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It’s a new year with new possibilities.  How will banks approach the challenges of 2018?


It’s that time of year again—the ball has dropped in Times Square, the New Year parties are over, and we’re ready to engage in the annual rite of predicting key trends for the upcoming year.



It’s been a good year for the industry: the economy is strong; margins are improving, albeit with some pressure from rising deposit rates; banks have overcome their fear of FinTechs and are looking for ways to partner with them; branch transformation is still on the front burner, but no longer viewed as a crisis that needs revolutionary change; and there are positive signs of easing burdensome regulation.


So what does the crystal ball hold for 2018? Here’s our Top Five picks.

  1. The “branch of the future” is here, and it’s still a branch. Banks and Credit Unions are still opening about 1,000 new branches a year. Although the total number of branches is declining, almost all the decline is from the largest banks, while community banks are responsible for the majority of new branch growth.


One thing is clear: customers still want the convenience of physical locations. Countless surveys show that branch convenience is still the number one criteria for selecting a financial institution. Data from Bank of America and Chase show that, contrary to popular wisdom, Millennials use branches with roughly the same frequency as the average bank customer. And, while it may change in the future, 85-90% of all new accounts are opened in branches, not online.


Even feared disrupters like Amazon recognize the need for physical distribution.  Amazon subsidiary Whole Foods now has Amazon Lockers so customers can pick up their on-line orders, and Amazon is testing a physical store concept in Seattle (although it is still in Beta testing with company employees).


  1. It’s all about the customer experience. Customers have a choice. They know that almost everything that can be done in a branch can also be done through other channels: through the call center, on their computer, with their smartphone, or at an advanced function ATM. When they visit a branch, they’re making a choice for human interaction. They don’t want to come into a branch only to be told “use our self-service terminal and do it yourself”, but rather they want a personal experience they can’t get at home.


This is not to suggest there is not a role for self service in some locations, or as a strategy for some banks. But be careful — if you believe that self-service is the new normal, then why do you need branches at all? Rather, banks are paying greater attention to the choreography of the in-branch experience and the integration with digital and call center channel.


  1. The Universal Banker is the new standard. With declining branch traffic, the traditional staffing model in branches must change. About 60% of bank branches are staffed at higher levels required by customer traffic – security, dual control, or standard staffing protocols are driving the number of staff. That is not only economically unsustainable, but makes the customer experience even worse because there is rarely the right mix of staff at the right time.


Financial institutions have been experimenting with a “universal” model but struggling to get it right. Too often it is simply cross-training staff to handle other functions, but not changing the cadence of the way branches operate, resulting in reversion to previous, comfortable roles.


Getting it right requires re-thinking the way the branch operates, not as a collection of individuals with specific defined roles (teller, customer service representative, personal banker, etc.) but rather a team of players that can – and do –  perform all functions in the branch. They become a group of utility players, with the branch manager functioning as a coach.


  1. Technology will be about facilitating improved personal service, not driving self-service. Yes, there is a place for ITMs or other similar technology, but it is far from proven. ITMs require ½ to 1 FTE per machine in the call center, which begs the question about economic viability (no reduction in staff despite significant capital outlay?). And attempts to turn drive-ups into mini-branches through ATMs with video link have had similar mixed results (“It was easier to just use the pneumatic tube”).


The payoff from branch technology is when it makes it easier for staff to serve customers. Cash recyclers, especially when used in pods or open teller lines, can improve security, staff utilization, and customer interaction.  Simplification and automation of operating procedures moves non-customer activities out of branches and allows staff to focus on sales, service and marketing. Use artificial intelligence to augment, not replace, human decision making in order create a better customer experience.


  1. It’s about being agile. We live in a time of rapid change in technology, competition, and customer behavior.  Financial institutions need to adopt agile decision processes that allow better prioritization of opportunities and shorter go-to-market cycles. Many banks are adopting management concepts learned from FinTech partners: rapid idea generation, iterative development, and fast test-and-learn pilots. Gone are the days of long term development cycles where the end-product is obsolete by the time it is finally implemented.


Agile project management concepts are not new – they have been around since the late 1950’s but received new prominence with their success in companies like Apple and Google. This new way of managing is being adopted for mainstream decision making at banks as varied as Fifth Third or Frost. You should be asking: is there a Scrum or Sprint in your future?


How accurate are our predictions? Time will tell. We’ll keep our eyes on the ball, crystal or otherwise, until the next ball drops in December.



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