Will Mobile Demolish the Branch?

With smartphone adoption rising faster than expected, will consumers need branches?

September 26, 2012

The use of mobile devices just crossed a major milestone two years ahead of projections: More than half of mobile subscribers now have smartphones, according to research from Nielsen. Members’ use of your mobile-service channels will continue to grow—perhaps dramatically—in the next few years.

Finding the right balance between technology and personal service in this increasingly mobile market remains the industry’s Holy Grail.

Most experts fall into one of two camps:

Camp #1: These adherents envision a future where branch staff would provide only financial counseling and assistance with more complex loans, such as mortgages. In this scenario, basic transactions would take place either off-site or through self-service channels.

Camp #2: These folks believe the cost of technology and the enduring popularity of tellers’ personal service mean traditional branches will remain largely intact.

Widespread adoption of remote channels might seem to suggest Camp #1 ultimately will prevail. But even tech-savvy users still want their traditional branches, according to a study by Cisco Systems, which showed the most avid technology adopters are those who visit branches most frequently.

The Cisco report also showed that most respondents would be unhappy with only a virtual branch option, and that nearly 30% of them would either reduce their deposits or switch their financial institutions if a virtual branch were the only option. In addition, the traditional branch remained the preferred channel for loan applications and services that required additional support.

The number of branches has increased 22% since 2000, according to The Economist. And two studies by Ban-cography show that financial institutions with denser branch networks gain a disproportionately larger share of deposits.

“Our research shows strong correlations between the depth of member relationships and their proximity to a branch,” says Paul Seibert, vice president of financial design at EHS Design.

“Branches play a major role in the acquisition, sales, and service of members,” agrees Kevin Blair, president and CEO of NewGround. While alternative channels like the Internet, mobile, and remote ATMs are the preferred choices for transactions, on their own they’re not effective in managing the total relationship, he adds.

“People are actively trying to determine how to best use their branches, and in the past 24 to 36 months this has been an evolutionary process with the growing popularity of the Web and smartphones,” says Beau Wingate, executive vice president, director of sales at Financial Supermarkets. “The branch is the last place you can reach out and connect with members.”

In its behavioral analysis of more than 1.5 million consumers during the past 12 to 18 months, Diebold found that:

27% of consumers depend on or prefer attendants;

34% prefer self-service channels; and

21% are mixed.

“As more channels are offered and more people become comfortable using them, channel use changes,” says Jerry Verdi, vice president of market intelligence for Diebold—a CUNA Strategic Services alliance provider. “But most consumers still see the branch as an important part of the financial services experience. This is even true among younger members—many of them have very limited financial knowledge and want someone to talk to.”

Despite the differences of opinion on branching trends, there’s widespread agreement that both branches and technology are essential to providing excellent member service. The challenge for credit unions is fitting these two service-delivery channels together in a complementary, seamless way.

Industry experts offer these seven strategies:

Create a consistent user experience. “Omni­channel” is a word Cisco Systems coined to describe a member experience that’s consistent across all channels. Rather than embracing the multichannel approach, which Cisco defines as driving members to the most affordable channel choice, the company believes every channel should blend seamlessly together.

Find ways to break down barriers and to connect channels, agrees Seibert. “And place equal importance on the member experience for each channel.”

This could mean, for instance, a member could start a loan application on a home computer, continue working on it during lunch via mobile phone, and finalize it face-to-face at the branch that evening on the way home from work. Every step of the process should deliver a consistent, seamless experience.

Understand member needs and behav­iors. Use data analysis, survey tools, and face-to-face connections to un-derstand how members currently use your products and services and where gaps exist.

 “Our data showed us that our members continue to highly value the branch,” says Jerry Schmidt, vice president of operations at $925 million asset Black Hills Federal Credit Union in Rapid City, S.D. “It also showed us the branches with high transaction volume versus loan volume, which drove layout elements, such as the number of drive-ups and ATMs at specific branches.”

Carter Federal Credit Union, Springhill, La., also conducted research and discovered that some of its members were reluctant to use remote channels because of concerns about identity theft. This prompted a new approach.

The $206 million asset credit union partnered with the local police department and various government organi-zations to provide financial education to the community about identity-theft prevention, says Susan Brunner, di-rector of community development. “We saw a big jump in adoption of remote channels after these presentations.”

