By Kevin Blair
It’s time for a disruptive transformation.
It appears that most bankers are in a state of denial and paralysis. Many are ignoring the numerous signs that current retail distribution strategies are on the verge of not only failure, but total collapse. Oftentimes the boards of the financial institutions focus exclusively on financial scorecards that outline past performance. This can ultimately provide a false sense of security that business is good and profits are sustainable—and mask the likelihood that the industry is approaching a tipping point that threatens to cripple—or destroy—their franchises.
While the exact timing of the coming financial downturn is difficult to predict, the rapid migration of consumers to digital channels will likely make it sooner rather than later. Changes that are catapulting the industry closer to the tipping point include unprecedented market consolidation, technology integration, virtualization of the consumer experience, and uncertainty as it relates to the role of the branch.
Now is the time for disruptive transformation of retail strategies to meet the evolving demands of consumers in this new economy. Those bankers bold enough to lead their organizations through the transformation will not only survive the economic storm that lies ahead, they will thrive.
Here are the primary factors driving the need for financial institution transformation:
1. A shift in society from a service-based economy to an experience economy.
This theory of societal evolution was defined by B. Joseph Pine II and James H. Gilmore in their groundbreaking book The Experience Economy: Work is Theatre and Every Business a Stage. Pine and Gilmore believe that in this experience economy, consumers are demanding more personal, memorable, and dynamic experiences. Customers seek more customized offerings that align with the way they want things.
2. The explosion of digital channels and the ramifications for retail delivery.
As technology evolves and consumers become more comfortable with digital channels, their behavior and engagement are also changing.
Consumers are researching and buying products and services through digital channels at a double-digit growth pace. Initially, the migration included simple transactions and inquiries. However, over recent years just about every financial service that once provided services only at the local branch is now available online, reducing foot traffic at branches by over 45% over the past ten years—with predictions of an additional 50% decline in the upcoming decade.
3. A role reversal in the branch.
The resulting shift in consumer behavior and expectations requires a correlated shift in the role of the branch—and the staff within. Oversized legacy branches designed for transactions are no longer relevant and fail to meet the discerning demands of today’s consumer, let alone attract the next-generation customer. The need to redesign the branch experience—shifting its role from transactions to complex sales and service utilizing a universal banker platform—has never been greater.
The impact of these market drivers on retail and back office support has been profound. The combination of these three conditions has created a tipping point for the need to transform existing branches and define future retail delivery.
Those three drivers are the underlying cause of the following retail delivery trends:
Migration of traditional bankers to universal bankers – Without a doubt, the most active trend is the transformation of banking lobbies from traditional transaction centers to open-plan dialog banking environments staffed by universal bankers. Teller lines are being removed and replaced with innovative dialog banking pods or cash bars. Within these new open-plan platforms, there is no place for traditional tellers, which are replaced by universal bankers equipped to service the complete banking needs of the customer.
New branch formats – New open-plan branches and an evolving consumer require bankers to rethink branch delivery. The way forward for physical branch distribution is a new hub-and-spoke network strategy with multiple sizes and formats, each with varying purposes. Consumers are willing to drive further for specialized expertise, so larger flagship locations can exist as single entities per market area. The reinvented full-service branch provides less space for transactions and more for conversations and consultation. And the new express and micro formats reduce transactions to self-service technology, leveraging smaller footprints.
Updating legacy branches – It is estimated that nearly 75% of retail banking outlets currently fall short of meeting consumer expectations. And bankers are struggling with how to transform their aging networks to meet new consumer demands for a multi-channel experience. Branches that were built for the purpose of servicing transactions that no longer occur in them painfully struggle to adapt to a new purpose. Most are far larger than needed, filled with outdated technology and run by employees lacking universal banker (or relationship banker) skill sets. The outdated landscape of branch networks is arguably the most significant casualty of the financial industry’s reset, making it no surprise that optimizing branch distribution is top of mind for nearly all banking executives.
Digital experience centers – With the decline of consumers using the physical channels, there has been an equal or greater increase in the use of digital channels. Not only have bankers underestimated this growth, but they have been largely caught off guard in preparation to deal with it. One of the most significant implications of the digital shift is the rapid growth of the call center, today more aptly known as the digital experience center. The back-of-office strategy shift for digital experience centers actually mirrors that of the shift at the branches—moving from servicing transactions to more engaged consumer experiences.
Are you bold enough to lead your organization through a transformation? The critical need to transform physical and virtual experience cannot be overstated. In this multichannel world, human experiences require new disruptive strategies that take bankers out of their comfort zones to connect and develop a relationship with the customer. In the end, this will be a bank’s lifeline to not only survival, but success.
Kevin Blair is the CEO of NewGround International (NGI). NGI is a holding company of two experiential and supplementary brands, NewGround and Adrenaline. NewGround is the largest experiential design build firm and Adrenaline is an experience design agency that creates and implements brands and retail environments. Email: kblair@newground.com.