Thoughts on Branch Transformation 2016

Last week, I had the pleasure of attending and presenting at Branch Transformation 2016, sponsored by RBR. The event was held in London on 6th-7th December. Unlike one once stalwart retail banking industry event in the US, RBR’s attendance has been on a multi-year growth trajectory. This year, attendance was up 20% over 2015 and included delegate representatives of 116 banks from 53 countries. It was time well-spent. [Read more…]

Two Hallmarks of Successful Branch Transformation Initiatives

Since my coverage areas include branch and ATM channel technologies, I often get asked, “What distinguishes successful branch channel transformation initiatives?”

Questions like this cut to the chase. Spare me all the charts & graphs, Bob, just tell me what successful institutions are doing. Fair enough. But, don’t we all want easy answers? How many diets are out there being promoted? They all sound pretty easy. If only…

But, I got to thinking… There are at least two hallmarks of successful branch transformation initiatives, despite there being a diversity of approaches and outcomes. Here goes:

1. Two, Not One

Except for the smallest of community banks, branch channel transformation involves two, concurrent initiatives – the current network and the future network. Why’s that?

Most banks appear to associate branch channel transformation with radical changes in the branch operating model. Arguably, for many banks, radical changes are needed. At the same time, very few North American financial institutions appear to have a clear vision of what they’d like to build. The “branch of the future” is not yet in focus. This is understandable given the cacophony of vendor voices urging banks to adopt a growing variety of physical designs, automation approaches, and paths to superior customer engagement. Banks should, in Celent’s opinion, embark on an ambitious branch of the future project with deliberate caution and methodical rigor. Proceeding in this manner — even with swift internal decision-making — will take several years. And implementation is rarely a “big bang.” Instead, new designs are rolled out over time, taking years to reach their eventual maximum impact.

The problem with this approach is two-fold. First, it tends to justify inaction until a clear future branch vision is embraced. After all, how can one begin a journey unless the destination is clear? The second problem is more significant — it confuses developing a future branch design vision with preparing the existing branch infrastructure for those new designs. For example, physical design is clearly a new branch design element. By contrast, underlying software platform choices and how new loans and deposit accounts get originated can impact both current and future branch designs.


I’ve spoken with too many banks who, for example, postpone a teller image capture initiative on legacy branches until their “future branch” design is finalized. Most institutions are under pressure for short-term results. Most branch transformation efforts won’t produce a near-term ROI. Two projects are needed – one on the current network and another focused on the future network – with close coordination between the two. Something like this:


2. Lead with Human Capital, Not Technology

The second hallmark has to do with when human capital plans are implemented – prior to, coincident with, or following future branch initiatives. Strongly-held opinions abound. What appears to resonate broadly is this: branch interactions are becoming more about sales/service and less about transactions. This invites new, more highly-trained roles with a different skill mix.

The prevailing argument for positioning human capital strategy at the tail end of the journey is typically cost-focused. No one wants to pay the price to recruit, train and compensate Universal Bankers – only to spend much of their day playing the teller role.

The prevailing argument for leading with human capital is user experience-focused. In the final analysis, what differentiates a branch experience from the constantly improving digital experience, if not face-to-face engagement? Leading with human capital may indeed be a more costly experiment. But every financial institution I’ve interviewed who did so are glad they did. Conversely, every institution I’ve interviewed who didn’t (many of them) wishes they had.

Passwords Suck – Bring on Biometrics!

Now that I have your attention. Let me be clear: I hate passwords, particularly when they are increasingly required to be longer, more complex and frequently changed. Apparently, I am not alone in this sentiment.

At a conference in 2015, a small start-up, @Pay, a low-friction mobile giving platform, offered attendees a free t-shirt in return for seeing a brief demo. I must confess that I was more interested in the t-shirt than @Pay’s product demo. The line went out the door! Here is the t-shirt.

@Pay's Sought After T-shirtWorking from a home-office means t-shirts are staple part of my daily wardrobe. I have tons of them. None of them, however, engender such predictable responses from complete strangers than the one above. Responses range from a simple thumbs up or high-five, to an occasional, “You got that right!” Passwords do suck.  I have so many to manage, I use Trend Micro’s Password Manager to ease the pain.

That’s why I am excited to see more institutions migrate to biometric forms of authentication. Dan Latimore blogged about the rapid increase in the number of US financial institutions employing biometrics within their mobile apps here.

