Are Your Retail Branches Too Large or Too Outdated? Here are Some Ideas


12-17-14-Emily.pngWhen it comes to branch innovation, the chatter often focuses on two things: Make it smaller, and load it with technology. But many banks are still left with larger legacy locations, and technology alone won’t drive more customers to your bank. The branch is still seen as a powerful branding tool, and some financial institutions have found creative ways to tap into their local communities, with positive results.

The solution for one credit union was to split their 3,200 square foot branch in half with a local tea house. The space was designed so clients of GECU, a $2-billion asset credit union based in El Paso, Texas, could easily walk over and grab a cup at the tea house—and the restaurant’s regular customers would maybe think of GECU for its next loan. “This shared tenancy approach helps lower costs, and if you can find the right alternate tenant, it will drive in more traffic,” says John Smith, chief executive officer of DBSI Inc., the branch design firm that worked with GECU.

However, a tenancy arrangement with a local business isn’t without its risks. According to the Small Business Administration, roughly half of all new businesses survive for at least five years, and one-third survive ten years or more.

Instead of sharing their branch space with a tenant, more banks prefer to make space available to the community. Even with the rise of digital banking, Portland, Oregon-based Umpqua Holdings Corp., with $22 billion in assets, still values the branch as a way to build client relationships, resolve more complex issues for customers and promote the bank’s brand, says Eve Callahan, senior vice president of corporate communications. As a way to draw in the community, each store hosts events, ranging from Nintendo Wii bowling leagues to an Oktoberfest celebration. For Umpqua’s business clients, Umpqua promotes a local business each quarter and even sells that business’s products within its stores. The program has been popular, with a waiting list of up to 18 months, says Callahan. Decisions on which business makes the cut, as well as which events to host, are made locally by the store manager. “They get to know the local businesses around them, the nonprofit organizations [and] the schools, and program events in their store that are going to reflect what’s happening” locally, she says.

C1 Bank, a $1.4-billion asset financial institution based in St. Petersburg, Florida, designed its newest branch in Miami with the local neighborhood—the Wynwood Art District—in mind. C1 converted an old warehouse into a 4,500-square-foot branch designed with a large, open and adaptable space to host local events, such as art openings. The furniture was designed to be removed for these events, and the bank boasts a kitchen for use by caterers. The space is available for use by local businesses and charities, and the bank itself regularly invites local business owners to network with each other and with C1’s bankers. The unique space—artwork is featured in the branch—makes C1 stand out, and leaves the community with a positive impression, says CEO Trevor Burgess.

In Roseville, California, 120-branch Rabobank N.A., a $14-billion asset subsidiary of a Dutch financial company, worked with DBSI to design a branch that plays on the affluent community’s agricultural roots. A vintage farm truck displays goods from the bank’s customers, such as olive oil, and a glass door opens like a garage to bring the outside in. So far, the bank has used the space for local events, and Kimberly Hval, the bank’s executive vice president and director of channel strategy and support, says Rabobank plans to regularly host a farmer’s market in 2015 as a way to promote the bank’s customers.

Location plays a big role, and sharing space with a coffee shop or hosting events won’t attract more customers if the branch isn’t located in a well trafficked area, says Mark Charette, CEO of commercial real estate design firm Solidus. His firm works with institutions to design for efficiency by minimizing the branch area and relocating another line or channel of the institution—a call center, for example—which creates a cost savings by merging that channel’s location into the redesigned branch.

However, with the right location, a strategy to draw the community in can have a positive impact for the bank. Rabobank attracted its largest depositor through one of its events. “Our community can benefit, and obviously being able to drive in more clients through the experience is certainly icing on the cake,” says Hval.

A Mystery Shopper’s Guide to Improving Customer Service


five-star.jpgI’ve done hundreds of mystery shops over the years, at branches all over the country.  While I find that the branch employees I meet are generally friendly and professional, I’m frustrated in the small number of truly great mystery shop results that I get to report.  Banks spend big marketing dollars to get new customers in the door, but what happens when they get there sometimes becomes an afterthought.  My mystery shops usually follow a familiar scenario.  I’m just a guy walking into a branch to get some information about a new checking account.  That’s an important scenario for your bank to master.  Here are five tips to help your branch teams make better first impressions and improve customer interactions.

1.  Acknowledge people as they walk into your branch:

 Some branches I shop seem more like funeral homes than sales and service environments.  It’s amazing what an enthusiastic, “Good Morning!” can do to make a great first impression.  This is even more important when the branch is busy, and when people have to wait.  No one likes to wait.  A simple, “I’m sorry that we’re so busy today, someone will be with you in just a few minutes” will lower frustration and perceived wait times.

