As transactions migrate away from branches and digital sales rise, what is it exactly that branches will do? Traditionally, consumer bankers saw the branch as the center of their customers’ banking universe, but in reality people are increasingly interacting with their banks through digital channels. To the average customer today, the branch is a single, though vital, node in a network of bank channels.

The question, then, is clear: What is the function of the bank branch in this network?

If you don’t know yet, you’re not alone; other leading banks are encountering the same obstacles as they try to describe the new role of the branch. Through member conversations and our research, we identified 3 key challenges facing the branch of the future as it defines its role.

• Effective multi-channel communication: Many banks believe prospective customers need the credibility of an in-person experience to start a new banking relationship, but our research shows leading firms are finding innovative ways to more effectively communicate with and acquire customers outside of the branch. For insights into engaging customers in the digital channel, watch our webinars: Crossing the Digital Divide & Unleashing the Digital Bank.
• Re-vamped training and service models: As channels change, banks believe the primary role of the branch will be for complex sales and problem resolution; it follows that the branch staff of the future must be skilled enough to solve complex problems and empathic enough to handle distressed customers in their time of need. But is this so-called “super-banker” really the solution? The best banks are pioneering different approaches to prepare their workforces for the branch of the future.
• Creative space and design: We hear our members say more and more that they need to optimize their physical branch space, and leading banks are differentiating their stores based on market and purpose. For more trends in branch design, browse our Market Intelligence & Innovation Showcase.

To learn more about our upcoming Branch Capability study—designed to help firms identify emerging branch needs and tackle these challenges—please email Alex Pavel at apavel@executiveboard.com.

Our channel traffic projections indicate an 11% decline in branch transactions by 2015, as mobile surpasses it as a transactional channel. Meanwhile, branch sales are projected to remain flat across the next several years with online seeing rapid growth. Clearly, the branch’s role is due for change in order for it to remain an engine of revenue growth for the bank. The problem? Our members tell us that they have some idea of where the branch needs to go, but they have no idea how it will get there given that they are in so much flux.  As one member told us, “I feel like I have to manage the branch of the past, present, and future.”

Through member conversations and our research, we have isolated 5 key areas where banks will need to learn to innovate as they recast the role of the branch. If you are interested in learning more about our upcoming Branch Capability benchmarking in these 5 areas—please email Alex Pavel at apavel@executiveboard.com.

Change Capacity: Banks that are farther down the road of channel innovation say that there is no more important skill than having systems in place for managing through change. “Change is pain,” is what one member told us. Without the right skills in place to manage change transparently, banks will face a tough (and costly) road.

Talent: From across our membership, there is a movement toward rethinking what skills the branch will need, how to do more with fewer employees, and how to successfully manage incentives for new kinds of traffic and demands for collaboration.

Technology: “Technology is the hardest part”—that’s how one member put it. What to buy, when to invest, and how quickly to change are at the heart of branch transformation strategy. Perhaps most importantly, true staff transformation cannot happen without a simultaneous investment in technology.

Multichannel Integration: How will customers know when and why to visit the branch? And how will the branch work with an increasing dispersed set of channels and roles? At the center of multichannel integration for the branch will be reframing the role of the branch relative to the work done in other channels.

Space and Design: Branch networks and formats vary widely across markets, and to innovate successfully banks will need to think beyond their legacy models. The branch does not need to become a destination—rather, it needs to serve a clear set of opportunities and customer needs. To grow, banks will need to be creative in their thinking about how much branch it takes to hold market share, and how to calibrate “productivity” based on new branch models.

At a time when banks can least afford to lose key customers, a growing field of non-bank financial service providers is redefining customer experience. What threat do disruptive innovators pose to banks—and more importantly, what can banks learn from new models?

In CFC’s recent customer channel preferences survey, a stark trend emerges: as customers move toward non-branch channels, engagement declines. Tech-focused customers perceive their bank as less able to provide product guidance, hard to communicate with, lacking knowledgeable staff, and not sufficiently concerned about customer well-being. In short, many banks are not connecting emotionally with tech-based customers.

