BRANCH TRANSFORMATION: PREPARE YOUR FINANCIAL INSTITUTION FOR THE DYNAMIC MARKETPLACE OF TOMORROW

Transcription

1 BRANCH TRANSFORMATION: PREPARE YOUR FINANCIAL INSTITUTION FOR THE DYNAMIC MARKETPLACE OF TOMORROW

2 The retail financial services industry is undergoing dramatic transformation due to various overarching meta trends that are acutely affecting the branch. The branch is both expensive to operate with nearly 16,000 unprofitable branches in the United States today 1 and rapidly changing with only 5 13 percent of transactions being conducted in branches today versus 70 percent in As a result, financial institutions (FIs) must explore how the branch channel can be better integrated into a multichannel approach to acquiring, engaging and retaining customers in the coming years to avoid a sustained drain on FIs overall profits. This piece will provide you with the information, tools and tactics you ll need to adjust your branch strategy and be an enduring force in the turbulent marketplace of today and tomorrow. 2

3 KEY META TRENDS DRIVING CHANGE IN THE MARKETPLACE Diebold has identified five key meta trends causing a shift in the financial services industry. Knowing what these trends are, and how they are likely to affect your FI, allows you to be better prepared to act with sound strategies. EXPONENTIAL TECHNOLOGY CHANGE One of the most prominent drivers of change in the financial services market is the recent exponential growth of technology adoption around the world. While some FIs are not as quick to embrace the latest technology, consumers have done so readily and rapidly. Just consider the adoption of mobile devices: In 2011, as many people worldwide had mobile phone subscriptions as access to clean water. 3 Whereas it took 50 years for telephone usage to become mainstream, it took only 1.5 years for the adoption of tablet computers. 4,5 Rapid adoption is not only due to the proliferation of mobile devices, but also to increasingly fast and powerful wireless connections. This trend is leading to dematerialization of physical media, as books, newspapers, radios and more are often being replaced by a single mobile device. As a result, consumers are beginning to demand the access and flexibility to which they have grown accustomed to in their financial services interactions, as well, and want easy-to-access digital versions of media available via the latest platforms. RISE OF CONSUMER POWER Advanced communications technology has now placed consumers in a position of power to dictate what they want, when they want it and how they want it from businesses, including FIs. Because consumers in all corners of the world can now interact with relative ease, it is simpler than ever for people to learn from one another s financial services experiences, adjusting their expectations quickly. Consumers are also more empowered than ever to transfer their business between FIs, or even to non-traditional financial service providers with more attractive offerings. With today s elevated potential for attrition, it s important to adjust strategies to become the FI receiving, not losing, discriminating consumers. According to firsthand Diebold research involving consumers around the world, we have found that consumers essentially want three things when it comes to financial services: To feel in control of their finances to ensure a bright financial future To feel prepared by taking steps today to safeguard their finances tomorrow To feel safe and that their money is also protected 6 The FIs that remain successful in the marketplace of today and tomorrow will be the ones that keep these key consumer desires in mind, tailoring offerings accordingly. 3