2. Tell your bank’s story:

Tell your story every chance that you get, especially with new customers.  What makes your bank unique?  Why is your bank the best choice?  During my mystery shops, I love it when I heard the words, “we’re the only bank that…”  Good banks invest in new products and services that give them a competitive advantage.  The great banks train their branch teams how to highlight that competitive advantage with every interaction.

3. Sell at the desk, not the teller line:

Sometimes during my mystery shops I’ll approach the teller line with the question, “Whom can I talk to about checking accounts?”   More times than not, this usually ends up with me receiving a brochure and a rushed sales pitch as the line behind me grows.  Instead, train your teams to escort teller line inquiries to a branch service person at a platform desk. 

There’s more privacy.  There’s more time.  And, hopefully you’ve got a customer service expert that is trained to ask a few good questions in order to make a good recommendation.  None of those things can really happen consistently at the teller line.  No one wants to answer financial questions with their neighbor standing at the teller window next door.

4. Build better sales tools:

Disclosures are not sales tools.  In my mystery shops, I still find branches that use them to explain products to me when I present myself as a new checking account prospect.  Make the effort to have a great brochure.  Make sure it’s designed to fit with the way that you’re teaching your branch teams to sell.  If you train them to ask questions, why not put a few of those questions right in the front of the brochure? 

At our company, we’re fans of tools that we call placemats.  They’re big.  They have lots of room to highlight features and benefits, and not just tiny text on a page.  Some banks laminate them and keep them at each sales desk.  Others print them on tear-away pads, and give them to each customer as a reminder of the things learned during the branch visit.

Regardless of what type of brochure you use, make sure that the branches keep them in stock and up-to-date.  You’d be surprised how many times I’ve watched branch people shuffle through drawers for brochures.  And I sometimes find old versions of brochures mixed in with newer ones. 

5. Don’t chain the pens to the desk:

Ok, maybe this last one is just a personal pet peeve.  But seriously, if I were a bank marketer, I’d love for all of my customers to balance their checkbook or sign their debit card receipts with a pen that has my logo on it.  It’s an easy brand-building tactic, and it’s cheap.

First impressions are everything.  Make a great one, and you may earn a customer for life.  We’d love to hear about things that your team has done to make great first impressions.

Originally published on December 29, 2011.

The Mixed Blessing of Bank Deposits


mixed-blessing.jpgThe U.S. banking industry is drowning in deposits and that’s not necessarily a good thing. As of June 30, deposits in U.S. banks (but excluding credit unions) totaled $8.9 trillion, up nearly 8.5 percent from June 30, 2011, according to the Federal Deposit Insurance Corp. Total bank deposits have actually increased every year since 2003, although the increase from 2011 to 2012 was the sharpest jump over that time.

There’s no great mystery why this is happening. The U.S. economy’s uncertain outlook and a volatile stock market has led many consumers and businesses to park their investment funds in insured deposit accounts rather than risk losing a big chunk in another market meltdown. Normally banks would be quite happy to have a surfeit of low-cost deposit funding, but it’s actually something of a mixed blessing nowadays. Slack loan demand and low rates of return on investment securities like U.S. Treasuries, the latter a direct result of the Federal Reserve’s easy money policy in recent years that has kept interest rates low, are making it very difficult for banks to earn a decent return on all those deposits.

What makes this multi-year increase in deposits so interesting is that it has occurred at the same time banks have been closing branches and pruning their networks. As of June 30, according to the FDIC, there were 97,337 bank branches nationwide, down from a high of 99,550 in 2009, and there has been a consistent year-over-year decline since then. There’s no mystery why this is happening either. Two seminal events since 2010—new restrictions on overdraft charges and a cap on debit card fees—have taken a big bite out of the profitability of most retail banking operations and banks have responded by cutting costs, partly through layoffs but more so through branch closings. That deposit levels have continued to rise, even as the number of branches has declined, has no doubt made it easier for banks to trim their brick-and-mortar networks.

But here’s the rub. What happens if in a few years the U.S. economy makes a strong comeback and retail investors are once again confident enough to put their money into the stock market? Banks don’t have to compete with the stock market now for consumer funds, but they would in that scenario. Most banks have developed multi-channel distribution systems with the traditional branch as the hub and alternatives like automated teller machines, in-store branches, the Internet and more recently the mobile phone as spokes. And while remote channels like online and mobile have steadily grown in popularity in recent years, how effective will they be as deposit gathering tools if banks must once again compete for funds?

