As transactions continue to migrate out of the branch, banks are faced with reimagining branch spaces to fulfill different customer wants and needs. Banks around the world are experimenting with innovative branch designs and offerings to drive foot traffic and demonstrate to customers how the use of new technology and personalized service can enhance their overall banking experience.

As we think about new ideas in the branch design space, several trends are emerging:

• Segment-specific focus – Standard Chartered in Singapore employs a segmented branch experience in its flagship space – one for retail and one for high net worth clients. The bank developed two parallel, but vastly different storefronts and reception areas, connected only by their back offices. Customers use separate entryways into either a retail, efficiency-focused area or a more chic, upscale area that emphasizes personalized services.
• Retail partnerships – Convenience is top of mind here as banks like Citizens and Kiwi team with retailers to offer customers a chance to complete several activities in one visit. In Boston, Citizens partners with Dunkin’ Donuts. This partnership allows for extended full-service hours on both ends – customers can bank earlier in the morning or get coffee later in the day. Kiwibank created a partnership with the New Zealand postal service in an effort to lower costs, increase footprint and service hours, and better serve its customers.
• Virtual communication – firms like Coastal Federal Credit Union in the US and Ziratt Bank in Turkey are using video tellers to communicate with customers outside of the branch, and outside of normal branch hours.

To learn more about these innovations and others, visit our Market Intelligence and Innovation Showcase.

The Apple Store model is an almost inevitable aspiration for banks considering the future of the branch. After all, Apple’s stores are crowded, have an admirable combination of sales and service, and are staffed by fierce brand loyalists. As we observed in our profile of Apple stores, the brand strategy for stores is for customers to “test and learn”–with a smaller focus on pure sales. But how much of this model can be applied to banking?

We recently profiled the new concept stores launched by National Bank of Greece. As a market, Greece is facing an extreme version of what most mature markets are feeling: high liquidity with little demand for credit—meaning customers’ main needs are account servicing and financial education. NBG rolled out two concept stores to target these needs specifically. Rather than aligning them with traditional branches, they made them a component of their digital strategy. The branches focus on showcasing digital channel capabilities, hosting seminars on financial education, and helping customers with tech-related services. Like Apple, the new concept stores at NBG are physical representations of a digital brand. Our members can read the full case here.

Still, the Apple model has limitations: Can banks maintain market share with extremely low branch density? Even major cities are unlikely to have more than a couple Apple stores, while most banks still compete at the neighborhood-level. Apple offers a highly-coveted product. Is it realistic to expect a bank branch to energize customers in the same way? If Apple will be used as an example, banks will need to challenge many of the underlying assumptions about the role of the branch.

Over the coming months, CFC will continue to explore best practices for branch transformation—both in terms of physical space and new skills for staffing. If you would like to discuss this research further, please contact us as CFCresearch@executiveboard.com.

Each quarter, CFC surveys nearly 20,000 consumers around the globe on their financial sentiments, product satisfaction,  confidence in financial institutions, and overall engagement with their finances.

Our Q4 2011 survey shows continuing declines in consumer financial sentiment in most markets. Feelings about personal finances, confidence and providers, and product and service satisfaction all show global declines. Under the surface the data, however, a few bright spots emerge for segments and markets:

1. Asia Pacific continues its positive trends, as consumers in India, China, and Indonesia all express strong optimism about their financial outlooks.

2. Mass affluent consumers are maintaining positive feelings about their personal finances despite ongoing economic malaise. However, the mass affluent in Europe have not avoided the debt crisis, and show rapidly declining sentiments and confidence in financial service providers.

3. In every market, younger segments have more confidence in financial service providers than older segments. While this is at least partly reflective of the relative simplicity of younger lives (no mortgage, little debt, little experience), it also shows that despite economic hardship everywhere, most young people remain optimistic about their relationships with their banks.

Download our complete Q4 2011 global view of consumer financial outlooks.

Market level views are also available:

Asia-Pacific

Europe

Latin America

North America

In advance of our year-end trends in innovation webinar, we are examining areas where we see product innovation happening around the world. Here’s a preview:

1. Social media is driving customer engagement. Our customer survey data tells us that more and more customers are using social media for banking related purposes. The recent Bank Transfer Day movement in the United States and increasingly compelling social media campaigns from around the world show the potential influence of social media on customer relationships. Banks can no longer afford to sit on the sidelines. Leading banks are developing more advanced ways to not only communicate with their customers through social media, but also use emerging social tools to drive web and branch traffic. 
2. Mobile is leapfrogging online. Mobile banking opportunities range from expanding accessibility, reducing fraud, enabling payments, and leveraging mobile marketing. As customers are beginning to use the channel to access their accounts significantly more than the online channel, banks are beginning to realize that the app is their new best friend.
3. Financial Education can boost customer confidence. The crisis of confidence in banks makes the challenge of education more acute. While consumers once trusted their bank to recommend a product to suit their needs, consumers now feel responsible to solve their own problems. Leading banks are honing their web pages and financial tools to focus on more personalized advice and financial management. Helping customers get a hold of their financial situations can increase confidence and encourage a more profitable customer relationship.

