The Strategic Importance of Transforming the Financial Institution Branch Experience

August 02, 2018
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While online banking is popular and will continue to grow, today’s sophisticated consumers still turn to branches to conduct important transactions. In an Analyst Connection, Marc DeCastro of IDC Financial Insights offers his take on how banks can transform their branches to deliver better customer experiences.

Read more in this edition of IDC Analyst Connection: Financial Services

Marc DeCastro
Research Director, IDC Financial Insights

Today's consumers are becoming more sophisticated, using their own technology to interact with their bank or credit union. Indeed, in a 2017 IDC survey, nearly 80% of respondents rated their mobile banking experience with their primary financial institutions as very good or excellent. Still, many consumers rely on their financial institutions' branches to conduct a significant amount of business. In response, banks must transform the branch experience for both customers and employees alike.

The following questions were posed by Comcast Business to Marc DeCastro, research director for IDC Financial Insights, on behalf of Comcast Business' customers.

Q. What does transformation mean to the banking industry, and what are the reasons banks need to transform?

A. Digital transformation (DX) in the worldwide banking industry is characterized by the ability to use technology to break out of the constraints forced by legacy systems, processes, solutions, and facilities and enable a more efficient and responsive financial institution. Digital transformation is as much a business strategy as it is a technology strategy, if not more so. As a financial institution progresses through its transformation journey, it becomes increasingly able to respond to market disruption, create new business models itself while increasing efficiencies, mitigate risk, and improve the overall customer journey.

Many financial organizations, however, have not yet achieved the levels of change required to support DX. While all banks worldwide acknowledge the importance and complexity of transforming their businesses to compete in the new digital economy, many are in the early stages and have not really begun to transform their business in a meaningful way. Instead, they have done small trade-offs that imply larger transformation has happened, but most have yet to build a sustainable and repeatable model for transforming how they do business or disrupt the industry.

Financial institutions have spent a growing proportion of their IT budget on compliance initiatives brought on by the financial crisis. Limited dollars that would have been used to replace legacy platforms and modernize the branches have instead gone toward remaining compliant. The challenges financial institutions face today are the large sunk costs in the branches and the uncertainty about what the branch of the future looks like. Competition from nonbank entities such as ecommerce giants, retailers, and fintechs creates even more uncertainty about the role of the branch.

Banks seem to be getting the transformation message, however. According to IDC Financial Insights, retail banks spent more than $20 billion on IT related to DX in 2017; that spending will grow to more than $36 billion in 2020.

Q. What will the role of the branch become in the future?

A. The financial institution branch continues to see a decrease in the number of transactions year over year. Yet the branch remains a key driver for most customers when they are evaluating financial institutions. There must be a smooth transition away from simply having bank employees perform transactions for customers to a more service, sales, and advisory role. Our research shows that younger demographics are thirsty for more education about their financial well-being. The branch, even for younger demographics, is a preferred channel when performing complex transactions and opening new accounts, and unfortunately a dated branch with old technology does not portray the image of an institution that is ready to handle the new digital customer. Thus, the branch is an important focal point for transformation and actually becomes the face of digital transformation. We have developed some planning guidelines for banks that are looking for guidance in the branch's transformation journey.

There are five key aspects of the branch transformation journey:

  • Audit the existing branch network to understand what is currently in place and categorize branches into a handful of categories.

  • Perform due diligence on technology choices that can properly align technology with business objectives.

  • Implement and deploy technology that provides an enhanced customer and employee experience.

  • Refine technology and processes based on changes in strategy and as technology evolves.

Q. How will transformation impact the existing bank employee?

A. More and more emphasis will be placed on making the branch a specialized center of excellence and allowing branch employees to become more mobile. A frequent criticism of today's branch network is that when customers go into a branch to speak to a product specialist, they have access to an employee with only general knowledge about a product or service. Access to a specialist often needs to be scheduled. Banks are also looking for ways to get immediate feedback from customers about their in-branch experience. In addition, customers often walk into a branch with more technology in their pocket than employees have on their desks, creating a perception of an out-of-date organization.

To address this situation, banks are turning to video technology, in-branch scheduling solutions, immediate feedback from mobile surveys, virtual access to specialists, and implementation of interactive teller machines (ITMs). This approach works well only if the network infrastructure in the branch can properly handle these new demands that require higher bandwidth, quality of services, and robust security, so investment in wired and wireless solutions must be made first to provide a superior customer and employee experience.

Q. What is holding banks back from fully transforming and digitizing the branch today?

A. There are three major reasons why some financial institutions have not been able to fully transform the branch experience:

  • Cost. Transforming a branch can be expensive. This comes at a time when traffic is declining and the costs of operating a branch are rising, despite needing fewer employees to run a branch. It is difficult to perform a true cost-benefit analysis because the effects of transformation can take a while to realize. Therefore, it is important to develop key performance indicators and understand what the costs and KPIs are today and track them during and after transformation efforts to properly gauge success.

  • Concerns about mobile employees. In some regions of the world where legacy branch networks do not exist, the idea of bringing the bank to the customer is not only common but also necessary. The concept is now evident in developed regions with existing branch networks, particularly toward more profitable customers, especially small business and corporate customers who are often too busy running their business to make it to the branch. Banks must make sure that they provide mobile employees with hardened bank-owned equipment and a proven mobile device management strategy to ensure that lost or stolen equipment can be rapidly tracked and rendered inoperable if it falls into the wrong hands.

  • Lack of internal champions. Many financial institutions are hiring executives to specifically look at their digital strategies. These executives will be responsible for both the customer-facing experiences and the integration into employee platforms, including call center and branch networks. Technology such as chatbots, conversational banking, and next-generation digital platforms in mobile and online as well as solutions designed for the universal banker also must be integrated. These individuals need to have a grasp on the institution's strategy, keep up on the latest advances in technology, and understand how to navigate the vendor landscape.

Q. What are the benefits of fully transforming the bank branch?

A. Traditional cost-benefit analysis might not work when trying to strategically transform the bank branch network. The decisions made need to focus on longer-term strategy that addresses advances in technology, customer expectations, and the evolving regulatory environment. We have identified two areas that can provide measurable results:

  • Customer loyalty. Understand who is visiting the branch and why. Even customers who are digital first will find a reason to visit the branch at some point, particularly if they need specialized advice, are opening a complex product such as a mortgage, or have an immediate concern. IDC research indicates that 63% of customers prefer to open a bank account or apply for a loan in a branch. If they have a great experience, it may be the difference between staying with that institution and growing the relationship versus switching to another institution. Understand what is working well with your customers, as well as the warning signs that indicate a customer might be ready to switch financial providers. Know your Net Promoter Score and how it compares with the scores of your competitors.

  • Instant feedback. Once customers are in the branch, providing them with an instant survey on their experience will be a quick way to gauge their satisfaction. Short surveys sent via SMS to their mobile device with an incentive for completion would be an effective way to get immediate feedback and will provide customers with a sense that their experience matters.

Marc DeCastro is research director for IDC Financial Insights responsible for the consumer banking engagement strategy practice. Mr. DeCastro's core research coverage includes the complete omni-experience journey for the retail customer, including branch transformation, digital product strategies, and onboarding.


This publication was produced by IDC Custom Solutions. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC, unless specific vendor sponsorship is noted. IDC Custom Solutions makes IDC content available in a wide range of formats for distribution by various companies. A license to distribute IDC content does not imply endorsement of or opinion about the licensee.

Many consumers rely on their financial institutions' branches to conduct a significant amount of business, forcing banks to transform the branch experience.

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