Through tech-based offerings, new entrants into financial services are targeting disengaged customers by re-imagining core areas of customer experience. For an in-depth look at the following emerging models, please join our webinar next week (for U.S. and Europe) and February 1 (for Asia Pacific):

1) Superior transactional experience of highly-focused products. Banks focus on transactional products as the foundation of customer relationships—they are the bridge to share of wallet. Innovators like Simple, or Perkstreet, focus on pure play models, devoting their energy to superior experience on a highly-focused product.

2) Self-directed guidance. Bank credibility relies on in-house expertise and the ability to provide personal advice on complex products. Understanding that most tech-focused customers prefer self-service, innovators are creating sleek, easy to use platforms that combine product guidance for complex products—like long-term investments—with customer control.

3) Lifestyle as acquisition driver. Branch density has long been the main strategy for gaining new customers, but for tech-focused customers, financial lifestyle is an emerging draw. Innovators are betting that the “debanked segment”—customers who are unsatisfied with traditional banking relationships and want an alternative—will be attracted by transparent, easy to use, tech-only models that fit into their day to day activities.

4) The interchange of customer information. Payment instruments are designed for ease—whether a debit card or mobile wallet, banks treat ease of the payment itself as core to the customer experience (and thrive on the revenue they provide). Innovators, however, are trading on information, and betting that being able to provide important information to the customer about account balances or coupons just before a purchase, or recommended products just after a purchase, will create a powerful integration with the customer’s life.

For more on these trends and an in depth look at the lessons banks can learn about customer experience from new models, please join our upcoming webinar.

Around the world, branch traffic is declining and its complexion changing as customer preference tilts toward electronic channels. Meanwhile, in much of the world, tough math on around cost-to-serve questions is compelling many banks to think carefully about who they serve and how.

Our view is that the retail banking industry is approaching a “strategic inflection point”—a term of art first put forward by Andrew Grove, former CEO of Intel, and Robert Burgelman of the Stanford Business School.  They were attempting to describe that moment in an industry’s history when an executive team’s prevailing assumptions about customers, technology and competitors begins to lag emerging realities.

Accelerating changes in customer channel behavior and the emergence of new competitors from technology fields outside of banking are the background phenomena to the more obvious issue of the revenue crunch now facing most retail banks.  The central competitive questions of the next three years will be less about marketing tactics and much more about fixing a business model and a value proposition for customers.

The Council is working to provide its members with the knowledge and strategic insights necessary to address this unique moment in our industry.

1) To understand why the traditional branch-based model is failing, we offer Rethinking Retail Channel Strategy, which examines the key forces acting on branch-centric sales models.

2) To understand how customers choose their channels and how to being to migrate customer groups, our members can access our recent webinar on 5 Profiles of Channel Segments, and our upcoming webinar looking at how banks are effectively migrating customers to lower cost-to-serve channels.

3) Finally, knowing that efficiency in the branch network has never been more important, our members can access the results of our Branch Salesforce Productivity study, which examined the habits of the best frontline employees.

To succeed over the next 3-5 years, banks must step back, examine their strategic positions, and question the assumptions that drive their businesses. To meet the challenges ahead, banks need a clear picture of the emerging competitive environment and the strategic steps necessary.

The growth challenges now facing many retail banks reveal that the industry increasingly faces a strategy problem, rather than a set of tactical issues.  Boxed in by revenue constraints and operating with a business model that has tapped out most easy cost savings, tactical responses—like resetting account pricing and pumping sales resources into the branch–will not be enough for long term prosperity.

While many banks have begun exploring the transition to less branch-centric models, they face challenging, urgent strategic questions around channel investments, staffing, customer relationships, and internal structures. What characteristics and skill sets will distinguish front-runners in the multi-channel world? With so many competing priorities around channel investments, how should executive teams set strategy? More importantly–is there consensus within executive teams over what channel-related competencies will be most important in 3-5 years? CFC is launching the Multichannel Strategy Audit Tool to help executive teams resolve these questions.

In almost every conversation with our members, we hear about the challenges facing real change to channel strategy. Most banks are stuck in an “approach/avoidance” psychological stance with their branch systems—well aware of their costs and changing roles, but too unwilling or too unsure to proceed beyond minor experiments. Accelerating changes in customer channel behavior and the emergence of new competitors from technology fields outside of banking are increasing sources of concern, but few have a strategy for responding. Even when change is deemed necessary, internal structures and continuing hope for a return to “normal” stand in the way of innovation.