Banks shouldn’t stop there, however. In a June 21 New York Times article, Tom Shaw, vice president for enterprise financial crimes management at USAA was quoted as saying, “We believe the password is dying. We realized we have to get away from personal identification information because of the growing number of data breaches.”

I agree with Tom’s sentiment, but if passwords are dying, it appears to be a very slow and painful death. Here’s one example of why I say this. The chart below shows surveyed likelihood of technology usage in future branch designs as measured by Celent’s Branch Transformation Research Panel in late 2015. More than two-thirds of surveyed institutions thought the use of biometrics in future branch designs was “unlikely”.

Branch Tech Usage Liklihood

Authentication and identity management may always involve a trade-off between security and convenience, but the industry’s overreliance on personal identification information is failing on both counts.

  • At ATMs – it contributes to skimming fraud
  • In digital customer acquisition – it contributes to unacceptably high abandonment rates
  • In the mobile channel – it contributes to its slowing rate of utilization growth
  • In the branch – banks deny themselves the ability to delight customers with improved engagement options made available by skillful digital/physical integration

We’ll be looking into the topic of authentication and identity management in our next Digital Banking Research Panel survey in the coming weeks. If you’re a banker and would like to participate in this or future Digital Panels, please click here to fill out a short application

Citi’s geolocation move

American Banker just ran an interesting article about Citi’s foray into the use of geolocation (beacons) as it pilots several use cases in its “smart branches.” Several thoughts immediately came to mind as I read Tanaya Macheel’s well-written article:

  • The use of beacons for cardless access to branch ATMs after business hours was the lead use case cited in the article. But, that’s just one of a growing number of potentially very useful applications for beacons in retail financial services.
  • Banks have barely scratched the surface in more usefully integrating digital and physical channels as they seek to maximize customer engagement.
  • Geolocation, in particular, is under-utilized by retailers (especially banks) and remains largely experimental.

My hat is off to Citi for its purposeful investment in developing expertise in this area and to American Banker for writing about Citi’s work. In my view, the most impressive aspect of this initiative isn’t so much Citi’s pushing the technology envelope; it’s the organizational effort that was likely required. Getting its branch operations, mobile product management, IT and LOB leadership aligned represents real commitment to innovation.

How far ahead of the industry is Citi?

Here’s one data point. In Celent’s inaugural Branch Transformation Research Panel survey in (June 2015), we sought to establish a benchmark on just how far and how fast NA institutions were pursuing branch channel transformation. Of course, several questions addressed planned technology usage. Out of a dozen examples of technology usage, geo-location ranked dead last in terms of the liklihood of usage in future branch designs – just 27% of surveyed institutions thought the use of beacons would be "somewhat likely" or "very likely".

Branch Tech Usage

Pretty far I'd say!