Here’s my best guess at what the future holds: Don’t be surprised if, say, five years from now the trend has reversed itself and banks are once again opening new branches.  It might be like a relic of days gone by, but a deposit war between Main Street and Wall Street would be just the thing to give the hoary old bank branch a new lease on life.

How Can Retail Branches Become More Profitable?


fishbowl.jpgI have two grown children, 25 and 28 years old, who have checking accounts, but have never been in a bank office.  Yet, despite all the evidence that branch usage is in decline over the past decade, the industry continues to build new offices.  As a director of 10 different FDIC-insured banks during my 25 years as a consultant/investor for the financial services industry, I do not envy the job of current bank directors preparing for the future.  With a large amount of capital tied up in single-purpose real estate and fees on accounts restricted by regulators, where can bank management and directors turn to make the branch profitable again?  The answer to this problem may lie in the historical study of how we got where we are today.  

In the first 10 years of my banking career at Trust Company of Georgia (now SunTrust), I held responsibilities in both management and internal consulting of operations and technology.  I remember going to our Fulton Industrial Boulevard branch on a payday Friday and hearing the branch manager ask, “What can we do to get all these people out of our branches?”  Well, mission accomplished!  These days the long lines on payday are more frequent at a Walmart financial center than at a bank branch.  What will draw these people away from Walmart, check cashers, payday lenders and title pawn shops and turn them back into profitable bank customers? Evolutions in technology, social media and product offerings now provide the solution.

Asset quality disasters, regulatory concerns and other survival issues have consumed the lives of many bankers as of late, leaving little time to pursue the five-year plan.  Banks now must begin to reshape business plans to reflect the evolution in technology and consumer behavior or become the next victim of obsolescence, much like such industries as home entertainment, photography, telecommunications and specialty retail.  Can a full function ATM machine replace a branch the way that a Blockbuster Express self-service movie rental kiosk replaces a store?  Never has the role of a bank director been more important than today; financial institutions must proactively chart a new course for retail banking.  Personal interaction with successful retailers in other industries can provide directors with the needed experience to guide their own companies.  Think of the experience of renting a movie from a kiosk instead of going into a store and compare it with using a full-function ATM instead of visiting a branch.

Now is the time to begin the evaluation of which branches are crucial to the customers in an area, provided all of the other ways that are now available to meet their banking needs.  Given the unlikely event that margins will grow, replacing fee income lost as a result of regulatory changes for most banks is critical to future earnings growth.  Directors need to be proactive in encouraging management to recruit customers that the bank lost to alternative financial services providers, such as check cashers and payday lenders.  To get these customers back, banks must offer a new suite of products and services, which includes cashing checks, money transfer, money orders, prepaid cards, reloadable cards, and fees to guarantee funds. In the future, perhaps a cash advance fee at a bank can replace payday lending.  These services can be highly profitable, as evidence by the large number of alternative financial services providers in the market place. 

An argument usually brought up by bankers is that no other bank is doing this. That’s not true. Regions Bank recently announced Regions Now Banking in all 1,700 branches.  The products mentioned earlier are all included in this offering.  Early results are extremely pleasing to Regions’ management team, which expects the new fee income will replace revenue lost as a result of regulatory changes.

When an industry must react to changes in technology and consumer behavior, the first thing to ponder is if the consumer still needs the product.  Does the public still need financial services?  The answer is yes.  So, how can banks use new technology?  The answer is still evolving, but every bank director who  has purchased something on Amazon, rented a movie from a kiosk, or used the self-service checkout at the grocery store has a personal experience that can be valuable in shaping the future retail bank customer experience.

Face-to-Face Still Trumps Technology

cornerstone.jpgUpon reading the news and listening to industry experts, you may think bank branches are going the way of the buggy whip.  News reports claim: “For the first time in 15 years, banks across the United States are closing branches faster than they are opening them,” and “Bank Branches Are Closing; People Using Nearby ATMs Don’t Notice”(time.com).

In November 2010, analyst Meredith Whitney predicted 5,000 branches would close in the next 18 months (fortune.cnn.com) and according to author and consultant Brett King, “The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I’m not talking 10 years out here… I’m talking in the next 2-3 years,” (banking4tomorrow.com).  To paraphrase a quote from Mark Twain, reports of the death of the branch have been greatly exaggerated.

