by Jim Kearney , Erik Steffensen

Retail banking is facing a steep decline in visits to branch banks. In fact, the number of branches in the U.S. declined by more than 1,700 in the 12 months ended in 2017, the biggest drop on record, according to a Wall Street Journal analysis of federal data. For an increasing number of customers, particularly younger adults, branches are no longer the primary driver in choosing a bank.

This could be good news, right? After all, branches are physical spaces, often in prime, high-cost locations, that are expensive to lease (the average major metro cost of retail space is $30/sf – not including build-out costs), maintain and staff. Balance sheets are increasingly burdened with assets (branches) that don't generate revenue.

The challenge is that most retail banks haven't yet worked out the alternatives that customers are seeking. They struggle to attract Millennials, who are used to a retail-world customer experience shaped by Amazon and other tech-driven companies. In addition, they will need to consider Generation Z and the generations to follow, since any changes will need to be a long-term investment. 

Traditional banks also face new competition from virtual banks, such as Ally, that are already in the market, and growing (think Paypal, Venmo and Zelle). As for the future, what happens if and when a tech-enabled colossus such as Google or Amazon goes into banking?

This is not news to most banks. They know disruption is coming (or that it’s here, actually), but what key decisions do they need to contemplate right now? How can banks capitalize on the disruption to shed legacy costs and forge new connection paths with their current and new customers?

Point B’s Perspective

It's time for retail banks to unlock the capital in their branches and redeploy it in a way that is more personal and in-sync with their customers' expectations.

Done strategically, there is real upside to shedding some branch locations. In the medium term, this transition funds itself, eliminating expenses from the lease, overhead and security costs associated with each branch, and giving banks the opportunity to replace that overhead with a more personalized customer experience to retain existing customers and attract younger customers. It drives an organization to develop a more flexible, responsive business model that can adapt and innovate more quickly and cost-efficiently. In short, it's a win-win for customers and banks.

Can you imagine the ideal network for meeting your customer’s needs?

What to consider when making the change from a location-centric to customer-centric model:

At times of major industry change, it pays to stay close to your customers – both current and prospective. Do you know what they're looking for in a banking relationship?

You may need to conduct fresh market research, or pose new questions to mine existing customer data for a clear picture of where you are and where you want to go. What is your current customer base telling you? How do you expect it to change 5 and 10 years from now? How are demographics – population, age, ethnicity, incomes – shaping the desired customer experience? Do you have the business intelligence/data to develop a timeline showing how your customer base will evolve?

Once you've considered your customers, imagine the ideal network to serve them and grow market share. What would it look like if you had free rein to revamp it now to serve your customers' needs?

A Five-Pronged Model: Plan for less real estate, more points of contact and convenience.

Establish a five-pronged contact model for connecting with your customers. The aspects of this model will probably look familiar, but what's new is the de-emphasis on physical branches as the other four prongs increase in prominence.

  1. Online and Mobile for secure electronic transfers on all tech platforms for nearly all types of transactions, including payments and trading
  2. Telephonic services for information, problem-solving and help. The use of artificial intelligence is a great way to support this channel.
  3. Enhanced ATMs with private, secure enclosures for large cash deposits, cashier's checks, money orders, bonds and/or video chats for consults and customer service. It’s personalized service in more locations for customers, with lower overhead costs. 
  4. House calls and business calls for investments, loans, notary services and new customer contacts. Think “Geek Squad” for banks. The concept of the bank going to the consumer versus the consumer going to the bank hasn’t been well adopted, but banks should consider how customer experience would be improved if they met customers on their terms (and turf). 
  5. A redefined in-branch experience that takes the other four connections into consideration. Consider innovative new types of in-bank experiences. Talk with leaders in the retail, hospitality and/or consumer products space to find out how they’ve redefined a successful in-store experience. Think about who does “Customer Experience” well in another industry. As an option, contemplate partnering with one of these organizations in order to comingle experiences in a new and innovative way.  What are they doing right that can translate to a better experience for in-branch banking customers? For instance, Capital One Cafés are already co-branding with popular coffee shops to attract consumers in a different way.

As odd as it sounds, a combination of these out-of-bank experiences can make banking more personal for customers. But with fewer branches, you can devote more capital and staff to providing concierge services once limited to your private banking customers. And while a branch teller has limited time and information to help a customer, an employee in a central location with instant access to the customer's full banking relationship can answer questions and offer services that make for a more personalized experience.

What Stays? What Goes? Triage branch locations into groups.

As you think about closing branches, it can be helpful to turn the question on its head: If your bank was brand new and had not yet opened any branches, where would you open them now, and why? What would these branches be like, and how would it feel to visit one? 

Every branch needs to earn its keep. Perhaps as many as 30-50 percent of them would be closed or look different if you could change them to serve customers the way they'd like to be served.

As you assess your branch locations, triage them into the groups. Some examples might include the following:

  • High net worth and retiree locations
  • Banking center locations, such as New York and Chicago
  • Operations hubs and talent pools such as San Francisco and Austin
  • Urban, suburban, and rural branches
  • Specialty situations such as gateway locations for international customers and locations demanding physical security infrastructure, such as vaults and lockboxes.

After creating groups with similar profiles, you can now make an informed decision for what to do with each branch:

Leave the branch as it is if you have customers that are highly resistant to change and prefer a traditional experience.

Keep the branch location but downsize and/or redesign the space to better serve customers' needs. This might be particularly effective if you have diversified customers in high-density locations that are high-touch or high-service. Here’s the opportunity to redefine the in-branch customer experience. Direct partnerships with food and beverage or other service businesses is another way to split costs reimagine how to serve your customers. 

Close the location entirely; sublease or sell it. Know the main types of transactions handled by the branch and find ways to fill the voids in order to ensure you're still taking care of those customers. Some examples could include replacing the branch with enhanced ATM, or strategically position house-call bankers to cover the area regularly.

Create the connections customers care about most. Banking relationships are no longer defined by physical locations that require customers to meet banks on their turf. They're about connecting with customers whenever and wherever they have a question, a transaction, or the need for a new financial service.

The Bottom Line

When your bank transitions from a location-centric model to a tech-enabled customer-centric model, you're on the road to deepening loyalty, winning new customers, and lowering overall costs – all at the same time. You'll be well positioned to not only thrive among your traditional competitors, but also to take on those new competitors that are always just around the virtual corner.