THE VIRTUAL BANK DOESN T SMILE

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1 THE VIRTUAL BANK DOESN T SMILE

2 The Virtual Bank Doesn t Smile 2 It s no secret that more and more consumers are going online to conduct their everyday affairs. The National Retail Federation reported that nearly half (47.5%) of holiday shoppers said they shopped online this past Black Friday. Statistic Brain cites that nearly three in four single people in the U.S. have tried online dating. The United States Postal Service recently announced the suspension of Saturday delivery for letters and magazines due in part, as Postmaster General/CEO Patrick Donahoe noted, to realities resulting from America s changing mailing habits. (Think , texting, Facebook, etc.) The banking industry has felt this wave of change for some time now. Yet amidst this sea of digital change, financial institutions are still opening branches. Yes, more branches despite the rise of all things digital. 59% of banks and nearly 75% of credit unions surveyed expect to operate more branches in five years than they do now. Source: CELENTEmerging Technologies in Retail Banking: The Long Road to Customer Centricity And this is because?

3 3 The Virtual Bank Doesn t Smile THE BRANCH STILL MATTERS The obvious question is: why? The answer? Because person-to-person interaction still matters to both the customer and the financial institution. The branch isn t going by the wayside. But it will have to undergo reinvention to fully leverage the one thing that it can do better than any other customer touch pointprovide face-to-face interaction. Person-to-person interaction still matters to both the customer and the financial institution. Interaction that allows customers to feel they ve received real help and instills confidence. And the kind that allows financial institutions to put a face on their brand, creates true relationships with their customers, and builds lasting and differentiating brand equity. Successful branches will be those that best adapt to everevolving customer behaviors while also navigating ever-evolving financial industry realities, and will leverage best practices from a wide swath of category segments: retail; hospitality; healthcare; and workplace. Each of these segments is also dependent on meaningful face-toface interactions for their success. A lot can be learned and applied from them.

4 The Virtual Bank Doesn t Smile 4 MEETING CRITICAL NEEDS OF BOTH THE CONSUMER AND THE BANK. Much has already been written about how the effects of the Great Recession and the financial meltdown have put unprecedented pressure on financial institutions. The impact of the economy on household spending and saving, not to mention overall consumer confidence, has also been well documented. Yet, despite all the upheaval, the local branch remains uniquely positioned to meet critical needs of both the consumer and the institution. While digital advancements provide enormous benefits in several areas, some needs remain better met via the branch. Let s first look at how the branch delivers against consumers important rational and emotional needs. The branch best meets consumers core rational needs for: Access and convenience: by enabling consumers to easily access a broad array of products, all in one place, all conveniently located within a short distance of their home or office. Information and guidance: by having personnel, onsite, to help educate, clarify and prioritize financial strategies to follow, and to recommend the appropriate product(s) to execute that strategy. Efficiency and accuracy: by providing face-to-face contact with the person who is answering questions or resolving issues. While just about every financial institution has a customer service line or 800 number, many 24 hours a day, a lot of people still prefer to make eye contact with the people who are helping them or solving a problem for them. The branch best meets consumers core emotional needs for: Comfort and security: by reinforcing (physically) associations of security and stability, critical to consumers emotional comfort that their finances are safe and secure. Collaboration and control: by allowing for in-person interaction and dialogue with financial experts, giving consumers the feeling they have a voice in their own financial journey and a sense of control over their financial destiny. Belonging: by manifesting the bank brand in the full dimensional sense, which best enables the establishment of shared values upon which the customer relationship will be built, and creates the belief in the customer s mind that this is my bank; the bank for me. While digital advancements provide enormous benefits in several areas, some needs remain better met via the branch.

5 5 The Virtual Bank Doesn t Smile The branch also best meets critical financial institution needs. For institutions, the branch enables: Better market coverage: by having a visible, physical presence where people are going about their daily lives. The old adage out of sight out of mind still applies. Richer customer insight: by not just facilitating their banking needs, but learning and understanding their worries, hopes and dreams and preferences. It costs six to seven times as much to acquire a new customer as it does to retain an existing one. Source: Frederick Reichheld, Bain & Co. True customer relationship development: by providing a venue for interaction and engagement, where dialogue is enabled and trust is built. In person, at the branch, also remains the best place for problem mitigation and resolution. Strong customer relationships drive increased satisfaction and customer retention. Connection to community: by not only providing essential products and services to residents, but becoming an integral part of the neighborhood fabric and serving the needs of the community at large. Tangible brand differentiation: by allowing people to experience the brand in actionto see it, feel it, be surrounded by it engage with it. Nothing leverages the value proposition and key points-ofdifference like in-person engagement between the customer and the brand. So the physical branch remains critically important. But that s not to say it doesn t need to change. Balancing industry pressures and customer needs is ever-changing and complex. The branch must evolve to keep pace.

