (Enjoy a good laugh here.) I don’t know about you, but the only thing I find a check to be useful for is floating one to the grocery store the day before my payroll deposit hits. Memo to Deluxe: Do you wonder how companies like Netflix remain successful? Its business model evolves. When it saw online viewing start to supplant DVDs, it looked to the future rather than try to protect the status quo. Netflix is investing heavily in online distribution versus marketing campaigns celebrating my “right” to wait two days to watch a movie. Maybe I’ll go exercise my “right” to be cured by leeches next time I go to the doctor, too.
To their credit, many institutions recognize the decline in branch activity. Understanding that new business isn’t going to come strolling in through the front door, banks have charged branch managers with the task of developing a small business customer base within their trade areas as a way to increase new business. To bolster retention, analytic tools are being utilized to generate leads for customer service representatives. These leads are used in outbound telephone calling programs to retain large deposits and understand the reasons for large withdrawals and account inactivity to prevent attrition.
To reduce staffing costs, some institutions have implemented the concept of a hybrid teller/CSR position, enabling them to improve productivity. Another means some institutions are using to deal with excess capacity is to figure out what work can be sent back out to the branch network. Improvement in connectivity, communications technology and front-end editing capabilities may mean that overflow from call centers, account maintenance and data entry, document scanning and other clerical tasks may find their way back into the branch system. Again, are these efforts just Band-Aids? If so, we better be prepared to do business with our customers using the channels they prefer—and that means alternative delivery.
An Alternative Approach to DeliveryWholesale shuttering of branch networks isn’t on the immediate horizon, but in the last 12 months I.T. project portfolios have included a substantial number of projects related to deepening alternative delivery capabilities. The problem is that investments for each channel are being made in a vacuum based on who owns a given channel/process (and I use “own” loosely given the general lack of formal structure around delivery channel strategy, sales and service processes). Delivery channel planning can help address strategic, technology, organizational and process issues.
A delivery channel plan, while linked to the corporate strategic plan, has the opportunity to go deeper because of its specialization. The plan can include both delivery and payment channels, if desired. Alternative delivery is a major focus of the plan, but integration with the branch strategy is a necessary discussion. Key strategic issues typically covered in a delivery channel planning process include:
On the subject of scorecards and goals, there is no way to understand customer preferences and no way to establish targets for success without measuring. Need a few suggestions to get started?
| Delivery Scorecard | Payments Scorecard |
|---|---|
A mix of utilization and productivity metrics across delivery channels is appropriate including:
| A mix of revenue and activity metrics across payment types is appropriate including:
|
Business process issues are frequently identified in the planning process. Prior to investments in technology, these issues should be sorted out to avoid automation of bad process. Process issues may include:
The process integration opportunity is considerable – is there really a need to retain inconsistent, parallel processes for new account opening, cross-sell lead generation, Internet banking activation, etc.?
To support the desired strategy, the plan must detail an organization structure for delivery and payments, defining who will help set delivery and payment strategies, who is responsible for sales and adoption of delivery channels, and what support responsibilities must be fulfilled and by whom. My colleague Terence Roche wrote last month about the branch role in supporting alternative channels (see Sales Culture in the Cloud) and has spoken at length about the need for all customer-facing staff to understand at least a basic minimum about channels and payments and know where in the organization to go for more complex or technical issues.
Technology needs should follow strategy, process and organization (notice how technology is only a quarter of what goes into a delivery channel planning process?). Priorities established in the planning process along with changes to process and organization will drive what technology enhancements are needed and in what order. Process integration opportunities described above should be addressed – does a standalone new branch platform really make sense when Internet new account platforms can be leveraged, for example? Initiatives, timing and a high-level estimate of cost and benefits (financial and non-financial) are all part of the plan’s technology roadmap.
The best-crafted strategies are useless without execution. Each manager with a stake in the delivery channel plan should have an action plan, and following up on it will make success more likely. The action plan should define the manager’s accountability in managing delivery channels and in implementing elements of the overall delivery strategy. Specific milestones and dates for key activities and goals must be identified and tracked in the execution plan.
For the cost of building and operating a traditional branch, an institution can make investments that go a long way toward optimizing its alternative delivery capabilities. With a delivery channel planning process, banks and credit unions can properly target those investments, allowing them to sell to and serve their customers effectively as alternative delivery sales and service activity increases at the expense of branch volume.
-qs
Whether you’re looking for a complete Delivery Channel Plan, want a deep dive into mobile banking trends, or need help building a scorecard, Cornerstone’s Delivery Channel Assessment and Planning Services can help you make the right delivery channel investments at the right time.
Our Delivery Channel Assessment provides observations and recommendations in key areas including:
Great piece. I’ve always tried to say investing in a technology that empowers a specific channel, whether it be online web based banking or mobile to build a “best of breed” app/Ux is a fraction of the capital expenditure to run a brick and mortar.