Whether it is Bank of Queensland with their Hipster Branch launch, Citi’s famed Apple Store Branches NAB’s Crowd concept, Unicredit “Branch of the Future” in Italy and Bulgaria, PNC’s Tellerless Branches, smaller regional players like South Shore Bank and Conestoga Bank Werx, or the launch of Video Interactive Teller’s for TEB, Ion Bank, Banca Popolare and others, we seem to be hearing about new ‘Branches of the Future’ constantly. However, with declining branch activity across the board in developed markets, is the very term branch of the future part of the problem? When BankWerx launched their new ‘branch of the future’ the press reported that they were offering free Wifi, phone charging stations and free coffee to engage prospective customers. Then other banks opened up next door.
Jon Blakeney from i-AM Associates discussed in a passionate talk how bank branches should be about todays customer, not the bank branch of the future. “No one has ever asked us to design the restaurant of the future” said Blakeney in his recent Next Bank keynote, and in that statement alone we identify one of the key hangups that banks have over changing distribution models.
With branches having been so central to the distribution model of banking in the past, it’s obvious that many banks will struggle to let go of this mode of revenue delivery, at least until such time that branches become clear loss leaders. Thus, for now there appears an inordinate amount of effort being put into ‘saving’ the old distribution models with a rethink, reboot or refresh – a future iteration that might restore the old behaviors of customers.
The problem is that the economics of branching is struggling as footfall declines (see Going, Going, Gone!), and while in some emerging markets branch traffic is still increasing on a net basis as the middle-class grows and large numbers of unbanked are becoming “banked”, the overall outlook for branch networks is still trending negative. Just as it has been on a net basis for most storefront retail of other easily digitized products such as books, music, movies, etc.
The problem here for banks though, is one of focus. Branch activity largely is not declining because the branch is simply designed poorly, has too many tellers or teller stations, or doesn’t have enough technology embedded – it is declining because customers just don’t need to visit branches like they used to. Banks should be cognizant of the fact that while refreshing branches will help with some segments of existing customers, and might reduce overall network cost, it’s not going to reverse consumer behavior trending away from branches.
The looming issue is new revenue. According to Javelin Strategy and Research, Gen Y income will soon exceed that of Baby Boomers. By 2020, their income is projected to exceed that of both Baby Boomers and Gen X. That’s just six years away. 78% of these Gen Yers cite Mobile Banking as the single most important factor for choosing a bank. But the problem for banks is simple – mobile doesn’t produce revenue. For leading banks they might generate 10-15% of their revenue via online today, but the bulk of revenue is still recognized in the branch (often incorrectly so).
We’ve got all this real-estate, what do we do with it?
There are three key questions or issues on the changes impacting distribution methodology that continually come up:
The first two questions often obfuscate strategy because the primary problem is not fit of the branch to the business, but how to fix under performing branch networks. The last becomes a business case issue – is it worth closing or downsizing a branch. Granted when most of those real estate contracts were signed there was a great deal more skepticism over the risk to branches.
However, the core metrics of branches need to be honestly assessed against the potential for future revenue. Those core metrics need to start with the simple measure of average number of annual visits per individual customer per year. This is the core measure of engagement that we often miss when looking at future branch potential on revenue.
The real trick, though, is providing a viable alternative revenue stream through mobile, tablet and web. For that we need a compliance leap – we need compliance on board with digital onboarding of customers, or at a minimum a reduced application/documentation workload for both new and existing customers.
A single view of the customer, and a progressive or tiered KYC approach. In a report issued in June of 2011, the Financial Action Task Force (the global AML standards body) suggested banks and FIs look at this as a solution for better AML compliance, lower costs and for improved financial inclusion. However, the tiered KYC approach also allows for better revenue delivery in real-time and via mobile.
Banks like Fidor are already using this progressive KYC strategy, allowing you to open an account via Facebook initially.
Remember, one of the core reasons we still prefer the branch as banks, is the preference by compliance teams for unique, signed application forms for each product application – this model must die. It simply does not fit with the future of revenue delivery.
Revenue delivery via mobile is inversely correlated with compliance friction. The more unnecessary friction I put in the process, the more unlikely it is that I will ever realistically compete with the branch in respect to revenue delivery.
The Bank of the future is all about engagement and relevance. A branch of the future strategy is an effort to retain relevance, but it misses the key point that engagement in-branch is in decline for other reasons. Beyond a spike when a new branch layout is launched, I’ve not seen any data that shows significant improved engagement over time – you can bet if we were seeing this trend then the branch of the future enthusiasts would be yelling it from the rooftops.
Here’s the thing – I know we need new branch layouts that remove tellers. I know we need service points, and that they’ll likely be much smaller footprints, but replacing older larger branches so there’s no perceived drop in service. I know complex product revenue will still come through the branch. But we should be talking about building the bank of the future, and not just the branch of the future.
Within just a year the branch will be the least visited and least engaged channel in the channel mix for retail banks in the US, UK, Germany, France, Australia, etc. If your primary distribution or revenue strategy is improving the efficiency of your lowest performing, least engaged channel – then you’re doing it wrong.
I know many of you will argue that it’s still about revenue – that most of the revenue comes through the branch. How can we change that without investment in engagement outside of the branch? That’s the key problem with focusing on a branch of the future strategy – we avoid the real work that needs to be done. In doing so, we might just jeopardize the entire future of the bank.
A version of this article first appeared in Breaking Banks.
Brett King is a widely recognised top 5 FinTech influencer. He is a futurist, an Amazon bestselling author, an award winning speaker, hosts a globally recognized radio show (Breaking Banks), is the CEO of Moven, and in his spare time enjoys flying as an IFR pilot, scuba diving, motor racing, gaming (mostly FPS) and Sci-Fi. He advised the Obama administration on the Future of Banking, and has spoken on the future in 50 countries in the last 3 years.
Breaking Banks, #1 show on VoiceAmerica Business, is the leading global fintech podcast with more than 5.5 million listens from 172 countries. Breaking Banks broadcasts, are live every Thursday at 3pm EST in NYC on 1160AM WVNJ Radio and globally via VoiceAmerica’s Business Channel.
His latest book Bank 4.0: Banking everywhere, never at a bank will be shortly released on Amazon.
Brett King is a futurist, best selling author, award winning speaker and host of a globally recognized radio show. He is also co-founder and CEO of Moven, a New York-based $200m mobile banking startup with over a million users. He is widely regarded as one of the top 5 global influencers in financial services, and his book Augmented was cited by China's President Xi Jinping as recommended reading on artificial intelligence. He advised the Obama administration on the Future of Banking, and has spoken on the future in 50 countries in the last 3 years. Brett focuses on how technology is disrupting business, changing behaviour and influencing society. He has fronted TED conferences, given opening keynotes for Wired, Singularity University’s Exponential Finance, The Economist, SIBOS and many more. He appears as a commentator on CNBC and has appeared regularly on the likes of BBC, ABC, FOX, Bloomberg and more. His radio show, Breaking Banks, began in May 2013. It was the first global show and podcast on FinTech, and has grown to be the most popular with an audience in 140 countries/ 3.6 million listeners.