Modernization of legacy branches is an essential part of branch network maintenance for financial institutions that want to keep pace with their competitors and improve efficiencies, service levels and convenience for their customers. Financial institutions aiming to evolve successfully in today’s changing consumer market ultimately need to update core banking applications to be compatible with new technologies and introduce branch designs that work more efficiently through these technologies. In addition, they need to adopt a new recruitment, hiring and training model for branch staff. It is also imperative that a transformational roadmap is developed prior to execution, as banks and credit unions may learn that they have to make major changes in every area of branch operations when assessing a rationalization.
Branch Network Optimization
A single, or multiple, branch rationalization often occurs as a result of a larger analysis known as branch network optimization. A branch network optimization is a study of your branch network’s ROI over the next five years or more. Branch networks today must be studied for efficiency and productivity in the context not just of network expansion but of how existing markets are evolving and how the branch network can be engineered towards minimal waste of any kind. The correct order of operations would be to conduct a branch network optimization and then close, consolidate, or rationalize those individual branches that are lowering profits due to poor branch locations or outmoded designs. Branches can also be rationalized individually if the budget will not cover a branch network optimization.
Managing costs and improving efficiency is a challenge that should be taking precedence over almost all other organizational considerations at this point in time. Most branch networks include a significant fraction of so-called legacy branches, all of which bring down profit margins and are costing the institution money through poor location, or an inefficient and unattractive nature. Banking CEOs know this, but without professional guidance from experts, it is difficult to determine where the problems lie, and what is causing them.
Transformation has to be Holistic
A decision to transform a branch shouldn’t be taken lightly, nor should it be avoided due to uncertainty. Bankers currently face an impasse when considering rationalizing branches. They understand why it is inevitable, but there is concern about disrupting the traditional ways customers do business in the branch. Some decision makers worry that too dramatic a modernization will cause traditional customers to turn away from their brand. Consequently, those organizations may attempt piecemeal superficial upgrades in the hope customers can adapt incrementally to a changing branch environment. This approach will not be as successful as a holistic branch transformation that improves processes, equipment, staff models and retail communications from the inside out.
The Legacy Branch
Legacy branches belong to a previous era in banking whose architecture and interior designs were based on principles very different from today’s ultra-convenient omnichannel retail paradigm. They may not always be obvious “legacy” branches because as recently as 2010 so-called modern branches were still being designed without any of the efficiencies, technologies or staffing models in mind that today’s retail consumer takes for granted.
When you add to that all those branches that were designed and built in the decades before, you have a serious problem with legacy systems that threaten to make many financial institutions not just irrelevant but possibly extinct. Banks and credit unions can only afford to modernize so many branches per year, and as time passes this becomes an increasingly urgent issue. Poor branch designs contribute to declines in business, which means fewer profits to spend on modernizations, and so stagnation sets in.
Legacy branches generally include one or more key indicators that have a negative effect on consumers. They include the following:
Legacy branches are too big. Many legacy branches were built at a time when it was important for banks to project an image of dependability, strength, and longevity. Consequently, the bank branch would be one of the grandest structures in town. This was fine in an age when long teller lines stretched the length of the branch interior, but today’s customer expectations are reflected in very different branch designs, which for the most part are significantly smaller in size. Legacy branches often contain areas where nothing is happening, simply because there’s nothing with which to fill the excess space. By contrast, a modern bank branch is designed so that per-square-foot value is maximized. Smaller, more conveniently located branches that are cheaper to build and maintain make much more sense than inefficient, elaborate behemoths.
