It Doesn’t Matter What Consumers Think About Bank Branches

Celent released findings from a survey regarding consumers' channel attitudes and behaviors, which, predictably, fueled the on-going holy war between the Branchophiles (who believe that the branch is still the center of the banking universe) and the Branchesaredeadivists (who believe that Branchamageddon is just around the corner, if not already here).

TearSheet (a neutral observer) published the following chart from the study:

The Financial Brand (a non-neutral observer), used that chart in an article titled New Study Shatters Myth That Digital Channels Are Killing Branches, as well as the following one:

  There are (at least) three things wrong here:

1. The answers don't match the question. The question in the Celent survey (according to the published chart) was "If you wanted to have a conversation with a banker, how would you like to interact with him or her?" Seems to me that the appropriate responses should be choices like "In-person," "Phone," "Text chat;" and "Video chat." Whether or not someone banks digitally is irrelevant to the question at hand. Personally, I would like to have seen an option to let respondents answer "it depends." Remember Shevlin's Law of Consumers' Channel Choices, which says that:

Consumers will choose the channel that is most convenient to them at the time they want to conduct the transaction or interaction.

2. The data ignores interaction frequency. OK, so 77% of consumers prefer to "visit a branch" if they have a lengthy topic to discuss. But how often do they actually do that? The Financial Brand article showed that roughly half of consumers (give or take a few percentage points across the generational segments) visited a branch for "info/advice, question, open an account/loan" purposes at least once in the past two years.

Great--but if they visited the branch just once in those past two years for those purposes, does that "shatter the myth" that digital channels are killing branches?

3. It doesn't matter what consumers' current or stated behaviors or attitudes are. Some of the research findings about consumers' channel preferences is incredulous, at best. A study from Fiserv found that 44% of consumers said they prefer to do their “standard daily transactions” at a traditional branch with tellers.

I find this really hard to believe. First off, what exactly are "standard daily transactions"? I would guess they were things like checking the account balance, transferring funds between accounts, and paying bills.

If 44% of the people in this country want to get up off their couches, get in a car, drive to a branch, and then wait in line to conduct those transactions, then we are living in a country of morons.

Sorry, but there is simply no way that 44% of Americans want to do that (unfortunately, that doesn't disprove the moron scenario, however).

What If We Asked About Process Preferences?

What do you think the results would be if researchers asked their questions differently, in terms of process instead of channels. Consider, for example, the following survey question:

Assume that you were in the market for a checking account. Which of the following processes would you prefer to do to open that account:

a) Turn on your laptop, go to the bank's website, click on an "Open Account" button, choose the desired account, and give the bank 2-3 pieces of information about yourself.

b) Turn on your smartphone, go to the bank's mobile app, click on an "Open Account" button, choose the desired account, and give the bank 2-3 pieces of information about yourself.

c) Turn on your laptop or smartphone, launch the browser, go to the bank's website, click on the contact us link, write down the phone number, turn off the laptop or smartphone, pick up the phone, dial the phone number, figure out what the hell the interactive voice response choices are, push a button, wait 10-15 minutes for a representative to get on the line, and then spend another 15-20 minutes giving the representative information about yourself.

d) Get up off your couch, get in your car, sit in traffic as you drive to a bank branch, find a place to park near the branch, go into the branch, wait 15-20 minutes for a branch manager to see you, fill out 10 pages of forms, get a lollipop for your kid, then sit in traffic to get back home.

I'm just guessing, but I wouldn't be surprised if the results of my survey turned out differently from what the other researchers are finding.

The Third Perspective on Branches

There is a third group in this debate: the Branch Rationalists. They tell the Branchesaredeadivists that branches are here to stay, but then turn to the Branchophiles and tell them that branches need to change.

A BAI Banking Strategies article titled Five Tactics for Keeping Branches Relevant represented this third party when it offered five points of advice for “turning your branch infrastructure into a strategic advantage to enhance wallet share”:

  1. Shift the focus to “higher quality” exchanges.
  2. Cast a wider net for talented staff.
  3. Approach branch design with fresh eyes.
  4. Find inspiration from other innovators.
  5. Apply smart, and safe, technological and process improvements.

Unfortunately, these tactics don't address a few key issues:

1. How do you get consumers to come into branches for “higher quality” exchanges, and how much will it cost to do so?

According to the article, “some questions about financial choices are best asked and answered in person.” Prove it. I’d buy the argument that some questions are best addressed by humans, but that contact could be by phone, text, email, or videoconferencing.

Even if the article’s statement was true, the fact of the matter is that many consumers don’t turn to their banks for help making financial choices.

My point here is that it’s a whole lot easier said than done shifting the interaction composition from low-quality to higher-quality exchanges. If I were the CEO of a bank, I’d want to know how much it was going to cost me to effect this change–and what I was going to get for my investment in return.

