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Will bank branches go the way of the dinosaur or are they becoming a driver of buying decisions, financial playgrounds and spas?
By Gareth Vaughan
As a journalist writing about the banking sector who has witnessed from the inside how the internet has transformed the print media, I can't help but draw parallels between newspapers and bank branches.
Both are labour intensive, high cost ways of achieving what the internet can do cheaper and faster.
And as someone with a full time job and young children, the prospect of actually going to a bank branch holds very little appeal. In fact the only time I can recall doing so over the last couple of years was because I had to after switching my mortgage to a new bank. It would be fair to say my memories of queuing in branches and having staff - unsolicited - peddle me insurance products, aren't necessarily fond ones
I'm quite happy to do all my banking online and pick up the phone to talk to a real person, hopefully one based in my own country, on the rare occasions I need to. And I'm Generation X. What do generations Y and Z make of the concept of going somewhere to do their banking when they can simply do it on their smartphone or iPad?
I also wonder if, at some point in the future the highly profitable banks dominating this part of the world will no longer be so profitable and will come under pressure from shareholders to cut costs through branch closures.
But despite many predictions bank branches will go the way of the dinosaur, including one from Microsoft founder Bill Gates some 17 years ago, they continue to survive with banks lavishing money on them. Here in New Zealand in recent years the big banks have been splashing out tens of millions of dollars sprucing up existing branches and even opening some new ones. ASB, which says only about 5% of its customer transactions are now done through branches, is in the middle of a five-year expansion programme spreading the geographical reach of its network of about 140 branches.
Kiwibank, alongside its parent New Zealand Post, is planning to spend some NZ$60 million to reduce queues and spruce up their 'tired" branches. And internationally banks are going to great lengths to make their branches funky and cool in efforts to attract - and keep - customers.
Reports of the demise of the bank branch have been exaggerated
Against this backdrop a 138 page report entitled The Bank Branch of the Future by the London-based Lafferty Group argues despite the development of mobile and online banking services, reports of the demise of the bank branch have been exaggerated. Instead Lafferty, which describes itself as a provider of advanced knowledge services to the worldwide financial industry, says the humble old bank branch is in fact being reinvented as the location where all retail banking converges.
"The perception of bank branches as under terminal threat from remote banking technologies is simplistic and fails to consider shifting consumer preferences and sentiment," report author and senior Lafferty's researcher Peter Kinahan writes.
"First, the branch remains the location where by far the greatest number of higher value-added product sales takes place - with the estimates as high as 80% over some product lines. Second, the branch - when best practice design is observed - is reinventing itself as the location where all retail banking channels converge."
The branch remains the single most important expression of a bank's brand, Kinahan adds, which is not something that can be replicated by new, non-bank entities eating into traditional bank business, especially in the payments area.
'The place where technology integrates with the brand'
Kinahan suggests best practice in branch design starts with establishing a clear brief based on a detailed and explicit understanding of a bank's brand. Banks are hiring specialist designers, sometimes those who've worked directly on successful projects, such as Citibank in Asia which hired the designers behind Apple's retail stores.
"The branch is increasingly seen as the place where technology truly integrates with the brand; where all banking channels converge and the silos in which these channels often exist are dismantled. This means that the redesigned branch of the future should assume an enhanced role. However, both branch design innovation and associated technology are relatively easy to copy and, ultimately, the key long-term differentiator for the bank may be people," says Kinahan.
Meanwhile, the transition of the branch from a transaction focused channel to one that concentrates on advice needs staff with different skills from the traditional bank teller. And, Kinahan, suggests, bank branches in future will face demanding performance targets possibly including loan revenue per square foot, non-traditional fee income and deposits per square foot. The percentage of space dedicated to customer interaction rather than back office functions is now at least 80%, he adds, with the average branch size 30% smaller than 10 years ago. Here I can't resist another newspaper comparison. Is this branch down sizing the bank equivalent of the "compact", or tabloid, size now all the rage for newspapers?
Interestingly Kinahan says the number of customers per branch staff member has risen from 350-600 to 650-1,075 in the last decade.
Despite the rise of new technologies like the smartphone which are perceived as threats to the humble old bank branch, Kinahan suggests any potential “branch killer app” must be measured against the automated teller machine or ATM, which has been around since 1969 and is yet to kill branches.
'Putting branches in the way of customers'
So just what are some of the cutting edge global moves aimed at making the bank branch cool and relevant?
There's the aforementioned Citibank Asia which hired 8 Inc - which designed Apple's stores - to design an "Apple-like retail experience" at its flagship stores. Francesco Lagutaine, Head of Marketing at Citibank Asia, tells Lafferty as banks start to become real consumer businesses, they have to behave like a high street retailer complete with a handful of branches with an iconic presence that become landmarks and "beacons" for the brand.
“Traditionally banks would choose a relatively central location but would pick the lower rent side of the street because they weren’t particularly interested in traffic like a normal retailer. We’re now looking at putting our branches in the way of customers because we want our branches as place of sales rather than transactions. Consumers increasingly desire to transact outside of [traditional] branch banking hours," Lagutaine says.