Learning from mBank’s branch channel investment

The recent article in Finextra, mBank to spend EUR17 million on new network of ‘Light’ branches, prompted this post. At first read, I thought this was a story about a celebrated direct bank building a branch network. Well, not exactly. About mBank mBank is no stranger to Celent. It has received two Celent Model Bank awards. In 2014, Celent recognized mBank’s digital platform redesign and in 2015, Celent recognized mBank’s Bancassurance initiative. For those unfamiliar, mBank is a Polish direct bank brand established by BRE Bank in 2000 as one of the first of its kind in the country. Thanks to the mBank’s business achievements and potential of the brand as first and the biggest internet bank in Poland, BRE Bank Group decided in 2013 to change company name to mBank. Thus mBank became a mature brand with an offer addressed to mass customers, affluent personal and private banking clients, as well as businesses, from microenterprises to the biggest corporations. Through 2014, mBank has grown to more than 4.7 million customers, 6318 FTEs, and deposits totaling $20.6 billion. It’s currently the fourth largest bank in the country. Before It’s Time Long before the Simples, GoBanks, Movens or Hello Banks of the world sought to capitalize on the shift in consumer behavior, there was mBank – serving customers where they want, when they want and through an innovative direct approach that, in its day, was one of the first of its kind. Rather than copying other financial institutions, mBank sought to deliver a best-in-class digital experience inspired from the world’s best retailers. For example: • Its Virtual Store inspired by Zappos • Advanced search functionality inspired by Google • Merchant funded rewards inspired by Cardlytics • Research and advice inspired by Amazon and Mint • Video banking inspired by Skype and Google Hangouts • Gamification and social media integration inspired by Foursquare, Like and Love In 2014, seeking further growth, mBank leveraged its new digital platform to introduce a complete digital transformation of insurance delivery to retail and SMEs, under its Bancassurance model. The platform is offered under an omnichannel environment, accessible through online, mobile, phone, video, or branch, all supported by a real-time, event-driven CRM engine. mBank enables the entire process to be handled electronically, while decision making and purchasing can be started and completed through different channels at the customers convenience. As a result of its efforts, the bank built the 5th largest insurance business in Poland aimed solely at existing checking account holders. Considering this represents only 7% of the market, the result is compelling. Starting from the overhaul of its digital delivery in 2013, and then extending into insurance services, mBank is a model for how digital can transform an institution, enabling innovative applications that can substantially grow the business. A Branch Network – Really? An undeniable digital success story, this celebrated “direct bank” wants a branch network? It already had one…sort of. Bart of the BRE bank family of brands, mBank had always been a direct bank. But in 2012, BRE bank announced it would simplify its branding and brand all its banks as mBank. That initiative effectively made mBank a universal bank franchise. In my opinion, this is itself significant – a universal bank operating in three countries adopting a direct bank’s brand for the enterprise? Imagine BBVA adopting Simple as its global brand. You get the picture – except mBank grew to many times the size of Simple. So, this isn’t really a story about a direct bank building branches. But, it is a story about a fabulously successful universal bank investing heavily in its branch network. To some, that still may seem nonsensical. mBank knows that point of sale is important and needs to be done right. Its’ new “light” branches will no doubt be right for its brand and its markets. Retailers across most all segments get this too. The latest published statistics from the US Census Bureau (November 2015) tells the story with great clarity. Despite two decades of steady growth, industrywide e-commerce comprises less than 10% of total retail sales. ecommerce trendsAs important as the digital channels are, the branch will remain central to retail delivery for some time. Celent’s Branch Transformation Research Panel gets this too. In its first survey (June 2015) we asked panelists how important branch channel transportation is. After all, the topic was virtually all talk and little action for years. But, 81% of the panel confirmed that branch channel transformation is not simply important, it is imperative. Branch Imperative Because of this, Celent intends to thoroughly research the topic over the coming year. One initiative is our Branch Transformation Research Panel. Celent is accepting additional requests for membership in panel and expects to field ongoing research through 2016 at semi-monthly intervals. To request to be on the panel, visit: .  

Why diversity abounds in new branch designs

Branch channel transformation is a complex and expensive undertaking. For all its complexity, however, there are at least two certainties. Namely:
  1. It is no longer optional
  2. There is no single blueprint
It is the rich diversity in approaches taken to the important task of improving branch channel efficiency and effectiveness that makes this topic so fascinating. Retail financial institutions need to possess a number of core competencies to remain successful. Among them is omnichannel delivery. For this reason, Celent launched two research panels in 2015, one devoted to digital banking and another focused on branch transformation. No Longer Optional In its first Branch Transformation Panel survey, 81% of financial institutions regarded branch transformation as an imperative. After roughly a decade of talk but little action, we are encouraged by banks’ embracing the need to get going. They’re not alone. Retailers of all shapes and sizes are wrestling with how to deliver a compelling and differentiated omnichannel experience, what that means in their stores and how to manage a rapidly changing cost-to-serve. The rapid pace of change increases both the uncertainty and sense of urgency. One only needs to consider the meteoric rise of mobile engagement (Figure 1). Things are not what they were just three years ago. Channel systems designed ten years ago aren’t the answer to tomorrow’s challenges! mobile usage chart No Single Blueprint While institutions may be aligned on the importance of getting on with branch channel transformation, there is much diversity of thought around what this actually means. Most banks appear to associate branch channel transformation with “radical changes” in the branch operating model. Arguably, for many banks, radical changes are needed. Not everyone sees it this way (Figure 2). branch meaning This diversity of opinion is to be expected. It stems from diversity in a number of factors: an institutions’ brand equity, desired customer experience, target market, legacy system capability and a host of other factors. The most distinguishing factor may be the willingness (or not) of each institution to intentionally disrupt its business model before someone else does. If you liked banking because it was slow-moving and predictable, the next few years will be stressful for you! Celent is accepting additional requests for membership in the Branch Transformation Research Panel and expects to field ongoing research through 2016 at semi-monthly intervals. To request to be on the panel, apply here.  