As part of the 2011 Bank and Credit Union Satisfaction Survey, Prime Performance surveyed more than 12,000 retail bank customers.  The findings from this survey show that the branch continues to play a vital role in the customer experience. 

4 Reasons Why the Branch Remains the Cornerstone
of the Retail Banking Relationship

1. 59 percent of customers performed a teller transaction at a branch within the last two weeks
Even though branch transactions are declining, branches continue to be highly visited. In 2011, 59 percent of customers performed a teller transaction at a branch within the last two weeks. While younger customers make more use of self-service channels, they still frequently visit the branch.  Among Gen Y customers, 56 percent performed a teller transaction at a branch within the last two weeks.

2. 74 percent of bank customers said they opened their most recent account in a branch
Most customers still choose to open their bank accounts in a branch.  Almost 3 out of 4 (74 percent) bank customers said they opened their most recent account in a branch.  This compares to 19 percent opened on-line and 6 percent by phone.  As expected, older customers (born before 1965) were more likely to open their account in a branch, and 81 percent did so.  Among Gen X, 69 percent opened their account in a branch, and surprisingly 74 percent of Gen Y did so as well.

3. 52 percent say branch location is the top reason why they selected a bank
Customers claim convenient branch locations is the primary factor in selecting a bank.  Fifty-two percent of new customers who opened their account in a branch rated convenient branch locations as the number one reason for selecting the bank and 74 percent said it was one of the top three reasons. New customers who opened their most recent account online also rated convenient branch locations as the number one reason why they selected the bank, even though they chose not to open the account in a branch.  Twenty-seven percent of customers who opened their account online rated branch locations as the number one reason why they selected the bank and 43 percent ranked it in the top three reasons (35 percent and 49 percent among Gen Y).

4. Live interactions continue to drive customer satisfaction and loyalty
While self service channels can play an important role in the customer experience, interactions with bank representatives are, by far, the primary drivers of customer satisfaction.  Regression analysis on over 12,000 customer surveys showed that customer satisfaction with the branch had the greatest influence on their overall satisfaction with the bank, how likely they are to recommend the bank and how likely they are to return to the bank first for future financial needs.  Still in its infancy, at this point in time, mobile banking is showing virtually no impact on customers’ overall satisfaction.  The branch has over three times the influence on overall satisfaction than both the internet and ATM channels.  Customers value self-service channels, but don’t see them as significant differentiators between banks. Ultimately, their interaction with humans has the greatest affect on how they feel about their bank, for good or ill.

Ron Johnson, who left Target to build the Apple Store from scratch and now is the CEO of J.C. Penney Co.,  said in a recent Harvard Business Review interview, “The only way to really build a relationship is face-to-face.  That’s human nature (hbr.org).”  As long as customers continue to place significant value on the locations of branches and the interactions they have with representatives in branches, banks needs to continue to make the branch the cornerstone of their retail strategy.

Banks must recognize that strong customer relationships are the key differentiator that will drive long-term growth and the branch is the key to developing and nurturing those relationships. Successful banks listen to their customers and use that feedback to energize behavior change and create a shared vision of consistent service excellence, and then deliver on that vision on each and every customer interaction.

Five Tips to Sell Better in Your Branches


sales-training.jpgDoes this sound familiar? Your bank is launching a new product or sales technique that’s going to be a surefire hit with your customers. You’re expecting big results in growing customer relationships. But, the results don’t meet expectations. The new ideas fail to infect your branch teams with your enthusiasm. In my experience, lackluster training is usually the culprit. But even the best instructional content is not guaranteed to produce great results. Don’t take chances with the success of your retail initiatives. Follow these five ideas to add new life to your branch sales performance. 

1. Create the Right Environment  

First of all, don’t call it, sales training. Branch employees hate the “S” word. Instead, focus on customer service training. Your front line will be more open to your ideas and their emotional buy-in can be the difference between success and failure. 

If you want your branch teams to care, then you have to show them that you care, too. Have senior managers kick off the training sessions—let them hear the critical messages directly from you and your senior management team. Share your passion with them. Tell them why the training is important and what success can mean for the bank and its customers.

Let’s face it—bank sales training can be boring. Just a few details can add a little pizzazz to your sessions and leave a lasting impression on your branch teams. Blast some upbeat music for arriving students. Provide some goofy training gifts (see me after class for your  “I know the Secret of the Bank Secrecy Act” T-shirt).

2. Market Your Training to the Front Line

Involve your marketing team in your training initiatives. Give them a budget. Set goals for how the training should be communicated to targeted employees. Create an internal email campaign or a fun video at the beginning of each training session to solicit buy-in from your retail team.

