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Branch Management

The Following is an edited extract from an interview with S&P Global Market Intelligence. The original can be found here 

 

S&P Global Market Intelligence recently spoke with Jon Voorhees, former head of distribution strategy and execution at Bank of America Corp.  During his 17-year tenure Voorhees led the transformation of BofA’s physical distribution channels including branches and ATMs. He has joined Peak Performance Consulting Group as consultant and adviser.

 

S&P Global Market Intelligence talked to Voorhees and Peak President David Kerstein about different distribution strategies.

 

By Rabia Arif

 

S&P Global Market Intelligence: Do you think banks are innovating enough to keep up with the current times and how important is it to change?

 

Voorhees: Many firms out there are aware they need to change but they don’t know how to actually do it. And they are stuck in the… analysis/paralysis mode. They just need to get on with it.

 

The thing about branch distribution or ATM distribution is, change doesn’t come quickly. I think most organizations today are not moving quickly enough and it’s because they are fearful of the downside of not doing it well.

 

Kerstein: There are legitimate issues that people are worried about. Most banks are a combination of acquisitions, which means that they have got a mishmash of real estate. They might have a paramount amount of capital invested in them, and they are not easy to reconfigure.

 

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Jim Marous, who’s work I respect, asked for our insight and input to his annual Top 10 Retail Banking Predictions. Here are 4 predictions for 2016. What do you think?.

  1. Universal Bankers will become “universal”, and will be the standard staffing model in most bank branches. And this will not just be cross-trained tellers but a true merging of the teller and personal banker role.
  2. The shift to digital will accelerate. Up to now it has primarily impacted routine monetary and service transactions. But we are at an inflection point where account openings and advisory services will be delivered remotely. This will represent a fundamental shift, where the physical branch will support the digital channels, rather than the reverse.
  3. With more touchpoints, mapping the customer journey becomes critical. Understanding where they start, how they use channels in tandem, and where they stop along the way will be essential to managing relationships in the future. This will require adoption of new data management tools and skills.
  4. The call center is back! It will no longer be a support function to the branch network, but rather the hub of the customer experience. With customers using more channels than ever before, they expect consistency across all touchpoints. These new “customer experience hubs” are well positioned to bridge both physical and digital channels.
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As consumers and small businesses shift to alternative channels, it is critical that financial institutions improve the operational and sales efficiency of the brick and mortar channel. That means fine tuning every point of contact to optimize effectiveness.

 

Financial institutions of all sizes are facing challenges to their retail branch system. j0177737Technological innovation, starting with the introduction of ATMs, then internet banking, and most recently mobile banking, has resulted in declining branch usage. Consumers and businesses don’t need to go to the bank as frequently as they did in the past now that routine monetary and service transactions can be easily handled on a personal computer or smartphone.

 

Consumers want branches, but declining usage is reducing sales opportunities and revenue growth. As routine servicing and monetary transactions continue to migrate out of the retail branch, the fundamental nature of bank branches must undergo a dramatic transformation.

 

The bottom line is that, with fewer teller transactions, branches must become more efficient as sales and marketing centers. This can be achieved through greater micro-market targeting of marketing messages in order to maximize the sales opportunity from limited branch traffic and to optimize trade area sales penetration.

 

Up to now, many financial institutions have employed a one-size-fits-all strategy. Branches are often similar in size and style with limited differentiation. More importantly, marketing strategies are frequently implemented uniformly across the network with limited variation of messaging based on unique branch or trade area characteristics.

Improve Revenue with Targeted Strategies

 

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This article was originally published in BAI Banking Strategies on September 22, 2014

 

Community banks face unique issues but they can improve revenue and efficiency when they target growth segments and embrace new technology.  

 

Financial institutions of all sizes are facing challenges to their retail branch system. Technological innovation, starting with the introduction of ATMs, then internet banking, and most recently mobile banking, has rMap and Pinesulted in declining branch usage. Consumers and businesses don’t need to go to the bank as frequently as they did in the past now that routine monetary and service transactions can be easily handled on a personal computer or smartphone.

 

While these broad trends impact all financial institutions, community banks, which tend to be the primary provider of banking services in non-metropolitan markets, face special challenges.

