Is COVID the death knell for branches ?
We've never been more digital, but the future is far from certain. We're still social animals, and artificial intelligence isn't going to turn us all into financial geniuses.
Over the last year our whole lives have been turned upside down as the coronavirus has had a devastating effect on most people around the world.
As the new vaccine now begins to take effect, what could the "new normal" look like? The retail banking world, like many other retailers, has seen many branches closed and the use of digital banking channels increasing dramatically. This has led to many people observing that COVID has written the final chapter on branch closures. Even if it has not, it has resulted in fear, anxiety and a feeling of vulnerability which will change the way consumers, who previously visited branches regularly, conduct their business, probably for ever!
It is interesting to note that before the epidemic, banks would have applied different network strategies, depending where they were in the world. In Europe, branch closures were the main focus with digital banking being a hot topic. In the US however, JPMorgan Chase is expanding its network by another 400 branches, as they see a big benefit from a physical presence. Between 60 to 70 percent of all new accounts are opened in the branches. A similar strategy is echoed in many Asian markets, and especially in China. We remain social animals, even in a bank!
A bank customer is, like any other citizen, a fundamentally social animal with a strong need to engage with a peer network to make complex decisions. Artificial intelligence can replicate human interaction in many important tasks but it cannot replace the need for human engagement. So the branch is going to have to adapt yet again, and in three critical ways: firstly, it has to retain its appeal as a place to spend time; secondly, it will have to fulfil digital wants alongside physical needs and finally, the branch will have to deliver value in excess of an online encounter.
Many basic transactions in branches will eventually go in most markets around the world and be replaced with online services. Companies like GrabPay, for example, are competing with banks on offering a ready-made ecosystem. If you use Grab's payment app, you are also able to get a discount on a range of services from messages to food delivery to ride-hailing and bank products. Even taking this trend into account, research has shown that in the US it is Gen Z and Millennials that are visiting the branches more even though these two younger generations are the big users of digital banking. For example, 72 percent of Gen Z consumers visit a physical bank branch at least once a month. The opportunity will be how to make these currently unprofitable clients profitable!
In the new world, once we come out of this crisis, we will be faced with a retail banking distribution system that will finally need a fundamental change, as there will be a huge gap between the physical branch offer and the service digital banks provide. Traditional bank design hides away from the customer The majority of branches are old legacy offices, originally designed for transactions, with exteriors that look like they are permanently closed, window merchan-dising which is usually an embarrassment, teller counters that dominate the whole environment, and advisors hidden away at the back of the branch in private offices. What is slightly depressing is that some banks are repeating these mistakes today even with new branch openings.
Then on the other hand there are the digital banks which so far have not been a great success due to worries about security, reliability, capability and brand image. Obviously, the coronavirus will have changed many things, but there will still be a need for an environment where people can meet to discuss their financial needs with a brand they can trust, obtain advice from an expert, engage in the community and to be educated through a meeting or at an event in a professional exciting environment.
Transformation on the High Street, from H&M to Amazon Fresh
This week we have seen the opening of Amazon Fresh in the UK, which is the first physical outlet outside North America for this on-line shopping giant. The store is similar in concept to the Amazon Go outlets operating in the US. The convenience store will feature the same technology as Amazon Go, allowing customers to enter the store through their Amazon app/ account, place items in a bag and leave the store.
With the use of the app it generates a code to enter the store and scan items which you buy without going through a checkout, and the receipt is then emailed to you after the transaction is complete. More outlets are planned to be opened in the near future.I think this demonstrates very well the importance of a physical presence even with a successful on-line business such as Amazon.
A branch needs £20 million to get out of bed
Returning to banking, we will still have branches in the future but not as we know it, they will have to change now and not wait till tomorrow! A new branch or even a refurbished one can be expensive, possibly between £300,000 £500,000 to build and with yearly running costs of around £200,000 depending on the size of the branch.
To break even, the branch would have to obtain at least £20 million in deposits, so it is a long payback and therefore it has to be right!
A new branded financial centre will have to be a new type of"store". Gone are the teller counters, the unwelcoming exterior, the mausoleum atmosphere and yes, the potted plants! It will become an advisory/hospitality venue that will be enjoyable and exciting to visit. The whole store would be a branded event with third party vendors that are complementary to the brand. It would be as if you have entered the Ritz Carlton hotel where the advisors are trained to build relationships with customers by optimising their visit and maximising the customer journey.
They could offer financial health checks to customers. There might be a concierge service available to arrange for those special moments in life. For SMEs there would be a complementary start up office area for entrepreneurs to help establish their new ventures, who in turn would become long term customers of the bank, resulting in a good return on the bank's investment.
Premium customers would have a VIP area where there would be special events to network with other customers or have the opportunity to purchase unique art, fashion and new technology. There could be an investment area with a vibrant trading floor dealing with stocks and shares.
The new branded financial centre could also be the base for a personal banker who would be connected to a customer via a mobile phone app, offering a personal service second to none, the kind of service normally reserved for private banking customers. The idea is already being explored in the States by Umpqua Bank who have an app called Go-To that is similar to the dating app Tinder.The customer selects their personal banker from a host of mugshots and profiles. The app is rooted in the core belief that human interaction matters when it comes to money.
The personal banker would then be your day- to -day contact for all your financial needs, from arranging foreign currency for your next international trip or sending flowers to a loved one on their birthday!
Finally, I wrote a book on branch transformation just before the COVID epidemic started called, A TOTAL BUNCH OF BANKERS which highlighted in a slightly humorous way the opportunities and benefits of a successful branch transformation programme. Communicating the correct brand values and image, making the environment an exciting place to visit, training the staff of the branch to build lasting relationships and to introduce a human interface in all branch technology.
All these principles still apply but now due to COVID the situation has changed and there is now an urgency in delivering the next branch generation. Procrastination and maintaining the status quo is not an option - the time is now!
