By Heather Wyson-ConstantineBanks are in a state of transition—both physically and digitally. Gone are the days when customers would have to leave the comfort of their homes or stand on line during their lunch breaks to conduct transactions at their local branch. With the click of a mouse or the swipe of a finger, customers can now bank whenever and wherever they choose.
Technology has enhanced the customer experience in many ways and has improved the efficiency of bank operations. At the same time, however, it has also raised customer and regulatory expectations and introduced new risks. And while banking is clearly migrating to online services, the branch still plays an important role in providing one-on-one customer service and meeting the needs of the community.
These changes call for strategic thinking about how banks can stay at the forefront of branch technology and payment system evolution while ensuring the safety and security of their customers and their assets.
Rewards of branch modernization come with risks
Most bankers still find branch banking an essential part of their retail strategy, but the branch continues to evolve. Consumers have embraced ATMs and online and mobile banking, which allow them to conduct many transactions outside of their traditional branches. As a result, foot traffic within traditional branches has decreased, along with the average number of transactions per branch. Since 2011, the number of transactions has decreased from approximately 9,000 per month to a little more than 7,000, with continued projected decreases through 2025. As the number of transactions has fallen, Financial Management Services Inc. estimates that the cost to service customers has increased from approximately 85 cents to more than $1.15 per transaction.
The reasons why customers go into branches are also changing. While they may use their mobile devices to learn about and use financial products, they continue to rely on their branches for customer service and for purchasing new financial products and services. In response, many banks have begun consolidating their branches according to a “hub-and-spoke” model, with a full-service branch as the anchor to smaller, more innovative, “express-type” branches. These smaller branches may contain fewer staff and offer more self-service options and a more open environment geared toward selling products and services, as opposed to conducting traditional transactions on a teller line.
Given the evolving branch designs, traditional security, operational and audit standards have also changed. “Practitioners must be as innovative in designing solutions as the architects designing your brick and mortar branches,” says Stephanie Clarke, SVP and director for physical security solutions at the $92 billion Cleveland-based Key Bank and chairman of the ABA Bank Security Committee. “As the physical layout, focus and the staffing models of these branches change, there are several considerations banks must take into account to ensure staff and customer safety.”
Clarke and other bank security experts offer several key risk management considerations for branch modernization, including the placement of non-traditional branches. Given the desire for a more open and relaxed banking lobby and the possibility of extended hours and fewer transactional personnel, many banks opt not to place these branches in high-risk areas. Banks must also consider the minimum staffing level to ensure safety for both employees and customers, what security countermeasures should be deployed and how they can easily be accessed by staff—and how procedures must be revised to accommodate these changes.
And while many of these branches are moving away from serving as money centers, the need for cash will never go away. Rather than having traditional vaults and safes, these branches often are equipped with teller cash recycling machines. Many banks are securing the TCRs by using alarms, cameras, robbery and duress codes and bolting them to them to the floor.
In these new branches, teller lines are often replaced with desks and lounges. However, ensuring the customer’s privacy during the opening or servicing of an account is of the utmost importance. Therefore, many banks have implemented controls such as piping in white noise, employing partitions and using privacy screens on computer monitors. In addition, banks are taking into account how the smart ATMs, kiosks and virtual teller machines are positioned in lobbies to avoid shoulder surfing.
Faster—and more secure—payments
Security considerations also inform bank efforts to improve the online payments experience for customers.
One of the largest efforts currently underway to improve the speed, efficiency and security of the payments system is the Faster Payments initiative, convened by the Federal Reserve in conjunction with strong leadership from the private sector. The initiative is intended to help the U.S. payments system meet the growing demands of American consumers and businesses as they increasingly move to, and rely upon, e-commerce and online-enabled technologies to conduct and quickly settle transactions.
The Faster Payments and Secure Payments task forces—both of which include representation from ABA staff and member bankers—are focused on making payments ubiquitously faster, more secure, lower-cost, seamless across borders and positioned for collaborative, iterative improvements.
The Faster Payments task force will evaluate potential solution providers against its list of desired criteria and issue a report in 2017. While the task force will not endorse any solutions, it hopes to guide solution providers to develop products that meet industry—and customer—expectations.
“The task force has successfully managed to gather a diverse group, including banks, merchants, consumer advocate groups, solution providers and even government agencies to develop a consensus on the criteria,” says task force member Chip Corbett, first VP of the $278 million, Chicago-based Hoyne Savings Bank. “It will be interesting to see how the quality of private-sector faster payments initiatives match up to the framework the task force is developing and how quickly it could be delivered.”
While the role of the Faster Payments task force is to identify and evaluate alternative approaches for implementing safe, ubiquitous, faster payment capabilities in the United States, the Secure Payments task force was created to consult on security aspects of their work. Working in tandem, the Secure Payments task force will review and provide input into the criteria developed by the Faster Payments task force. It will also advise the Federal Reserve on payment security matters and help determine priorities for future action to advance payment system safety, security and resiliency.
In both branch transformation and payments system progress, a robust risk management culture can not only help banks keep up—it can lay the foundation for customer-friendly innovation.
Heather Wyson-Constantine is a VP in ABA’s Center for Payments and Cybersecurity.