The branch as the cornerstone for success

David Cavell is a well-known retail banking consultant who helps banks worldwide develop profitable sales strategies. In the following article, Cavell contends that the branch once again will need to play a central role in the multi-channel strategies of banks. In that context, he advises retail banks to focus intensively on the design of their branches and the integration of self-service technology.

Extreme economic adversity, rising costs and competitive pressures on margins are just some of the challenges that have confronted retail bankers in recent years. And for the early years of the new Millenium many authoritative commentators were promoting the imperative of virtual delivery channels and energetically suggesting that there would be a rapidly shrinking demand for branch banking.
Against this backdrop, it is impressive that so many banks now have robust and expansionary retail delivery strategies with a wellbalanced approach to both old and new channels. What is particularly worthy of note are the major differences between what has been spoken about new generation delivery channels and what has happened in practice! Much of the impetus for the virtual banking revolution emanated from commentators in the USA and yet there has been no significant movement in the size of the North American branch networks.
In fact, only Australia and the United Kingdom amongst the mature retail banking markets wielded the knife to any significant extent. And whilst the UK is now operating with a branch network around 40% smaller than that of the early 1990s, Australian bankers are already building back. Elsewhere, any reductions in national networks have largely arisen from industry consolidation rather than a deliberate strategy of branch closures.

Brand – the big issue
Today, global retail banking delivery channel strategy has now reached a relatively mature and stable state. The branch continues to be recognised as the lead delivery channel. So, given the industry’s renewed commitment to bricks-and-mortar banking, what should be the principal objectives of the branch? Firstly, it should protect and develop its existing portfolio of customers. Clearly, it also has a role to play in growing the business through acquiring new customers. Then there is the need to provide service facilities critical to its location. And of course, it is also the local ambassador of the brand, which we will discuss next.
With widespread erosion of consumer respect and little perceived differentiation between key players, banking emerged from the last decade as a commoditised service. A primary symptom of this condition was the growing number of strongly branded competitors from outside the industry who had seized the opportunity to enter the banking market.
Today, this adverse trend has been reversed and an increasing number of retail bankers have developed distinctive brands at the heart of a strategy to increase both their competitiveness and differentiation. One of the finest examples of this approach has been the development of the new Shinsei retail banking operation in Japan. Emerging from a major restructuring in 2001, Shinsei developed a strong brand based on customer empowerment. This gave it a clearly differentiated and highly competitive positioning in a Japanese industry which was then still taking a conservative approach to its consumer proposition.
The brand values and associated corporate image flow through all aspects of the bank’s delivery mix, including leading edge retail branches with a strong sales and service culture. Caja Navarra, a dynamic Spanish community bank with a network of over 340 branches throughout the country, has worked equally hard on its own brand and positioning. And it reflects the commitment to the community built into its mission through the facilities and events that it provides in each of its Canchas or new concept branches.

Best practice in branch development
The ideal branch design must satisfy three principal requirements. It must meet the expectations and needs of its customer base. Its facilities must be adequate to support the staff in the achievement of their goals. And it must operate at a cost level that, when combined with its income potential, ensures its ability to generate the required return on investment. So, is there a problem? Yes there is, and it is in the continuing propensity of many bankers and commentators to best guess the needs of the customer when they are creating or redeveloping their branch service.
The worst example of this is the continuing generalised assertion that ‘banks should be more like retailers’. This infamous piece of hyperbole dates back to the early 1990s and has yet to produce any substantive evidence in its support. There are significant differences between the nature of the products and services in the two sectors. Moreover, both research and anecdotal evidence show that the basis on which financial service buying decisions are made vary significantly from the drivers of a purchase made in a retail store.
Equally importantly, customer expectations of both the manner of their greeting and the environment in which they will be met are critically different when making financial services purchases. Privacy and staff behaviour, including their interpersonal skills, are among the factors that weigh most heavily with customers, in the many markets and cultures across the World. These are not the characteristics most associated with retailing. Where some sales increases have been claimed through being more like a retailer it is highly likely that they came from other environmental improvements, or simply just paying the customer more attention.
When Standard Bank launched their ‘Autobank E’ sub-brand in the mid-1990s, to serve the emerging mass market of South Africa, they initiated one of the most challenging retail banking enterprises ever undertaken. However, they had conducted extensive research to ensure that every aspect of customer expectations was understood when developing the new branch based service. And the result was a sub-brand that became aspirational within its target segments.
Today, in other parts of the World, the many branch based premium banking facilities or small business lounges operated by bankers are a current example of meeting customer expectation at the appropriate level. In summary, consumer research and feedback offers a sounder knowledge base from which to design and build branches than simply trying to best guess the customer! And optimising customer expectations with affordable retail development provides the best basis for success.