4 TRANSFORMATIONAL ECONOMY The global economic model has transitioned over time from being based on commodities to goods, from goods to services, and, in some industries, from services to experiences. In such an experience economy, consumers choose to conduct business and make expenditures based on how positively they perceive their experience with certain businesses. 7 While experience has become a key factor in customer acquisition and retention for FIs, they are now being judged on something more: their ability to enable better outcomes in the lives of consumers. The most forward-thinking FIs are now partnering with branch patrons to distill their personal financial goals and are working toward achieving objectives based on unique needs. In this emerging transformational economy governing the retail financial services industry, FIs will flourish by guiding transformations for their customers and members, realizing success when their financial future is positively transformed and their concerns are mitigated. 8 In this model, FIs will have more opportunities to build intimacy and retain consumers as they strive to reach defined outcomes together. CHANGING DEMOGRAPHICS Millennials, or members of Gen Y, are young adults born between 1977 and 1992 who are becoming an increasingly strong market presence. Despite making only 9 percent of total transactions today, this group will make 40 percent of total transactions and have the most spending power of all generations by By 2025, this group will make up 75 percent of the workforce. Now is clearly the time to make this group a priority especially since Millennials already have $306 billion in spending power and are expected to inherit $17.8 trillion in the near future. In addition, they are the fastest growing segment of the workforce and make up 25 percent of the global population. 9,10 Millennials do not behave like the Boomer generation when it comes to their use of financial services. In fact, in many ways the two groups are opposites. Comparatively, Millennials are: 8 percent more likely to use mobile remote deposit capture to deposit checks 15 percent more likely to have their financial decisions influenced by FI websites and online communities 15 percent more likely to have deposited a check at the ATM in the last three months 29 percent more likely to try new technology-enabled payment tools 33 percent more likely to use mobile banking functionality 11 Though Boomers are still an important consumer base, Millennials are a force to be reckoned with in the coming years, especially since their demands for technology-centric offerings, decreased fees and more rewards are currently outpacing FI offerings. THE NEW NORMAL FIs are under more regulatory pressure than ever as new governmental organizations and legislation make it increasingly difficult to remain profitable. As a result, FIs must rethink their business models and are investing resources to remain compliant. Additionally, there is increasing competitive pressure as FIs seek ways to remain more attractive while operating under constrictive fee and cost controls. Compounding the challenges posed by these trends is the fact that there are limited opportunities for revenue growth in the branch channel, and staff efficiency ratios could frequently be much better. The good news, however, is that the branch is still relevant and will continue to be a part of the solution to the challenges facing FIs. The branch channel is still the preferred method for opening a deposit account among 80 percent of consumers, and 75 percent of consumers favor the branch as a channel through which to apply for a loan. 12 Consumers aren t giving up on the branch channel; they simply aren t using it in the same ways. To remain relevant given these new realities, branches will need to evolve. Branch transformation will need to be part of a broader channel transformation strategy that optimizes the use of branches, phones, ATMs, computers and mobile devices to offer access to financial services as conveniently as possible. Given the current volatile state of the financial services market, the sooner you begin developing an inclusive channel delivery strategy, the better. 4

5 STRATEGIES FOR A SUCCESSFUL BUSINESS MODEL Branch transformation means different things to different institutions, as every business has unique structural, procedural and technological concerns around which a strategy should be customized. Even so, there are a few universal tenets of a successful branch transformation strategy. As we explore each of these, consider what changes from a physical, technological and cultural perspective may be necessary to run a more efficient branch network. DRIVING OPERATIONAL EFFICIENCY The steady advancement of efficiency-generating technology in recent years makes it prudent for FIs to reconsider how they could be improving their operations. Because tellers and other branch staff still spend much of their time on transactions that could in many cases be handled more quickly by branch automation and self-service banking technology, there are often simple solutions to many of the issues that cause branch inefficiency. Migrating transactions to self-service channels, such as the ATM, phone, online and mobile channels to allow time-stretched consumers to carry out transactions at their convenience and to alleviate burdens upon branch staff members Streamlining processes via advanced teller automation technology, such as cash recyclers, or drive-up technology, such as vacuum-assisted tubes (VATs), to optimize workflows and limit expenditures Optimizing branch networks by carefully tailoring branch layout and operations with consumers and regional demographics in mind, designing with a specific customer or member base in mind Outsourcing activities, from surveillance to hardware maintenance, as many of these activities can be more efficiently and less expensively conducted by an outside partner like Diebold STRENGTHENING SECURITY From the creation of the very first FI, security has always been a primary concern for members of the financial services industry. Consumers highly value their safety and the safety of their assets. 13 While transforming the branch to make it more inviting to consumers, it is important to take precautions to keep assets safe. FIs should focus security efforts in five areas: Prevention of theft and fraud at self-service channels, with an emphasis on deterring card-skimming, hacking, physical attacks and other threats Continuous monitoring of the interior, exterior and digital enterprise pathways of the branch environment at all times, which may require outsourcing Strengthened physical asset protection to ensure that assets are secured via difficult-to-access safes, no matter where branch staff members are positioned Prevention of intrusion via alarm systems, barriers and other physical security measures to protect your FI s assets and to assure your consumers are visiting a safe area Preservation of brand, putting the proper measures in place physically and digitally to foster consumer perceptions of your brand as reliable and safe 5

