5 Faces of the Financial Services Distribution Channel Model

Distribution channels for banks and credit unions.

There’s a belief that the size and type of banks and credit union branches is trending towards the smaller footprint, but this isn’t really the full story. Branches are on the cusp of a tipping point, where they’re being designed specifically for marketplaces. Differentiation, customer service, efficiency and convenience are taking priority, but all of these are being defined by distribution channels. The retail branch revolution has been underway for several years now; we’ve seen a step-wise evolution driving financial institutions to collectively adopt dialogue towers (pods), cafe-style branches, audio-visual ATM’s, tech bars, and other innovations. But the influence of distribution channels and how they fit into branch network planning has been largely under-reported.

Bank branch in Massachusetts with ATM, cash recyclers, and private offices.

A glass-walled office where customers can receive on-the-spot financial advice.

The establishment of internet commerce, smartphone technology, and improved marketing communications has created new possibilities for the banking distribution channel model. With a new era dawning in branch design, community banks and credit unions are living out a paradigm shift that emphasizes the digital piece of their business, as physical branches are dividing and morphing into vehicles designed for very specific markets and customer segments. In addition, improvements in back-office integration and more cohesive handling of previously fragmented channels are moving consumers gradually towards the “omnichannel” concept.

Massachusetts bank branch, with multi-use teller station.

Georgetown Bank’s new branch in North Andover, MA, features a unique counter.

Distribution Channels are Delivery Pipelines

Distribution channels are the pipelines that deliver products and services to consumers, and revenue to businesses. Distribution channels have been developed largely in response to changing markets and technologies. The increase in consumer touchpoints due to online/mobile activity has meant greater opportunities for exposure to their full complement of products and services for financial institutions. The customer banking experience now comes in Self-Service, Assisted Self-Service, and Assisted Full-Service options, depending on the technology each branch has implemented. ATM’s with expanded capabilities now enable customers to deposit cash and checks as well as withdraw cash. Once restricted to branch exteriors or lobbies, ATM kiosks are now accessible in standalone form in numerous locations, such as parking lots, hotels, hospitals, colleges, and gas stations. All of these qualify as a distribution channel for the financial institutions they serve.

Bank branches designed around distribution channels in New England.

ATM’s are learning to stand on their own two feet.

The rise of the so-called “micro-branch” has occurred in response to consumer demand for convenience and expanded services. Frequently located in grocery stores and shopping malls, micro-branches transform from full-service branches into 24-hour ATM lobbies where customers can perform transactions. The branch interior is secured behind an airlock or security grill for the night. Full-service dialogue branches such as main branches and flagships are distribution channel powerhouses where every product and service the financial institution offers is front and center; compelling displays, roaming universal bankers assisting customers, digital displays, consultants in house, and more.

Microbranches for banks and credit unions.

Supermarket microbranch design, leading us into a new era of convenience.

Here are five chief distribution channels being utilized by financial institutions today:

1. Advanced Terminal and ATM kiosks

According to the IBM Insititute for Business Value, 65% of all banking customers regularly use ATM’s. This is significant, and it indicates that the ATM will be relevant as a standalone distribution channel for years to come. The latest technology (the advanced terminal) can perform a wide range of banking tasks, including branch/check image capture and envelope-free deposits. Elan Financial Services have stated that advanced terminals offer banks the opportunity to generate additional revenue streams by using “self-service terminals to sell products such as mobile airtime, transit tickets, theater tickets, and prepaid cards”. ATM’s are slowly evolving towards a scenario where the ATM would be either an advanced multifunction ATM, or else would function as a cash safe controlled by a tablet (or even a smartphone) used by a customer. This is true ATM-mobile integration, and is viewed by industry commentators as an inevitable aspect of the banking omnichannel.

2. Digital and Mobile

As stated above, mobile and online transactions are merging with those performed on an ATM. Banking website The Financial Brand reported in April, 2015 that 39% of adults say they use their smartphone for mobile banking, but it is speculated that smartphone usage for online banking may plateau as smartphones have saturated the market. Nevertheless, customers will continue to engage in online banking of various types, including tablet, laptop and desktop banking, regardless of stagnating growth in smartphone sales. Digital banking is a huge part of the omnichannel, with modern financial institutions’ websites, banking apps, social media accounts, SMS notifications, chat support and more presenting a unified voice and appearance to consumers. With detachable tablets like the Surface Pro predicted to grow by 75% in 2016, digital banking is set to keep growing, and demand for a seamless, parallel, device-switchable banking experience will grow with it.