Register for our upcoming webinar to learn more these trends and discover the remaining banking product trends from across the year.

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.

As we reflect on the trends in financial products over the past year in advance of our year-end innovation webinar, one trend in particular emerges: the idea to make online more like mobile in the ease of its functionality. Customers value simplicity, especially when conducting routine transactions and transfers, managing their finances, or connecting with bank staff. Leading banks are picking up on this sentiment and are rethinking their remote channel offers with customer experience and customer service top of mind.

Citibank’s iPad app is a good example of how banks are leveraging technology to serve customers better via remote channels. The app pairs the resources and functionality of the online experience with the convenience and simplicity of the mobile platform. Touch-screen functionality enables the bank to find newer, more intuitive ways of presenting information to customers. This means an opportunity not just to drop “more-of-the-same” apps down through the iPad channel, but to think creatively about how iPad functionality allows the bank to enhance the customer experience, something different from traditional on-line channel. In the process, a deeper connection between bank and customer is formed.

Be sure to join us next month when we examine other key product trends from the past year and share examples of each. Register for our webinar here.

With the financial press routinely referencing Europe’s economic “meltdown”, her “future in the balance”, “teetering on the brink”, a more constructive conversation around what this actually means for individual consumers on the ground, and in particular, the providers hoping to serve them, has struggled to gain column inches. Our European Q3 Consumer Financial Monitor, a quarterly survey of financial sentiment across Europe, offers actionable insight on crisis-era consumer engagement.  Amongst the top-line trends:

• Consumer Sentiment is Intractably Low – No surprises here – Europeans report the most negative change in “progress toward achieving financial goals” – 38% negative. Consumers are worried. Less expected: consumers lack confidence in traditional providers around many basic, foundational aspects of banking, such as “keeping consumers’ money safe” and “offering clear and simple policies”. Worst of all, this low confidence is translating into a clear decline in product purchase. Obvious message for providers: focus on simplicity and clarity around sales, service and support to drive consumer confidence (and thus sales).

• Proactive Financial Engagement (PFE) is in Decline – Not only is PFE low amongst Europeans compared to global standards, but compared to Q2 there was a decline across all key attributes of proactive financial management – “kept a formal written budget”, “had a formal written long-term plan”, “used a financial advisor” “performed any of the above activities”. At a bare minimum, this implies providers must do more to engage consumers constructively around their finances – through “courageous conversations” in-branch, Personal Financial Management tools on-line, and especially perhaps, by offering further guidance and insight through the “human face” of social media.

• Consumer Sentiment Varies Notably Across Segments – Whereas earlier CFM data suggested downward trending of confidence and purchase behaviour across all income and age brackets, Q3 data for Europe supports a more nuanced interpretation. Mass Affluent consumers and High Net Worth are far more optimistic about their personal finances, while consumers in all other segments report a drop in “positive feelings”. Likewise, younger adults express more confidence in providers, report higher product purchase, and greater product satisfaction. As these differences develop, embracing a more segmented banking model will ensure providers engage with the right consumers in the right way.

Access our “Consumer Financial Monitor: Q3 2011” for full survey results and further insight on crisis-era consumer interaction in Europe.

To learn more about how the crisis is affecting the Mass Affluent in particular, please register for our webinar, “Capturing the Mass Affluent Mindset,” next week:

Members in the Americas and Europe

Members in the Asia-Pacific

Each quarter, the Council on Financial Competition surveys nearly 20,000 consumers from around the globe on their financial sentiments—like feelings about progress toward financial goals and confidence in their banks—and their financial activities, like whether or not they keep a budget or have recently purchased financial products.

The results of our Q3 Consumer Financial Monitor show consumers in almost every market bracing for more hard times ahead. Here are 3 key lessons from our most recent data:

• Pessimism about personal finances is creeping into emerging markets. Over the past three quarters, sentiments about personal finances in emerging  markets have converged toward the low marks of mature markets. Asia-Pacific regions, the Middle East, and emerging Europe are all showing increasing pessimism around personal finances. Negative sentiments are entrenched in mature markets. “Progress toward financial goals” and “outlook on personal savings” saw the greatest drops in sentiment, signaling a consumer sensing troubling uncertainty about the future.