Why digital appointment booking will be commonplace in three years

A friend of mine is a successful small business owner in his forties. Like so many in his demographic, Bryan developed a longing to own a Harley Davidson. He could easily afford a Harley, but chose to seek financing instead. Getting this business should have been a walk in the park for his bank. Bryan is a digitally-driven consumer who values convenience. With some frustration in his voice, he shared with me his disappointment that he couldn’t simply arrange for a loan on his bank’s mobile app. With resignation, he stopped by a local branch only to find the staff members engaged with other customers. After a few moments of impatient waiting, he chose to leave and return the following day. His second trip met with an identical outcome. With increased frustration, Bryan called his bank while en route to a business appointment, hoping for a straightforward way to quickly close on a loan. Instead, the cheerful staff member explained that Bryan could simply visit any branch at his convenience to close on the loan in about an hour. Bryan’s bank lost his business to a credit union. Bryan’s experience is probably not unique. His bank would have won his business easily – had they simply offered him an opportunity to engage with them on his terms. While certainly no panacea, digital appointment booking would have been exactly that. And, it would have been exactly what Bryan expected from his bank. After all, he makes appointments to see his accountant, healthcare provider and barber and books dinner reservations similarly. But, few financial institutions offer their customers this ability (Figure 1). The idea has recently caught on among the largest North American banks, while 40% of surveyed midsized institutions say they are “considering” the idea. Meanwhile, 70% of community banks (assets less than $1 billion) have no plans to implement. That’s going to change. OAB adoptionSource: Celent survey of North American financial institutions, October 2014, n=156 The benefits of digital appointments are manifest. Among them:
  • Convenience: Customers avoid unnecessary waiting for service by scheduling an appointment on their terms and at their convenience while online – where much shopping occurs. A worst case scenario is the customer who, after a lengthy wait, discovers the bank resource with the requisite skills and licensing to meet their needs is not on site.
  • Capacity planning: Sales and service interactions have historically been more difficult to forecast than teller transactions. Digital appointment booking provides a much-needed view into future demand for sales and service resources and improves an institution’s ability to plan accordingly.
  • Sales impact: Automated product origination platforms have been effective at facilitating self-service enrollment of simple products, such as checking and savings accounts. But many institutions see an opportunity to improve close rates of more complex sales such as mortgage loans or investment products that began with customers interacting with the bank online. Knowing that many customers would be more comfortable with in-person discussions in these cases, digital appointment booking offers a concrete next step for interested prospects.
A perhaps less obvious benefit of digital appointment booking is its favorable impact on institutions’ face-to-face interaction. Said simply, frontline employees are better equipped for sales and service interactions when they know who is coming and for what reason. More commonly, bankers must offer an impromptu response to walk-up interactions. A minority of institutions equip frontline staff with a “customer snapshot,” or optimally a “next-best action” recommendation, but that information is not available to staff until customers authenticate. With essentially no time to react to the information, consistency of service delivery is a tall order. To coin an overly-used expression, it’s not rocket science.

Is your institution leading or lagging?

This question comes up often. As a research and advisory firm, Celent fields ad-hoc research with regularity. No matter how well thought out our surveys, however, we nearly always wish we could have asked additional questions. This led us to launch two research panels focused on topics representing significant and growing interest among Celent clients. The purpose of the effort is to look deeply into the objectives, priorities, risks, barriers, and likely outcomes of two seminal retail banking topics in North America. Specifically: • Digital Banking • Branch Channel Transformation Both panels consist of bank and credit union leaders with significant interest and involvement in one or both of these topics, willing to invest in bi-monthly surveys and interactive webinars in return for complimentary access to the resulting Celent reports. Many are not Celent clients and would not otherwise have access to the research. Why are they doing this? We asked that question in a recent survey. Virtually all panel members are involved primarily as a benchmark to see how their institution is doing compared to the industry overall. It’s highly useful and timely insight for those involved (see below). Perhaps you’d like to join us. You could have compelling and timely benchmarks for your financial institution. Celent is accepting additional requests for membership in the Branch Transformation and Digital Banking Research Panels and expects to field ongoing research through 2016 at semi-monthly intervals. To request to be on one or both panels, apply Here.  
Why banks and credit unions participate in Celent's research panels