Security concerns also surfaced in a March 2012 study by the Federal Reserve, “Consumers and Mobile Financial Services.” The report found that 48% of respondents were concerned about mobile-banking security, and another 22% didn’t trust the technology to accurately process their transactions.

Another needs-analysis strategy involves front-line employees. At $1.4 billion asset Indiana Members Credit Union in Indianapolis, the executive team sits down with its front-line staff multiple times each year.

“We use these sessions to discover gaps in our offerings,” says John Newett, director of planning and administration. “These conversations, for example, showed us the importance of adding a mobile app.”

“Ideally, your technology and branching strategies should occur in a recognizable, understandable evolution, not a giant leap,” says Diebold’s Verdi. “People value products and services that are congruent with their financial lives. They’re not coming in because you serve them coffee.”

Make the right investments. Don’t be swayed by nifty gadgets or beautiful layouts, says Seibert. “It’s easy to create a ‘wow’ response, but much more important to deliver a solution that reflects your strategy,” he says.

Credit unions are becoming increasingly aware of the “hype cycle”—a five-stage sequence that accompanies the adoption of many new technologies. Instead of embracing something just because it’s new and “cool,” he says, credit unions now are more likely to ask about its productivity and performance.

“Sometimes members will come in because they’ve seen a commercial on television from a national bank that’s offering a new gadget,” Newett says. “It’s good to know they’re interested in this, but our decision making is based on whether we believe members will embrace a new technology and whether it’s something we actually can do well.”

Recognize that some technologies members want and need aren’t quite ready for prime time, he says. For in-stance, a Filene Research Institute report, “The Future of the Branch: A Research Colloquium in Chicago,” found that when consumers tried to open accounts online, only 53% were successful.

Shrink your branches. As some transactions move out of branches or are delivered through self-service tools, it’s likely branches will get smaller. “You can put a lot in 1,500 square feet,” says Verdi.

Branches should include space for teller interactions and member service representatives—with the knowledge that this type of service might eventually subside or disappear altogether, he says.

Verdi also recommends areas for self-service kiosks, rooms that allow for more in-depth private financial discus-sions, and waiting areas where members can read about everything from branch services to biographies about staff they’re waiting to see.

Stay flexible. “Credit unions know it’s important to have a flexible virtual platform, but a flexible physical plat-form is equally important,” says Seibert.

He recommends creating multipurpose spaces. Instead of establishing a community room that’s rarely used, he suggests finding ways to turn the lobby into an after-hours meeting space. When constructing teller lines, he says, recognize you’re likely to need fewer people in this role in the future. So, build the teller space with an eye toward adapting the space for wealth management services.

“We’re taking a modular, scalable approach at our newest branch,” says Black Hills Federal’s Schmidt. “We’ll be able to ramp up or down our teller windows, drive-ups, and offices, depending on our needs.”

Break down barriers. Many credit unions are moving away from the traditional teller line.

Kalsee Credit Union in Kalamazoo, Mich., recently opened a branch that uses a central teller pod with com-puters to access member data and a secure cash-dispensing machine. “We’re erasing the line between employee and member,” says Matt Lahman, chief operations officer at the $135 million asset credit union. “We want inter-actions to feel like true dialogues.”

Carter Federal went a similar route with “dialogue towers”—circular teller counters that integrate computers and let members see account information side-by-side with employees assisting them. “This allows us to deliver a range of services in a streamlined, cost-effective way,” Brunner says.

Revisit employee roles. Many credit unions have replaced the traditional teller with a universal teller who can handle a wide variety of tasks and can focus on building member relationships.

“This role is beneficial on a number of levels,” says Seibert. “It breaks down the barrier between the member and the employee—both physically and relationally. It can save the member time, and it gives the employee the potential to play a role that’s richer and more engaging.”

Universal employees elevate the quality of the member relationship, says Blair. “This will be a more expensive position, but when properly deployed, you’ll offset the higher expense.”

“As you train your staff, give them the tools to effectively introduce new ways of doing business with your members,” Brunner recommends.

“Rather than just showing staff how to use a new computer system, teach them how to position the benefits of the system, so members become confident about using it.”

As your credit union adds or enhances its service-delivery channels, says Seibert, make sure employees know how to use each one so they can assist members. “You want members to perceive these tools as both valuable and easy to use.”