Features include the so-called Citi Media Wall which is a big multi-screen LCD system, displaying financial data and news on a real-time basis along with information on Citibank products and services. These are placed strategically inside and outside branches in order to attract pedestrians' attention (see picture to the right).
"At transit branches including the Shanghai People’s Square subway station and the Orchard Road subway station in Singapore, the Media Wall is seen by millions of commuters travelling daily through underground transport systems," adds Lagutaine.
Another feature is interactive video conferencing services to provide customers with the opportunity to get expert opinion and consultation from Citibank specialists on a real-time basis.
Although noting the Citibank Asia initiative isn't something that'd work across an extensive branch network due to the cost, Lagutaine tells Lafferty: “In the age of e-business, the store has become an even greater driver of the purchase decision than before the internet. Initially this seems to be counter-intuitive, but people today go to a store for reassurance about their choice. They’ve made a decision or narrowed
down their options. They want to get in there and get a physical sense of reassurance for that last act. Because if you know what you want, you can get it easier online."
A ’bank by day, financial playground by night‘
Singapore's DBS Bank has introduced what it calls DBS Remix, which is styled as a bank by day and a financial playground by night. This concept targets young adults by "redefining conventional banking" with a customer engagement model built around branch innovation, co-creation and social media. A 1,200 square foot branch includes a 24-hour interactive lobby and a banking atrium. It's located in a building run by an entity named Scape. Co. Ltd, which is a a non-profit organisation that aims to support youth, talent and leadership development.
Then there's ING Direct which has opened a series of ING Direct Cafes in the United States. It says these are designed to be a meeting place for entrepreneurs plus current and potential ING Direct customers. The bank describes them as offering "a unique blend of coffee, café and online banking" and says a recently opened cafe in San Francisco extends over four floors and will create about 60 jobs.
Another bank turning to the remarkably successful Apple for inspiration comes from the unexpected and seriously economically troubled source of Greece. Although the financial crisis put the kibosh on a major branch redesign project, after registering the name i-Bank on Apple's app store, the former state owned National Bank of Greece unveiled its first i-Bank store, named after its mobile banking app, last year.
The store (see picture to the left) aims to create a “digital gateway to the brand," Kinahan says.
"The entrance is a 360-degree portal combining LED back-illuminated graphics and projecting images to welcome customers. Then, there are three zones with striking architectural splits, open-space and multi-purpose elements."
The first zone is a 24/7 self-service zone with internet/phone booths with video conference functionality, ATMs and a demo base for mobile banking on smartphones. The second zone is a main service area with a private area for personal consultation, touch-screen "infokiosk," a desk with workstations and a 12-screen high definition digital wall. The third zone is an entertainment one with an auditorium, lounge with vertical garden and virtual sky and an interactive area with games.
There are now two i-Bank stores and no plans for more.
'A west coast financial spa'
Vancouver’s North Shore Credit Union has revamped its branches in an attempt to connect with its region's community and lifestyle. The result is a "financial spa" (see picture below).
"Upon entry a concierge greets and welcomes members and makes sure they're directed to the most appropriate person, creating a personal and intimate member experience that supports a five-star member experience," says Kinahan.
"Its distinctive brand image reflects a dynamic West Coast Vancouver lifestyle with subtle pan-Pacific hints. Instead of the traditional tellers’ layout, teller ‘pods’ are set in front of a zen bamboo forest wall with plasma screens. The design attempts to provide the service quality of the spa with the ruggedness of the local environment. The latest branch displays artisan crafts to support local artists and craftsmen in the community."
The credit union claims success, citing a compound annual growth rate of 12% for assets under management and 80% of holdings with affluent clients.
Meanwhile, in the United States US Bank has partnered with grocery stores based on the accurate premise that people have to eat. It hopes people who come in to buy food will do some banking while they're there.
Richard Branson's lounges
And then there's Richard Branson's Virgin Money and its flash looking lounges. Typical of Branson Virgin Money doesn't appear to do things by halves. To me these lounges look like a more colourful version of an old fashioned gentlemen's club such as the Auckland Club. Having bought Northern Rock, including its £14 billion mortgage book and £16 billion retail deposit book, Virgin Money (previously merely an online entity) now has a branch presence and about four million customers.
Complete with a grand piano, its lounges are designed as a place where customers can take time out of their busy day to have a coffee and snack or check e-mail via free Wi-Fi. They're made available to community and charity groups outside business hours.
So there you have it. Bank branches are now apparently the place where "technology truly integrates with the brand" and as important as ever. Call me a cynic but I'd rather go to an internet cafe if I'm out and about and need access to the world wide web and don't have a smartphone, a regular cafe if I want a coffee, or a bank if I want to do some banking. But I'm sure there are those who see appeal in the bells and whistles of these funky new branches.
And I'm certainly prepared to buy that branches - in some shape or form - will continue to exist. If for no other reason than maybe because people trust a bank more (in times where, globally, trust in banks is plummeting) if they can see its branches on street corners, even if they mostly just drive or walk past them.
That said, the evidence from the Lafferty report suggests a future where banks have a small number of high profile, high tech flagship branches.
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