A defining characteristic of the banking industry over the past several years has been change, and one of the biggest changes is the way customers interact with their bank. The advent and advancement of online and mobile banking have decreased the number of trips customers make to the branch, as well as the number of transactions they perform while in the branch. This decrease in activity has threatened the profitability of many branches.
To restore their profitability, banks will have to transform their branches into streamlined institutions prepared to meet customers’ needs efficiently. As banks prepare to undergo the transformation process, they should be sure to make data-driven decisions about where their customers are, what they need and how best to serve them in the branch.
The Current Environment
A FMSI 2015 Teller Line Study showed large decreases in the number of customers per branch, as well as a decrease in the number of in-branch transactions.
With such a decrease in traffic to the branch, it is important to understand why customers do go to the branch. Typically, customer activity can be placed into one of two categories: transactional and advisory/sales. Transactional activity has largely been automated or outsourced to ATMs, online and mobile banking. Customers no longer need to go to the branch for their day to day, or even month-to-month, banking needs. However, when customers are planning larger financial decisions, like taking out a mortgage or other loan, setting up investment accounts or seeking general financial advice, they do tend to go to the branch for in-person meetings. Following this trend, successful branches will shift their focus from low-value transactional activities to advisory and sales activities.
Data Driven Decisions
Before a bank begins to transform their branches, they need to know which branches to work on, and what changes will be most impactful at those branches. In order to make meaningful decisions to improve branch profitability, the bank must utilize a data-centric approach to examining its branches and deciding what changes to make.
The first thing a bank needs to know when examining its branches for transformation is why some of its branches may be performing better than others. The biggest predictor of success for a branch is location: is the branch located near other retail businesses, like shopping centers, or in more residential areas? Is it accessible? Likewise, if a bank has a focus on small business lending, does it have branches in proximity to those businesses? Looking at the environment that surrounds successful – and not so successful – branches can provide insight into what kind of environment works best for a particular bank.
Another data point that can provide some insight into a best branch strategy is the demographics of the bank’s customers. In particular, look at demographics including
- Age of customers
- Average income
- Education levels attained
- Even languages spoken
These kinds of data points can guide branch transformation decisions such as the level of personal service versus high tech automation that customers would prefer, what kind of services customers are most likely to be interested in and what special accommodations the branch should provide (e.g., multi-lingual staff or accessible facilities).
Change in the banking industry is inevitable, and only those banks that are willing to change along with the times will find that they are ultimately successful. Making the right changes can be hugely impactful in a branch’s performance. The key to making the right enhancements to your branch is to make decisions driven by data. Knowing which branches to change and in what ways to change them is an integral step towards operating a profitable branch and institution.
Elise Hauser is a product manager for Sageworks Bank Information, which provides easy-to-access data on US banks and credit unions. Within Bank Information she manages Content and Education, which allows Bank Information to provide thought leadership in the banking industry