With the competitive landscape of the financial marketplace in constant flux, one has to wonder how the role of your local branch is going to change. While every vertical market has metrics to judge themselves by, the banking and financial community pays very close attention to their efficiency ratio/rating. Ratios are typically used to analyze how well a company uses its assets and liabilities internally.
While these ratios are important for investors, executive management teams, and regulators, they may have diluted the importance of two of the most important assets the bank possesses, the customer relationship and the branch. Since the market collapse of 2008, audits, cyber security challenges, TARP, and the resulting stress testing and ratio monitoring may have diluted the importance of two of the most important assets that a bank possesses, the customer relationship and the branch. In my opinion, some ratios can be categorized as leading indicators for expense control initiatives (i.e. IT, force adjustment and closing branches) and lagging indicators for their effect on enhancing the customer relationship and loyalty, which frankly is going to drive new the revenue and profitability opportunities. Simply stated, you cannot save your way to prosperity.
Bring back customer relationships
Over the past four years, many financial institutions have driven their customers out of the branch to their website or mobile application to do their banking. This is an excellent way to impact the cost of processing a transaction (impact your ratio), create convenience, and reduce expense, but an ineffective way to build or enhance customer relationships, loyalty, and position new services that require a great degree of personal interaction. Balance and a longer term view is needed.
Big data and innovation drive a new branch strategy
A number of global, national, and super regional institutions are now beginning to utilize big data, innovation, and new branch strategies to regain a competitive advantage. There is a recognition that a branch is no different than any other retail vertical, the longer you engage a customer in your environment, the greater the chance that there is to increase the relationship. While web and mobile interaction continues to be critical, the transactional volume is beginning to level off, so it is more important than ever to exploit the value of the brand and branch investments.
Turning the branch model on its side and recognizing that flexibility and attracting the customer (you) back into the branch is paramount, not only to grow your top-line revenue, but to impact ratios with higher dollar value relationships. Products and services such as brokerage, estate, and retirement planning and insurance — in addition to conventional mortgages, 529′s, equity, and personal lines of credit programs — are the keys to increasing top line revenue and loyalty. Positioning these services/products requires a relationship that cannot be found on the web or a mobile application.
Designing branches to suit the times
While this should be obvious, why is the waiting period so long for the high-touch service, and the line relatively short for the transactional interaction? Too many tellers and not enough professional service resources, perhaps a holdover from the ratio management approach. In response to the market sensing feedback via big data analytics, social media, and mobile data points in addition to the realization that the connected consumer still requires personal interaction.
Some banks are now creating branches that can be opened and closed in shorter periods of time to follow demographic shifts, doing away with safety deposit boxes and the traditional vaulting strategy, utilizing mobile LTE strategies for network connectivity, reducing the number of tellers, and increasing the number of ATM’s with voice/video capabilities. Movable walls, cafes, and play areas for children are all being incorporated into the floor plan. Mobile strategies are being utilized to create interaction out from behind the counter to make more effective use of bank personnel; more office service space is being utilized and created to enhance relationships for the high touch professional service.
As client interaction opportunities are increased through the use of social media, mobility and big data, it is going to be interesting to see what a more influential indicator is, real time big data analytics and trends, or the traditional monthly, quarterly and yearly metrics.