BAI Retail Delivery

It’s Time to Deconstruct the Branch

The traditional branch model has outlived its usefulness.

October 11, 2011

Pressure on the retail branch model due to rising payroll and occupancy costs and changing consumer needs requires financial institutions to “deconstruct the branch,” according to David Faulkner, a Wells Fargo branch architectural expert, addressing the Bank Administration Institute’s Retail Delivery Conference in Chicago.

“Today’s banking experience is less about place and more about touch points,” Faulkner said. “Deconstructing the branch allows financial institutions to match these touch points to the customer’s needs. There’s a direct correlation between occupancy cost and branch size, but no correlation between branch size and revenue.”

The traditional branch design assumes customers need to do most of their transactions in a branch, and that they’ll rely on the branch as a primary resource for financial products. That’s not the case anymore, Faulkner maintains.

“For decades, these assumptions were validated and reaffirmed by the marketplace,” he said. “Thus, the big, solid, ‘all-in-one’ branch design that could serve a multiplicity of customer needs in every location was the right solution.”

But the traditional branch design didn’t anticipate:

  • The speed with which demographics can change in a market;
  • The potential that nonbranch transactions would outnumber branch transactions by 50 billion in 2011; and
  • A plethora of channels, products, and institutions that would individually and collectively degrade customer dependence on the branch.

Deconstruction entails examining how customers use branches, how much they value various branch elements, and how human contact enables positive experiences, Faulkner said. “It’s also important to look at how individual elements of branch design drive or diminish branch profitability.”

The process involves asking three key questions:

  1. Do our customers bank differently than they did when the branch model was created?
  2. Do we even want to conduct business with customers the same way we did when our branch model was created?
  3. What have we done to redesign the branch to match the shifting state of affairs?

One branch area in particular need of deconstruction is the teller line, Faulkner said. “Teller lines and related storage and work areas can take up 30% of the branch footprint and 40% of the interior fit-out costs. But they provide little added value to the customer.

“Look at them through the customer’s eyes: How many customers are delighted to wait five minutes in a teller line for a 30-second transaction?”

Video-enabled tellers, he added, allow financial institutions to provide core teller services while having conversations with customers. “And they can’t be robbed.”

Financial institutions are now providing the expertise of specialists via video connection rather than having a full-time specialist in the branch. “This could lead to the placement of a ‘concierge’ in smaller branches outfitted with a series of mini conference rooms to provide a warm hand-off to virtual experts.

“Investigating alternative branch designs will make you think about your customers, sales and services practices, and your retail model. The exercise will likely lead to innovation whether or not you implement a new design.”