Why banks and credit unions participate in Celent’s research panels

Why the branch banking controversy will continue

The branch is dead, long live the branch! Controversy around the wisdom (or not) of investing in the branch channel amidst rapidly growing digital banking adoption is showing no signs of letting up. Consider three articles published in the past week:
  • Bank Innovation covering Associated Bank branch closures to fund digital channel initiatives.
  • BTN coverage of Wells Fargo branch/digital convergence alongside the banks’ steadfast advocacy for maintaining its massive branch presence.
  • Brett King’s Op Ed in Banking Exchange, critical of the recent FDIC report, Brick-and-Mortar Banking Remains Prevalent in an Increasingly Virtual World
  I’ve observed that most advocacy is binary; either branches are next to worthless or the branch is king. Where is the middle-of-the road position?   I’d like to offer one. For starters, retail banks serve a diverse market with diverse needs and preferences. Why then do so many critics insist banks must react to digital banking’s growth in lock-step? How many times have you heard the comment, banks are lemmings? Well, this time they’re not. Get over it! We will continue to see a diverse response to the digital ascendency.   But, I do struggle with the sustainability (or even desirability) of the current branch density in many markets – particularly in the US. I don’t think it will be defensible for very long. Let’s put it into perspective. Between 2000 and 2010, US bank branch density grew from 230 to 270 branches per million. Celent looked at a dozen other retail categories and couldn’t find a single one (except banks) that grew store density over the same period. Just the reverse happened, even though digital commerce remains less than 20% of total retail sales.
Source: US Department of Commerce, FDIC, Datamonitor, Celent analysis

Source: US Department of Commerce, FDIC, Datamonitor, Celent analysis

Like retailers, banks have certainly embraced digital channels. But, unlike retailers, banks have not invested in digital engagement. Until recently, digital channels weren’t about sales and servicing (that’s what branches are for…) but about facilitating transactions. Rare is the retailer of any size that does not have a digital presence designed to conduct commerce. But, the significant majority of banks do not yet have that capability. And, in some cases, the user experience is poor. Why? In part, because banks have focused on transactions, not sales and service in the digital channels. As this changes (and it is), I believe we will see a corresponding contraction in branch densities – just like in most other retail segments. Until banks demonstrate the ability to sell and service customers digitally, they will be overly reliant on the branch channel.
Source: Celent survey of North American financial institutions, October 2014, n=156

Source: Celent survey of North American financial institutions, October 2014, n=156

The next few years will be telling. What do you think?

Branch Transformation: Are Bank of America and Wells Fargo on the Right Track?

In a word, yes – and not a moment too soon. As thousands gather for Money 2020 in Las Vegas this week giving ear to a bevy of start-ups promising mobile payments nirvana, a small but growing number of retail banks are addressing those same consumer dynamics with much needed right-sizing of their branch networks. Celent has long asserted the need for a do-over of the traditional branch operating model that served the industry well for so many years and recently argued that a significant winnowing of US branch densities (among other things) will result over the next decade. The challenge for retail banks (and it’s a big one) is that while consumers are increasingly choosing to transact digitally, they engage banks in-person. This was seen clearly in recent Celent consumer research and the resulting report. Will this dichotomy persist? At least for a while and to varying degrees depending on one’s target market. The implications are profound. While most revenues are tied to the branch network (artificially in some cases) foot traffic is in steep decline. Celent identifies a triumvirate of multichannel imperatives arising from the growth in digitally directed consumers. Specifically 1. Right-size the branch network. Most branch networks were designed for a different consumer in a different era. They need to operate more efficiently and effectively. Celent has published extensively on this topic. 2. Learn how to sell in the digital channels. This is new territory for most banks. It starts with embracing digital channels as a key opportunity for customer engagement, rather than merely a vehicle for low-cost transactions. 3. Catalyze growth in self-service usage. This too requires new digital channel capabilities along with well-coordinated efforts to communicate those capabilities and why they’re relevant to consumers in order to maximize enrolment and usage. That a branch channel right-sizing is necessary is hardly debatable. How this right-sizing gets done is the subject of much debate. The Bank of America and Wells Fargo initiatives show similarities: • Both combine transaction automation with fewer, more highly trained “universal bankers”. • Both offer extended hours for most routine transactions. • Both are considerably smaller and less expensive than traditional branches.

But the approach to service differs considerably between the two models. Bank of America deploys ATMs with Teller Assist in its new Express Centers. Tellers still exist in Bank of America’s model, but they are located centrally and engage customers via real-time video. During business hours, tablet equipped staff can also assist. After hours, it’s all video. Wells prefers all customer interactions to be with in-person branch staff in its Neighborhood Stores. Branch Oct 2013 There’s no silver bullet when it comes to branch transformation. There will likely be a variety of design within banks and among banks. Both initiatives appear to be “test and learn” approaches, and may evolve as both banks gain experience. That’s exactly how it should be done in my opinion.

What do you think?