2. Will “casting a wider net” really attract talent?

The article suggests that banks should hire candidates with sales expertise, and train them to be bankers. There are (at least) a couple of things wrong with this logic: a) What makes you think good salespeople want to go to work for a bank that pays poorly and doesn’t have a strong sales culture? and b) If your bank isn’t seeing strong traffic into the branches today, simply hiring a few good salespeople isn’t going to change that, and worse, because of that, good salespeople will leave to find more lucrative opportunities elsewhere.

Ironically, the advice to find talented stuff could be interpreted to imply that today's branch staff isn't that good. If that's true (and I have my share of stories about incompetent branch stuff as I bet you do), then it begs the question of why any bank would want more of its customers coming into the branches if they can't staff them with good people.

3. Why should a bank or credit union do any of those five things?

The unanswered–and sadly, unasked–question underlying the whole subject of keeping (or perhaps, making) bank branches relevant is: What good will it do?

In other words, if I, as a bank CEO, were to follow all the recommendations listed in the article, what bottom line improvement would I see?

The article promises that the five recommendations will turn your branch infrastructure into a strategic advantage to enhance wallet share, but I didn’t see any proof of that.

Conclusion: What branchophiles fail to see is that a strategy that involves “keeping branches relevant” is a strategy that is swimming upstream.

The flow of the banking river is towards digital engagement. Just as there aren’t too many types of fish that can successfully swim upstream, there aren’t too many banks or credit unions that can prosper by swimming upstream, either.

For every dollar a bank invests to shift the interaction composition, hire new branch staff, redesign branches, and invest in branch-related technological and process improvement, that’s one less dollar that can be invested elsewhere.

Bank Branches Aren’t VITAL

The BAI article suggests that banks find inspiration from other innovators. OK, how about Apple?

Apple reinvented the way technology products were sold. (It took a couple of tweaks, they didn’t get it right on the first try). What Apple has got right, regarding the sale of technology products, is creating a retail experience that is:

  1. Visual. People want to see the product.
  2. Informative. People want to talk to store reps who know about the products.
  3. Tactile. People want to touch and use the product.
  4. Advocative (I made that word up). People want reps who will recommend products that are right for the customer, not just for the store.
  5. Lean. The buying process is fast, with a minimal number of steps. No waiting in cash register lines. Fast and lean.

Apple stores are successful–at least, to some extent–because they succeed at accomplishing these five things.

Try this exercise: Create a chart with the five attributes listed above as the rows in your chart. For column headers, enter the various channels with which a bank interacts with customers in–branch, call center, online, and mobile. Using a scale of 1 to 5, where one is low and five is high, score each channel by its potential to deliver on the attribute. Total each column’s score.

If the branch score is the highest, repeat the exercise after you’ve come down from your LSD trip (which, ironically, can be very visual, informative, and tactile).

And Yet the Debate Rages On

I had lunch recently with a former colleague who's a consultant with expertise in change management and organizational culture. He scoffs at most firms' stated desire to change their culture, because doing so would mean changing senior executives' fundamental views about their firm and their industry.

It's no different with this branch holy war. No amount of data is going to convince the Branchophiles and Branchesardeadivists that they're wrong.

But to be a effective leader, you need to step out of your preconceptions and beliefs to make smart decisions about:

  • Branch efficiency. Branch productivity trends are not encouraging. According to the Cornerstone Performance Report, over the past few years, the median number of teller transactions per branch has declined (not surprising), but teller transactions per teller FTE is virtually unchanged. That’s not a good sign. In addition, two other key productivity metrics—new accounts opened per platform FTE and direct consumer loans closed per branch—have declined.
  • Sales process design. Changing branch size and staffing model accomplishes little if changes to the sales process aren’t made. Many banks and credit unions have launched customer journey mapping efforts to reengineer sales processes, but these efforts often fail to identify: 1) the cultural hurdles that impede changes; 2) how employee rewards and incentives must change; and 3) the one thing that could add value or differentiate the institution.
  • Channel budget allocation. In many institutions, the budgeting process only serves to reinforce the existing silos that exist in the organization. Shifting dollars between channels is hard—but is required in order to build new capabilities in emerging channels.

Whatever you do, the key lesson here is: Don't listen to surveys about channel preferences. If ExxonMobil (and the other gas companies) had surveyed consumers in the early 1980s, do you really think people would have said "Ooh! Yes! I want to get out of my car in the snow and rain and pump my own gas!"?

If you think that the best path to increasing profitability is reduce branch expenses, then shut the suckers down. Betcha anything your organization quickly finds ways to compensate for the change in channel access.

If you think that the best path to increasing profitability and sustaining future success is keeping branches open, then go for it.  After all, there are still companies out there you can rent a horse and buggy from if you really need to.

Ron Shevlin
Director of Research
Cornerstone Advisors