The central competitive questions of the next three years will be less about marketing tactics and much more about fixing a business model while maintaining customer relationships. As pressures on the branch-centric model mounts, it becomes clear that banks that do not create sound multichannel strategies will face increasingly difficult financial situations while losing the battle for key customers.

The Multichannel Strategy Audit Tool is designed to help executives set priorities around channel investments. It does so by surfacing internal views on current effectiveness and future importance of key multichannel competencies. As banks prepare for major investments and divestitures in channels, it has never been more important to make sure that distribution priorities are properly challenged and analyzed. For more information about this tool and how the Council can help, please contact CFCresearch@executiveboard.com.

Based on the 60 member interviews the Council has conducted over the last six months, five guiding principles appear to separate those firms realizing the promise of social media from those continuing to flounder.

1)  Understand that social media is changing your consumers - The rise of social technologies is changing the way consumers want to interact with their bank, the way they buy products, and how they rationalize post-purchase decisions, as our consumer survey data demonstrates. Leading firms take this alone as mandate to better engage this more aware, empowered and self-directed consumer through social touch points.

2)  Build intestinal fortitude – and experience – by experimenting internally – For many banking executives social media is an anathema.  It hacks away mercilessly at the principles of “command and control” communication, which have safe-guarded information privacy and reputation management, the cornerstones of the industry, for centuries. By experimenting first with internal social networks, leading firms have not only built understanding and raised awareness, but by demonstrating the benefits of these tools, garnered considered executive support for more customer-facing initiatives.

3)  Consider investments as part of a coherent multi-channel strategy – Rather than attempting to emulate the functionality of established channels, leading banks are using social media for what it does best – forging the initial human connection – then driving traffic to established sales and service channels (branch, call-centre, on-line) to exploit the expertise and experience that already resides therein – a “social hub and spoke model”. Likewise, these firms are leveraging the human element of these technologies to deepen on-line relationships and replicate the all-important social component of in-branch interactions.  

4)  Get closer to customers by getting out of the way – As social media drives increased reliance on peer-2-peer communities for self-help, guidance and advice, leading firms are consciously re-imagining their role – their entire value proposition – around supporting and facilitating consumer networks. In effect, using corporate websites to host consumer networks. This approach not only disempowers “shadow” communities, bringing much of their authenticity and credibility on-brand, but generates a wealth of consumer data to help drive better calibrated product recommendations.   

5)  Build the type of community you hoped for with the branch  - For all the hyperbole of “new” surrounding social tools, leading firms take social media merely to be the newest expression of the oldest component of their business: building community and relationships. In particular, the community they hoped to build through branches, a meeting place for consumers and bank representatives, is now being pursued more effectively through the power of social media.

In coming weeks, The Council will release a Social Media Resource Centre with a number of “best practice” case studies unpacking the guiding principles detailed above. In the meantime, register for our upcoming webinar Leveraging Social Media in Consumer Financial Services  to understand how leading providers  are integrating this new medium into consumer banking strategy.

Where We Are Now: Checks have been in steady decline in Europe for the last decade, as the graphic on the left illustrates. The UK has already announced a target date of 2018 for the closure of all check clearing operations, and Australia and America are not far behind. In virtually all cases, rather than let checks die out on their own, authorities are proactively managing the process to avoid confusion and facilitate a smoother transition to paperless payment technologies. In turn, rather than resist the inevitable, banks are often voting in favor of aggressive cut-off dates, if not setting their own institutional dates ahead of those prescribed by national authorities, while gradually lowering check guarantee limits to discourage usage.

What Might Happen: The end of checks will clearly save banks money. They cost around $1.6 to process, approximately four times as much as electronic payments, and take well over four times as long to clear. There will be some collateral damage, particularly around older customers and small businesses that will likely resist “forced” migration, with the very real risk of government intervention in the event of any perceived financial exclusion. The real worry though is around branch traffic: fewer checks will obviously mean fewer people in branch. For an industry so dependent on in-person “reactive sales”, traditional providers will have to think quickly and carefully about an entirely new model of engagement, interaction and service delivery through alternative channels. How will they forge connections, build relationships and drive sales?