Outmoded teller lines. Teller lines are fast becoming an indicator that a financial institution doesn’t “get it”. The teller line is a surviving function of the age when banks provided a fortified vault in which to store clients’ cash and valuables. The intentional barrier created by the teller line is now antithetical to what financial institutions need to happen between staff and customers. Today’s branch visitor wants efficient, knowledgeable service from a well-informed staff that is versatile enough to help them with any question they might have about banking and finance. Millennials view teller lines as the vestiges of a previous era, completely dislocated from modern data-driven retail. They engage in personalized shopping and other services on a daily basis and see no reason why their banking experience should be any different. They expect branch employees to collect data from them for marketing and sales purposes during initial conversations, and are comfortable with the organization knowing these things about them. Modern universal bankers stationed in pods or dialogue towers are free to move and occupy a more intimate space with their customers for the purpose of relationship building and most importantly to obtain as much data about that customer as possible that will lead to their doing business together. The barriers that remain in legacy branches are a significant impediment to this cultivation of relationships and the loyalty and business activity that naturally follows.
Lack of modern banking equipment or online banking tools. Old, tired branches often just don’t look compatible with modern technology; the various areas and alcoves designed into new branches to accommodate digital and interactive elements simply aren’t there. While it is easy enough to create a space for a cash recycler behind a traditional teller line, the real power of the technology cannot be fully expressed in that kind of physical environment. It is also fair to say that older branches can’t readily be converted into automated locations with interactive teller machines (ITMs, or video tellers), as automated branches are usually around 1,000 sq. ft. or less. Unless those legacy branches are completely renovated, with most of the space being allotted to back-office activities, it will not work.
The retail financial industry is highly competitive, and consumers are excited when a financial institution employs a particularly innovative, unique or eye-catching strategy. Moribund, outdated branches (that make a statement to the effect that the organization does not expect to be doing business very far into the foreseeable future) do not inspire such reactions.
Consumers have adopted mobile shopping at an increasing rate over the past ten years, and retail businesses have raced to accommodate this shift by building apps, websites, messaging services and electronic newsletters to better inform and be convenient for customers. The financial industry has been somewhat late in adopting certain aspects of the online shopping experience, and this is reflected in the design of older branches (according to this report, life insurers have been even slower, with companies risking losing younger customers). Modern branch interiors should now be designed with one or more digital-specific locations within the branch. These digital areas can be:
- Tech bars, with mobile devices placed there for educational purposes.
- Flat screens displaying information about the organization’s website and apps.
- Interactive touch-screen technology, where customers can perform tasks.
These digital zones promote the organization’s online presence, educate customers on how to navigate to and use those online properties, and project a sense of convenience around doing business there.
Environmental branding and merchandising for financial institutions is becoming a huge business all by itself. These functional design elements surround the customer or member with a sense of the organization’s identity and personality. The branding aspect overlaps into the realm of online banking, as touch-screens and tech bars also need to be branded and themed in the organization’s style and palette. Nowadays, financial institutions use branding elements to enliven the space with compelling messaging, and this has a notable visual impact. This is very different from the appearance of legacy branches, which tended towards privacy, with interior designs being conservative, and product and service offerings being greatly understated.
Financial institutions are under pressure to differentiate themselves however they can, and this includes projecting an image of being tech-savvy and ready to do retail banking in the modern sense. The three chief areas of retail communications are:
- Environmental branding and graphics.
- Digital and interactive media.
These three areas overlap to project an image to branch visitors that is pleasant, welcoming, fresh, and memorable. It’s the antithesis of the legacy branch effect.
Environmental branding and graphics include a wide range of design elements such as branded exterior towers, graphic walls, translucent walls, and branded millwork. Graphic/translucent walls can be community-themed to give a sense of local history and shared identity.
Merchandising means displays and kiosks for marketing and compliance materials, designed in the organization’s branding palette and featuring its logo.
Digital and interactive media includes flat screens displaying messages about the organization, broadcasting TV news, or supplementing the merchandising aspect with product and service information. Modern banks also now create various kinds of publicity campaigns through social media, and customers interact with these campaigns both in the branch and remotely. Flat screens linked to social media campaigns enable customers/members to participate in those campaigns in ways that are instantly gratifying. Digital marketing elements generally intensify the brand experience, and the content displayed can be changed up as and when needed.