3. Branches

Human beings. Without us none of these products and services would exist at all. The dialogue banking concept is built on the basis that, for the foreseeable future at least, people prefer to interact with other humans. Live dialogue builds assurance and trust, and answers to what customers feel are important questions can be obtained much more rapidly. Staffing models are evolving in response to the migration to new distribution channels, and it is the universal banker or relationship banker (also called a “universal agent” or relationship agent”) model that is shaping up to be the dominant type for branch staff going forward. Relationship bankers are expected to have a different skill-set to the traditional tellers, with versatility, a personable/sales-orientation, and confidence in educating customers how to use modern banking technology a must. Universal bankers working in dialogue towers with cash recyclers constitutes an Assisted Full-Service option.

4. Video/Call Centers

Call centers are one of the most preferred support channels, probably because making a telephone call is very quick and convenient. As video ITM’s and Assisted Self-Service (advanced) terminals become more common, financial institutions can potentially convert service and support calls into sales. This means the universal banker model for branch staffing can also be applied in call centers. With improvements in quality of support, a target percent rate of support-to-sales-conversions can be established, and call centers will become a significant distribution channel. One drawback is that the option of telephone support is usually only offered to premium account holders, but as conversion targets are met it’s expected that a larger segment of customers will be able to receive phone support. Expanding this option to the entire customer base may be instrumental in growing the call center as a major sales channel, with specially trained staff and full video capability. Even without quality improvements, the call center is a legitimate distribution channel, serving both advice and sales, with emphasis on customer service.

5. Microbranches

The microbranch has earned its own right to be considered a distribution channel, because a full size branch wouldn’t fit into the market niches where microbranches really make a difference. In addition to their versatility, microbranches give a guaranteed return on investment. A 250 to 500 square feet microbranch costs approximately $450k, compared to a full-size branch that costs around $2.5M on average. Microbranches are smaller, more cost-effective versions of their “small branch” counterparts. They can be fully-automated via advanced terminals, with a single relationship agent available to sell products and services. Alternately, they can be based around the Assisted Full-Service model, with a universal banker stationed in a dialogue tower equipped with a cash recycler, who can engage customers and cross-sell while the recycler does the work. Microbranches can be strategically placed in targeted marketplaces inside larger stores, malls, or even hotels. When properly designed with compelling retail communications and brand merchandising, a microbranch can stand out in a crowd and exudes convenience.

Designing bank branches for efficient use of space in New England.

Great use made of a corner space, for a private consultation booth.

Financial distribution channels.

Some examples of financial services distribution channels.

Differentiation, Communication and Convenience

Retail communications play an important role in pointing customers in the right direction when they enter the branch and approach a terminal or staff member, open a banking app, or use a kiosk. Customers must immediately recognize a consistent palette and voice theme. Distribution channel models are configured depending on marketplace opportunity. Each model’s distinctive appearance is based on its particular market surroundings and differentiation strategy. It’s common to hear comparisons made between bank retail bank branches and the coffee chain Starbucks. The Starbucks retail story is based around their own distribution channel model; Starbucks products can be found in a variety of locations, including Starbucks stores, bookstores like Barnes & Noble, “microbranches” inside airports, and even individually on the shelves of grocery stores. Starbucks staff are also renowned for asking customers for their name so they can write it on the side of the cup, and engage with customers in a more personal way. This translates to the “dialogue” experience in banking, to some extent, if you exclude the online accounts of Starbucks staff jousting with customers (with sometimes with less than stellar results on either side).

Coffee bar in a bank branch near Boston, Massachusetts.

Some branches have coffee bars, while some are virtual coffee-shops.

Branches located in potentially high automation markets (where average customer age is lower) require a relationship agent, or at least some salient communications piece guiding customers to the terminal and teaching them how to use it. In markets where the dominant channel is cash transactions with a live person (older demographic), a relationship agent in a dialogue tower providing Assisted Full-Service is the best option. By consulting with branch design professionals and strategic location experts, organizations can determine the best branch network strategy for their institution, and enjoy the optimal results. Expect to see much more on the subject of financial service distribution channels in the next year or so. It’s one of the next big things in bank branch design.

Designing bank branches for the Boston area includes technology and merchandising.

Digital media, a tech bar, and a cash recycler in a modern branch in Massachusetts.