3. Practice, Not Role Plays

There’s no better way to be a better seller than to learn new sales techniques by role playing.  However, just saying the words, “role play” will incite panic attacks in most retail bankers.  Don’t single out participants for role playing exercises in front of their peers. It freaks them out. Instead, pair off the participants and let them practice with each other without the pressure to perform in front of the whole class.

4. Target and Reinforce Simple Training Behaviors

Even great trainers are lucky if participants remember 20 percent of what they hear in a training class. Make the target skills easy to remember. At our company, we use memorable phrases like: “Remember the 1-2-3.” Reduce key ideas down to something as easy as 1-2-3. You’ll have a better chance of connecting with your trainees.

Don’t train new sales behaviors and then hope for the best. A wise sales manager once told me: “There are only two ways to get people to adopt new behaviors pleasure or pain.” Without pleasure or pain, people usually just revert back to the same comfortable behaviors as usual. So, focus on the key activities and behaviors that you want to change, and then reinforce these behaviors with things that make people feel good. Include lots of public recognition for top performers. How about a sales contest to reward the new sales behaviors?  Or announce a spot incentive to put the focus on a new goal.

5. Don’t Forget the Branch Managers

Too often, sales training focuses just on sales behaviors. But managing new behaviors is equally hard. Help your branch managers develop a “fast start plan” to guarantee a successful implementation of new sales skills in their branch. Brainstorm a list of easy five minute sales meeting huddles. Be sure to plan fun reward and recognition activities that sustain the enthusiasm of your front line. Over the years, I’ve grabbed dozens of inexpensive ideas from the book,”1001 Ways to Reward Employees,” by Bob Nelson.  Every person in a leadership position should have a copy of this book.

Execution is always the difference.  We’d love to hear about things that your team has done to take your training events to the next level.

Is cutting branches the best answer when times are tough?


map.jpgBank of America is slashing 30,000 jobs, which one bank analyst estimated would lead to the shuttering of 600 of the bank’s branches, as the bank tries to reduce expenses in a sputtering economy and in the midst of an avalanche of bad mortgages. London-based HSBC already announced it was selling nearly 200 branches in the U.S. to First Niagra Financial Group.

On the other hand, JPMorgan Chase & Co. is doing quite the opposite: it announced plans earlier this year to add 1,500 to 2,000 bank branches in the next five years. Many of them will be in California and Florida, hotspots for the last mortgage meltdown.

Is this lunacy, or is JPMorgan up to something smart?

Of course, a lot will depend on how the next five years turns out.

But the simple idea of cutting branches to save money isn’t necessarily the brightest, according to research by New York City-based First Manhattan Consulting Group. The bank consulting firm did an analysis of branch consolidations and found wide discrepancies in how successful branch consolidations were.

The hitch is that cutting branches can also cut into revenues, and banks often underestimate this impact.

The typical branch’s direct expenses equal only about 25 percent of the revenues it produces.

According to First Manhattan:

  • Deposit loss within the first two years following a consolidation ranges from as much as 55 percent or more to as little as less than 5 percent of the closed branch’s portfolio. Based on our analysis of over 500 consolidations, we estimate that 60 percent of branch consolidations resulted in a negative NPV (net present value) because of higher than acceptable (revenue) attrition.
  • Beyond short-term runoff, consolidations also have longer-term effects on revenue momentum. Following a 3-year stabilization period, a typical branch that absorbs the customers of a nearbyclosed branch experiences a decline in revenue growth of 4 percentage points per year relative to local market performance. However, here again, averages can be misleading and some banks outperform while others really suffer.

JP Morgan says the 1,000 branches it has opened since 2002 have contributed as of this spring $148 million to the bottom line and brought in 2 million new checking accounts.

Because of the time it takes for new branches to be profitable, JPMorgan is seeing its plans as a “significant long term investment for growth.”  A chart in the bank’s investor presentation shows the new branch build becoming profitable in 2018 or 2019.

“Yes, we are concerned about technology reducing the need for physical branches, but all our research shows that we still will need branches to serve our customers,’’ CEO  Jamie Dimon writes in his 2010 annual report. “While use of the Internet and ATMs has skyrocketed, branch traffic essentially has remained steady. Over time, branches may become smaller, but we still think they will remain essential.”

JPMorgan had 5,340 bank branches at the end of the second quarter. Bank of America has about 5,700 branches. Don’t be surprised if JPMorgan soon becomes the biggest bank in America.