 

For one, their communities are, for the most part, not growing. Since the 1930s, young adults have fled small towns for better job opportunities in larger metropolitan areas. Over 50% of rural counties lost population between 1980 and 2010, with a typical decline of 14.8%. The impact was greatest in the Midwest, where 86% of all rural counties lost population. The eroding size of rural and small town markets, combined with changes in branch usage, makes it harder to raise deposits and attract loans.

 

One side effect of this phenomenon is that community banks in small markets often face less pressure to change their branch systems than their metropolitan brethren. As younger adults leave, the customer base of these banks ages, encouraging managers to assume that remaining more branch-centric continues to be an appropriate strategy. Executives also face less competitive pressure to embrace new technology, since many of the largest banks are pulling back from small markets. Bank of America, for example, has refocused on larger growth markets and sold or closed branches in smaller communities. As one community bank CEO told me, “I don’t have Chase or Wells or BofA in my market promoting their new technology; I just have other small banks like me.”

 

Unsustainable Expenses

But here’s the rub: maintaining an expensive branch network in the face of decreasing branch usage – even if the decline in transactions may be slightly slower in small markets – combined with low or negative population growth is an unsustainable economic formula in the long term. PCSB (Page County State Bank) in Clarinda, Iowa, is one institution that recognized the problem; managers saw that they would have to improve branch efficiency or else ultimately be forced to exit the small markets that had been their heritage. Communities with a small population, and therefore low branch traffic, cannot generate enough revenue to support traditional, fully staffed, bank branches.

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This article was originally published in The Financial Brand on March 6, 2014 and was co-authored by David Kerstein, President of Peak Performance Consulting Group, and Nancy Radermecher, President of JohnRyan

 

Here’s how to make use of sophisticated branch data analysis in the creation of targeted marketing messages, and why this is important in adapting the branch for the future.

 

The Branch Transformation Imperative

Consumers are changing the way they bank. Research by the Philadelphia Federal Reserve Bank and others indicates check-writing activity has been declining at a rate of 5-7% annually, creating less demand for branch monetary transactions. Meanwhile, routine transactions that had been branch-centric are being disintermediated by the Internet, mobile and call centers.

 

According to a report by FMSI, branches process roughly half the transactions they did 20 years ago, with branch transaction volumes declining by 45.3% since 1992. This figure is likely to be considerably higher for banks that have aggressively implemented alternative channel delivery strategies.

 

Although consumers are using branches less, they still place a high value on bank branch convenience. Local branch presence is a primary reason consumers choose a bank, while customers consider easy access to branches and ATMs one of the features they value most.

 

Financial institutions face a basic conundrum: consumers want branches, but declining usage is reducing sales opportunities and revenue growth. As routine servicing and monetary transactions continue to migrate out of the retail branch, the fundamental nature of bank branches must undergo a dramatic transformation.

 

Branches will still be the primary vehicle for customer acquisition and consultative sales, but they must adapt to focus less on teller transactions and more on more complex advisory services. Successful financial institutions will implement more robust front line tools to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet.

 

The bottom line is that, with fewer teller transactions, branches must become more efficient as sales centers. This can be achieved through greater micro-market targeting of marketing messages in order to maximize the sales opportunity from limited branch traffic and to optimize trade area sales penetration.

 

Improve Revenue With Targeted Strategies

Up to now, many financial institutions have employed a one-size-fits-all strategy. Branches are often similar in size and style with limited differentiation. More importantly, marketing strategies are frequently implemented uniformly across the network with limited variation of messaging based on unique branch or trade area characteristics.

 

Usually, messaging is two-dimensional (for example, Spanish language signage in selected locations). But “best practice” institutions are improving revenue by tailoring messaging in a more efficient and impactful ways.

 

Moving forward, financial institutions need to adopt a more sophisticated “Rubik’s Cube” approach where messages are specific to the trade area market opportunity. This should form part of a comprehensive system that uses both market and internal data to create a sales and marketing protocols.

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PNC has been piloting the Universal Banker concept at 45 of its mid-Atlantic branches, and recently announced that it is moving to full rollout, with 300 branches being converted in 2014 — the first step in planned conversion of two thirds of its more than 2,700 banking locations during the next five years.

 

Banks can achieve significant benefits from implementing Universal Bankers including higher sales, lower costs, and improved customer satisfaction. But implementation requires more than just a recruiting and training program, but an overall strategy around facilities, technology, marketing, sales management, measurement, rewards, and recognition.
Ric Carey, who has had extensive experience implementing and managing Universal Associate programs, explains in this short webinar.

 

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