6 The Virtual Bank Doesn t Smile 6 THE FORWARD VIEW A SHIFT FROM TRANSACTION TO INTERACTION. The terms transact and interact, in definition, seem pretty close. In feeling, though, they are very different. Transact feels mechanical sterile. Interact feels human warm. Transact feels one-way. Interact feels two-way. Transact feels like a task. Interact feels like an experience. Think about these differences and apply them in other aspects (and categories) of life: checking into a hotel for that family vacation; or shopping for new furniture to round out that just-finished renovation; or going to that yearly doctor appointment; or working late into the night with your team on that important assignment. On those occasions, would you rather transact or interact? Strong brands in the retail, hospitality, healthcare and workplace categories have figured out the importance of building meaningful interactions with their customers and/or employees. Interactions that both bring business to a conclusion (transact) and bring people in close relation to each other (interact). In other words, build a relationship. Strong financial brands are starting to recognize this critical distinction. If you haven t yet, you need to. There are several design solutions being incorporated into branches today that help the bottom line while creating a better customer experienceone that satisfies important rational and emotional needs, and builds strong relationships through engagement and interaction. Here is a sampling: Space flexibility and adaptability: In some cases this might involve a kit of parts approach to accommodate size and shape differences, while maintaining a unified brand look and feel. It also allows for rapid expansion or re-location. Other times it s recognizing that within a single branch several types of conversations occur, thus designing various spaces to facilitate different kinds of conversations (open vs. shielded vs. private). Smart branches in the future will create spaces that meet a variety of conversation and interaction types. Interactions that both bring business to a conclusion (transact) and bring people in close relation to each other (interact). In other words, build a relationship.

7 7 The Virtual Bank Doesn t Smile Staff flexibility and adaptability: Some future design solutions won t be about space design, but rather service design. A shift to a more sales and service model is occurring, resulting in the emergence of the Universal Teller: in-branch personnel who are capable of selling and servicing multiple types of products and interactions. While this creates increased labor and training costs, it also reduces overall branch personnel counts and teller/ consultation spaces needed. More importantly, it delivers an enhanced customer experience by requiring fewer hand-offs between branch personnel which helps maintain continuity. Hub and spoke model: This model maintains market coverage (while reducing real estate and operational costs) by having a full-service branch as the hub and smaller locations acting as service points (the spokes ) with reduced product functionality/ capability. This model provides for deeper engagement where it s needed and increased functionality where engagement is less required. Spoke examples include presence within a mall setting or other retail locations (e.g., grocery stores). Automation of in-branch transactions: The focus on interaction doesn t mean there s no longer room for transactions in the modern branch. Transactions will, of course, remain. But more and more those transactions are being automated, allowing customers to connect online or via mobile apps while freeing up in-branch personnel to spend more time having interactions with their customers. Build smaller, smarter and for reduced life spans: Several thoughts encompass this category, that either save money or act more responsibly: Design for fewer square feet and/or utilize lower cost materials. This both saves money and sends a good signal to consumers wary of past opulence on the part of the financial industry. Build to a shorter branch life span. Consider cost segregation during design. Design for greater sustainability, which decreases the carbon footprint. 66% of financial institutions surveyed were likely to redesign branch layouts to support a sales/ service model. Source: CELENTEmerging Technologies in Retail Banking: The Long Road to Customer Centricity 57% of financial institutions surveyed were likely to invest in ultra lowcost branch designs to supplement or replace current branches. Source: CELENTEmerging Technologies in Retail Banking: The Long Road to Customer Centricity

8 The Virtual Bank Doesn t Smile 8 A NEW ERA FOR BRANCHES So, the bank branch isn t going anywhere but it is evolving. Future branches will be more approachable and accessible, both in location and demeanor. They ll be more efficient and flexible. They ll do more with less, but at the same time they ll provide an enhanced customer experience. They ll offer solutions, not just service; collaboration, not just information; interactions, not just transactions. And, most importantly, the branch will provide the financial institution with stronger, more tangible and meaningful differentiation, that allows them to break free from consumer perceptions of commodity products and services. The era of interaction-based branch design has begun. A WORD ABOUT CALLISON Since 1985, Callison has had the good fortune to design for world-class brands across retail, healthcare, workplace, hospitality and financial services market segments. Our breadth and depth of experience has allowed us to research, learn and apply best practices from one category across others, resulting in innovative design that drives business results and helps build strong relationships for our clients and their customers.