How We Can Help: To understand how to better align channel investments with evolving consumer preferences and economic realities, access Re-Thinking Channel Strategy.  For guidance on alternative sales tactics, consult our Sales Productivity Topic Centre, while The Council’s social media work provides insight on how to connect and engage with current and prospective consumers outside of the branch.  

90%: That’s the percentage of the over 30 banks who took our recent social media survey that said they have a presence on social media. As banks move toward a fuller embrace of social media, it is imperative to understand the customer’s experience through the medium and the role its increasing role in financial decision making. CFC’s global survey of social media users shows that social media plays a big role in addressing and confirming life and purchasing decisions around financial services.

In short, the decisions that were once taking place in branch lobbies are now being made through personal social network conversations.

Our series of surveys on social media in financial services are designed to help banks answer essential strategic questions about customer experience: What type of people use social media? What are the behavior patterns and personality segments that emerge through the medium? What are the key questions–and resulting actions–that social media plays a part in?

For our members, we now release country-level data on customer social media use for financial services:

• Australia
• Canada
• Singapore and Malaysia
• United Kingdom
• United States

As members refine their strategies and seek to understand trends in banks’ social media initiatives, we can also offer a glimpse into the social media strategies at 4 leading firms in “From Innovation to Launch: Social Media Experts Speak about their Ongoing Initiatives“–featuring insights from RBS, Fulton Financial, SmartyPig, and Umpqua.

Access to mobile communication technologies now exceeds access to basic banking services worldwide. What if an established non-FS provider introduced account and payment facilities embedded into mobile phones? What would happen to the traditional ATM infrastructure and credit and debit card providers worldwide?

We’re not quite there, but field tests have now started for Google Wallet, a new point-of-sale ecosystem that will allow users to use their smart-phone as their wallet. No longer any need for the bulk, users will be able to store their credit cards, offers, loyalty cards and gift cards on their phone, tap their device onto a Near Field Communications (NFC) reader, and automatically redeem offers and earn loyalty points. What’s more, through Google Coupon, Google is able to offer various location-based sales and special offer recommendations, creating a wallet that not only knows where are, but what you want.

Key Insight: The exact end result may be uncertain, but it seems clear Google and other major players are investing heavily in new payment systems focused on creating a personal, convenient and locally-focused customer experience.

Key features:  

• Convenient Payments: Google Wallet will turn your phone into a wireless credit card, able to “swipe and pay” wherever you see an NFC reader.   
• Security: Beyond the standard PIN system, “Secure Element”, a separate chip that stores encrypted credit card data and will “self-destruct” if tampered with. 
• Location-Based Services: A range of carefully calibrated sales and special offer suggestions based on user locations.

To learn more about the Google Wallet click here, and to understand changing customer relationships and emerging competitors check out our Transformative Forces deck. More on payment technology related innovations can be accessed through our Global Product Innovation Library.

The combination of shifting economic outlooks and rapidly changing expectations around technological access will impact every aspect of consumer banking–from how consumers access financial services, to what products they demand, to what they seek in relationships with their banks. As the chart to the left shows, mature markets will continue to face tepid outlooks on personal finances. On the other hand, consumers in emerging markets show exceptional optimism. To meet these new economic circumstances, banks must re-define “financial engagement” and carefully consider how new technologies will impact the future shape of customer relationships.

Through market research of emerging technologies and global survey data of 20,000 consumers, Transformative Forces demonstrates that:

• Fewer than 1 in 4 customers budget their finances: this represents an enormous opportunity for banks, as even informal budget creation leads to confidence in personal finances, which in turn links directly to product sales.
• Consumers in mature economies report ample access to financial services, but the lowest financial confidence in the world–meaning that winning strategies are not about having more access, but about creating stronger engagement through that access.
• Social media and technology are empowering consumers to receive the advice and expertise traditionally housed in a branch through non-traditional networks–threatening to turn banks from relationship centers into merely cash registers where sales are completed.

Opportunities await in this new economic and technological ecosystem, but success will require innovative approaches to partnerships and a willingness to re-imagine customer relationships. By examining key innovations in customer interactions, disruptive technologies, and areas of emerging demand, this study will help our members serve the post-financial crisis customer. Our members can read “Transformative Forces” by downloading it here.