Branch automation and the customers
Automation is playing an increasingly important role in enhancing both the cost and income effectiveness of the branch. And the most notable developments are those that are supporting the interface between customers and their bank. Indeed, the only cause for concern here is the potential for an increasing gap between market leaders in the use of branch based technologies and the other banks.
Self service is the principal customer facing technology at the branch and still remains synonymous with the ATM in many markets. In the USA, the ability to accept and recycle notes, and truncate cheque data at the point of deposit has resulted in even greater emphasis on the role of the ATM. In Asia-Pacific, ICICI Bank of India and OCBC in Singapore are amongst the major regional institutions that have also built award winning ATM functionality. However, for world leadership in both the breadth and scale of self service operations (rather than just ATMs) there are none that exceed the achievements of the German Sparkassen. Originally local savings banks, the Sparkassen have now evolved into fully developed retail financial services institutions with a network of around branches across Germany. The wide range of customer activated terminals that they deploy are now an integral part of a high quality and innovative branch network which has benefited from highly effective strategies for migrating transactions to self service. An example of the problems that have been tackled successfully within the Sparkassen movement is the perennial issue of ensuring lobby based machines do not take the customers out of range of branch staff during trading hours. The approach to this issue by the Sparkassen at Forchheim has been particularly innovative. The bank commissioned a floating platform so that its principal group of self service machines can be moved from the extended hours lobby to the heart of the branch at the start of the day. At the end of the day, the machines are returned to the lobby for customers to use overnight.
Unfortunately, the majority of retail bankers have yet to take advantage of the full potential of the latest self service capabilities. Indeed, very few even recognise the value of a formal approach to this subject. An effective self service strategy requires a plan with no more than 10 key points, but it has yet to appear on the agenda of most retail bank leaders.
The other area that has consumed considerable resources over many years is the development of various types of customer relationship management systems. The ability to open a dialogue with customers at the teller station or in the consulting booth – using first class information and sales systems – continues to be one of the major areas of development for the leading players.
The management team of Shinsei Bank (discussed above) were quick to take advantage of a new beginning and created an excellent customer relationship management system to support a needs based approach by their branch sales teams. Garanti Bank in Turkey is among the other smart players in this area. Their two tier system offers first level support that enables their tellers to open sales dialogues with certain types of customer. Whilst the bank’s relationship managers have more sophisticated tools that provide a deeper and broader picture of the customer and their affairs. This also includes an assessment of the further sales potential within the relationship and enables staff to review the status of the ongoing dialogue with a customer. The system also provides a platform from which to originate sales calls.

Take comfort!
Across the World, increasing numbers of best practice models are emerging that show how retail bankers are realising benefits from a mix of both old and new delivery channels. In Australia, the multi-channel delivery strategy of the ANZ banking group led by a network of over 820 branches offers a role model in best practice. And in South Korea, a World leader in the development of online and mobile banking services, its bankers were still opening new branches in 2007. While evidence from both the United States and the British market in recent years has confirmed the trend for customers to migrate from the use of a call centre to do-it-yourself banking through their home based online terminal. What now appears certain is that, at least for the next generation of investment, the branch will continue to provide the cornerstone for retail banking success, taking the lead in a multi-channel strategy.
Any executive assuming responsibility for developing their bank’s delivery channel strategy can now draw on an extensive experience pool (of both success and failure). Much of this knowledge and experience also lies with the major vendors, and they are usually willing to share it. Any thorough market review will quickly highlight the critical success factors and the benefits that may be expected. Indeed, we have now entered an era when retail bankers are surrounded by the green shoots of success. All they have to do is go and find them!