6 TRANSFORMING CONSUMER EXPERIENCE Consumer experience is becoming ever more important when it comes to attracting and retaining a consumer base. FIs should craft the way services are delivered and the way branch interactions take place, to deliver an enticing consumer experience focused on meeting the specific, long-term objectives of a consumer. FIs, specifically, should focus their consumer engagement efforts in these key areas: Guiding consumer transformations toward defined outcomes by not only delivering commodity services, but providing personalized services that result in better financial futures for consumers Redesigning branch format or layout to both intrigue and serve patrons beyond their expectations, whether that means installing teller pods for a more open feel or creating a café-style branch where consumers feel comfortable Streamlining consumer on-boarding experience to ensure it is simple and even exciting for consumers to work with your FI, and that a lasting, positive impression is created of your FI Seamless integration and accessibility across channels to ensure it is simple and convenient for consumers to access appropriate data, and for employees to draw upon information needed for memorable one-to-one marketing IMPROVING SALES EFFECTIVENESS One of the key issues facing FIs operating under a traditional branch model is the channel s declining potential to generate revenue growth. While steps have been taken to strip costs from the branch channel, change is still needed. To accomplish greater sales efficacy and consumer loyalty, it is crucial to create a more retail-oriented environment where employees work more as consultants than executors of basic tasks. When developing a strategy for heightened revenue generation in the branch, FIs must focus on: Altering employee responsibilities from automatable tasks to a role more conducive to selling products and services, and making consumers feel that they are receiving special attention Providing access to product specialists, whether it involves training staff members to become experts on self-service technologies or integrating two-way video technology to yield access to remotely located experts Improving in-branch marketing, as consumers now expect personalized marketing, making it more important than ever to arm employees with the tools needed to catalyze sales and foster a perception that an FI knows and cares about the consumer Outsourcing of time-consuming activities, as branch personnel cannot perfectly manage all administration and relationship-building activities a third party like Diebold can help 6

7 YOUR FI IS UNIQUE: YOUR TRANSFORMATION SHOULD BE, TOO. Once you have thought through your various business objectives and overall strategies to adjust to an evolving marketplace and consumer base, Diebold can help tailor an approach that works for you. With a foundational understanding of key branch processes honed by helping FIs adjust to the demands of a changing marketplace for more than 150 years, we are prepared to work with you, no matter what your size or location. Diebold has the experience and expertise to help you plot a course toward a transformed branch channel, as well as the products and service offerings to make your vision a reality. Our advisors can guide you through a five-step journey to branch transformation tailored to your FI s vision and unique traits, which includes: Defining strategy: Create a cohesive strategy tailored to your business objectives, your consumers needs and your operating environment. Decide how your branch should fit into your multichannel strategy, and work with a consultant to create a strategy that works for you. Assessing performance: Look at your current branch network, and determine what adjustments will yield the most reward, as well as what opportunities you are not capitalizing upon. Consider metrics of financial, operational and market-based performance in your analysis. Creating a solutions roadmap: With an extensive portfolio of branch performance-enhancing solutions that span hardware, software, monitoring and more, Diebold can help you determine which specific solutions and services will best suit your transformation strategy. Implementing solutions: Develop a plan to streamline and automate the implementation of solutions and the branch redesign process. Diebold can provide detailed implementation plans, consumer adoption tools and a wide variety of installation and management services. Measuring results: To be sure your strategy is effective, measure performance results and compare them to your goals. Measure progress against initial performance and benchmarks, and rely on consultants to evolve your approach. The highly experienced professionals that advise you and your FI are well-equipped to deliver detailed advice, help you make informed choices and provide answers to fundamental questions about your operations, such as How can I improve branch efficiency and enhance consumer experience? How should I prioritize my branch transformation initiatives? Which solutions will generate the greatest return on investment? Regardless of how far you have progressed toward a re-imagined branch channel, Diebold is here to help you make it a reality. We look forward to collaborating with you to help make your branch channel an invaluable asset to your institution. 7

8 END NOTES [1] Night of the Zombie Branches Novantas, [2] The Modality Shift of Banking Part 4 Banking4Tomorrow.com [3] Mobile Payment Solutions CEB TowerGroup [4] The Bank Branch: More Than Just Expensive Real Estate TowerGroup [5] Retail Banking in 2020 TowerGroup [6] Defining the Consumer Money & Financial Activity Experience Lextant, Diebold [7] [8] The Experience Economy, Updated Edition B. Pine, J. Gilmore [9] Insuring the Catalyst-Customer: Generation Y and the Insurance Industry Deloitte [10] Millennial Spending Spikes-With Nowhere to Go But Up CampusAuction [11] Omnibus Survey Forrester, Diebold, FIServ [12] Forrester/ Diebold Research Forrester, Diebold [13] The Future of Money: Smartphone Swiping in the Mobile Age Pew Research Center For more information, visit or branchtransformation@diebold.com