• Financial disengagement is becoming more pronounced. We have shown how financial confidence and product purchase are linked to basic financial management–even simply keeping a budget. In a worrying sign for banks, proactive financial management remains very low. Only 1 in 5 consumers report keeping a basic budget. In a sign of consumers preparing for continued hardship, balance sheet activity stabilized everywhere. Consumers reported both less saving activity and less indebtedness—suggesting that consumers are either living strictly within their means or that more and more money is finding its way under the mattress.

• Confidence in financial service providers improved, but banks still have plenty of room to grow. Across all wealth segments and age groups, confidence in financial service providers remains very low. From Q2 to Q3, the high net worth segment saw a notable decrease in confidence, despite remaining the most confident segment along with the mass affluent. For all its troubles, North America still reports the most confidence in banks.

For more on our Consumer Financial Monitor, download the full report. See also our report on mass affluent financial sentiment and activity.

The banking industry has rarely faced a mandate to innovate. However, it looks increasingly like the current circumstances will present a series of powerful challenges to the traditional model of retail banking. Changing customer behavior, mounting regulations, the flattening of interest and non-interest revenue streams form a complex set of problems whose solutions will demand migration to new business models.

Many other industries, of course, had similar stability until quite recently. The U.S. Postal Service—one of the United State’s oldest institutions—now finds itself over-branched, under-used, and overwhelmed by its own expenses. Borders Books—once one of the largest “big box” retailers in the world—succumbed to Amazon.com and filed for bankruptcy after sinking under the weight of its thousands of branches.

Perhaps most famously, last year, Blockbuster Video lost its long battle with Netflix. Blockbuster’s fall is a study in both underestimating the threat of external forces on a business model and the difficulty of freeing an organization from legacy models even when its demise is imminent.

Blockbuster’s slow descent offers three lessons for today’s market:

1) Customers’ rate of change is predictable—until it isn’t. In 2002, Blockbuster characterized Netflix as a “niche” business, and decided not to worry about it. In that moment, the observation may have been correct, but it was a catastrophic misreading of customers’ willingness to change.

2) A “fast follower” stance can be not fast enough when competitors are unburdened of sunk costs and legacy mindsets. Blockbuster commanded the video market with 20 million customers and 5,000 branches. But from 2006 to 2009, as it rapidly shed branches to keep pace with Netflix, its operating expenses began exceeding its revenue, and its percentage of debt-to-assets doubled to 60%. Meanwhile, unburdened by physical distribution but intensely focused on customer satisfaction, Netflix subscriptions, revenue, and stock price soared.

3) Unfriendly fee structures set up the conditions for rapid tipping points when new technologies emerge that enable clearer, more forgiving pricing models. Like many banks, Blockbuster underpinned its video rental revenues with fees—a necessary and lucrative element of its business model. Netflix not only innovated how movies are delivered, but how movie rentals are priced. Their pricing model forced Blockbuster to abandon its fees, undercutting its revenue—only to then have to reintroduce late fees years later as it struggled to stay afloat.

By the time Blockbuster registered the reality of the threat to its model, change happened too slowly and too late. Blockbuster’s story is of legacy systems and sunk costs standing in the way of innovation. The story sounds a lot like the challenges banks face now: internal mechanisms and hierarchies, pinning hopes on a “return to normal” instead of confronting change, and the true difficulty of acting decisively in crisis. CFC has a suit of resources for addressing these challenges:

The Multichannel Strategy Audit Tool

Rethinking Retail Channel Strategy

Transformative Forces in Retail Banking

Banks looking to restore consumer confidence will need to focus on products most relevant to current customer needs. However, in a time of increased regulatory reform and mounting cost pressures, banks are being challenged to innovate in creative, yet cost-effective ways. The key for banks is not to spend money on developing new products – rather – spend time on redesigning tools and existing products to address consumers’ most basic financial needs.

Areas such as financial literacy, budgeting and saving, and access to credit are examples of the seven consumer banking product trends that the Council highlights in our Product Resource Center. As banks consider product innovation – we offer key concepts and trends for banks to use as they envision new product design. Each trend is accompanied by illustrative examples that demonstrate how best practices institutions are meeting basic consumer needs with simple products.

Access our Resource Center to learn more about the top consumer banking product trends, then visit our Global Product Innovation Library to view profiles of new and interesting products introduced by financial institutions around the world.