Evolving the postcrisis role of the branch - Why in person distribution still matters
FSI Game Changers
Banking has always been heavily dependent on building strong customer relationships. Now banking leaders are realizing that, in the ‘new normal’, they need to humanize digital relationships with a cost-effective multi-channel customer experience. In this interview, Jeff Casey, Sr. Research Director, Banking & Securities at Gartner outlines how bank branches are a critical component for banks to preserve their personal connection with customers.
Q: How do you see the role of the bank branch evolving? Can you see a future for the branch network as a catalyst for growth?
To answer that question, I think we need to broaden our understanding of the value of branches. Their value should be viewed not simply in conventional measures, such as the amount of new business they generate versus their operational costs. We should also be looking at the impact bank branches can have in terms of present and future customer relationships.
For example, early on in the crisis, the conventional wisdom was that digital usage by customers was taking a big jump— accelerating the digital migration that banks had been investing in for some time.
As the initial crisis phase of the Covid-19 pandemic begins to ease, we may find that many customers revert to type. They may well go back to using bank branches if that was the channel they were most comfortable with before the pandemic.
Once branches fully reopen, we’ll undoubtedly see reconfigurations of platform and teller positions, with greater social distancing, as well as systems for monitoring customer volumes.
Q: What role can in-person distribution play in the new normal?
Our research has found that the channel behavior with the strongest positive impact on relationship value is the multi-channel branch category. In other words, customers who use multiple channels, but have a strong leaning towards in-person interactions, are more likely to take positive relationship actions with their bank.
Given the importance of both planning and unexpected events in people’s lives, and particularly in these times, this is very valuable information to have. It shows that customers who use multiple channels but have a strong leaning to in-person interactions are more likely to take positive actions with their provider.
Not only is channel behavior anchored to the branch—to in-person delivery—most predictive of positive relationship value, but it is also critical for financial empowerment.
In summary, bank branches are a powerful way to create relationship value when used by customers in combination with other channels. By contrast, purely digital channel behavior lags in creating positive relationship value. It’s not that digital-only customers necessarily subtract value; it’s just that they are much less likely than multi-channel customers to take positive actions that will, in turn, create relationship value, particularly in the context of planning for significant financial events.
Q: How are branches critical for fostering financial empowerment?
Customers turn to banks for a range of financial products and services; from basic current accounts to car loans and wealth management funds and investments. Many of these customers will, at some point, find themselves in a financially distressed or precarious situation. That’s particularly true now as we experience the economic consequences of Covid-19.
When customers perceive that their bank is activating key financial empowerment elements, they feel more financially empowered. And, this is true across segments. Financial institutions that want to foster a sense of high financial empowerment among customers should look at three key actions:
- Educate: teach customers about their financial options;
- Enable: equip customers with tools to stay on track and make it easy for them to access new products and services;
- Reassure: so that customers feel “better off” as a result of their interactions.
These are the fundamentals for customer empowerment in such a way that the customers reward their providers for it. Digital and digitally leaning behaviors are not nearly as effective at fostering financial empowerment as people-related behaviors.
Effectively, customers pay back or reward banks who do this by taking positive actions, such as advocacy, service and revenue. These actions will, in turn, have a positive impact on customer relationship value.
Q: Can branches play an essential role in driving digital sales?
Yes, definitely. It’s not just that branches act as a catalyst with other channels to foster positive relationship value; they are also key to the success of non-branch, digital sales.
In addition to creating in-person growth and sales opportunities, branches increase digital sales within their radius. They exert an aura that is responsible for what is commonly known as the digital halo. In other words, digital sales do much better when there are branches around.
Digital is seen as a convenient, less expensive alternative to branches. It actually turns out that digital sales are most likely to be successful when they are in orbit around the analog sun of the branch.
For example, our research has found that customers in the immediate vicinity of a branch will use it to open accounts. However, they are also more engaged with digital options, such as mobile banking. Similarly, people further away from the branch, but still within its orbit, gravitate towards digital sales options to a far greater degree than they would if the branch were not there.
Q: How can banks get the most value out of their branches as we emerge from the pandemic?
The best way banks can use their branch network is to drive positive customer relationships. They can do this by helping to empower customers financially and address their financial planning needs to cope with the unexpected. Branches can play a critical role in this and that alone is a powerful argument for renewing branch strategy and ensuring their branch network is an integral part of their journey to recovery and growth.
Finally, let me leave you with some concrete steps for turning these ideas into reality.
On a longer term, we saw that the branch is part of a multichannel behavior profile that creates positive relationship value, and it also has an aura that engenders digital sales. Those should become key strategic goals.
On nearer term, banks can start asking themselves a few questions: do current metrics include the branch impact on positive customer actions? What competency gaps need to be bridged to enhance that impact? And are they currently able to measure the digital halo effect of the branch?
Then, over the next 30 days, they can start evaluating exactly how customers use branch and digital capabilities. They should work with line of business partners to ensure that branch performance measurement begins to account for the branch’s impact on relationship value.
Multichannel delivery is not new. All banks have a heritage strategy. But it’s critical to recast that strategy in the light of the particular power that branches bring in creating positive customer relationship value.