The Scenario
Do you remember the global crisis in financial institutions before US banks started declaring healthy profits again in Q2 of 2009? Hate to remind you, but it did happen. Interestingly, at least in the United States, there has been a negative reaction to the newfound financial health of the surviving banks, and especially the ensuing bonuses for their executives. People don’t want to hear about it. They feel ripped off and left behind.
So what are these poor banks to do so they can regain their customers’ trust? After all, they have to make money. Well, maybe part of the answer to winning back customer loyalty is in branch banking. That’s right, those bricks and mortar institutions that house real people to serve real customers.
Banks have tried to kill retail banking for decades. It’s by far the most expensive way to conduct financial transactions. Technology has brought Internet transactions down to pennies per action; and of course we all know that young customers are tech savvy and don’t want to take time to go to their bank. So branches are disappearing, right? Not!
A recent Associated Press analysis in the US shows that 10,000 full-service branches were added to the system in the past five years; for example, J. P. Morgan Chase added almost 2,600 branches. Branches exist because customers want them. An American Bankers Association survey in the summer of 2007 found that 36% of U.S. consumers use branches as their primary banking method. Is that the death knell? Not really. That 36% is still the largest group for any one channel. Online banking came in second at 23%, followed by ATMs at 21% percent, mail at 8% and telephone banking at 5%.
Ok, Ok. Branch banking still exists, but it’s just for the older customers – you know, those people who have a difficult time getting around and would find it most convenient to do their banking from their home. Yes, that group. Well, maybe they are the ones holding onto the legacy of the past, but does that mean that young people don’t want to do their transactions in a public location? The evidence only confuses matters further. The 2007 American Banker’s Association survey found that those who cling to the notion of going to a bank branch are generally older folks; but still, a substantial 25 percent of those under the age of 34 side with the older crowd and prefer to do their banking in person. When will these youngsters learn?
The Conundrum
But, not everything is turning in favor of branches. This summer Bank of America indicated that over the next three to five years it may cut up to 10% of its 6,100 branches. The economic recession may be forcing B of A into some cost cutting; and this is supported by data such as: its online accounts are up 15% from a year ago; and about 50% of its deposits are made at ATM’s – up 33% since 2006.
So banks want to reduce the expensive branches and go with the efficiency and accuracy of technology; however, customers still want to reserve the option of having a face-to-face relationship with those who deal with their money. What will be the future role of retail banking? How should bank executives get the most from the branch footprint that they will be required to maintain?
MASMI thinks that part of the answer rests in seeing a new mission for the retail branch. We believe that the branch should become the vehicle to deliver a relationship to the customer; a relationship that encourages customer loyalty.
The Loyal Relationship
Banks have no choice. They will have to use to technology to deliver transactions faster, better, and cheaper. This will be the table-stakes of competition and it will reduce the need for customers to “go down the street to the bank.” But, that doesn’t mean that banks should start on a concerted strategy to eliminate all but their flagship branches in favor of technology.
Technology touch points are mechanical. They lead to customer satisfaction, but not customer loyalty. Technology can only drive more impersonal relationships with banks. Oh sure, we can give the web page a nice look and feel and make it user friendly, but we’re still talking to our computer, not our bank.
Particularly in today’s banking climate, customers won’t let banks close retail branches. The reason is simple; customers don’t trust big corporations and especially banks. Customers want to keep an eye on their bank and the best way to do this is when they walk in the door of the branch. Banks have to see this interaction as an opportunity to deliver more than “satisfaction”. This is a chance to extend and deepen the relationship with customers. It’s the time to build a dynamic relationship into what is essentially a mechanical transaction.
That dynamic relationship will be more than a greeter’s smile and spa music. The relationship will resolve the major values issues that customers have today with big business in general, and financial institutions in particular. Customers will want to see their banks as “sustainers”. They want to know that their bank is in business for the long-term, not just this year’s bonus. Customers will judge sustainment in several forms:
- Moral Leadership. Stakeholders will trump shareholders. Doing the right thing will mean more than profits. Akio Toyoda’s apology for errors at Toyota will become an icon for his colleagues at AIG, Citigroup, and the defunct Lehman Brothers and Bear Sterns.
- Employee Commitment. Customers will penalize egregious pay, bonus and severance for executives if the trade-off is seen as lack of respect for employee pay, benefits and appropriate severance. Whole Foods in the US has set a 14:1 ratio as the policy of highest executive pay to lowest paid employee; whereas the average US CEO is paid 300:1 to the lowest paid employee. Measurement for the customer will be easy – employee turnover – do employees stay, or do they go.
- Community involvement: Local will be valued over global. Sure, banks are big and will continue to get bigger; but what does that mean for “my community”. Certainly banks will sponsor local events, but are the employees involved? And how does the bank support and stimulate local business? Are there special loan terms for small business and personal relationships between owners and bankers? How often do bank managers change? Cross training may be good for their careers, but what does it do for the community?
- Environmental Respect: Green is not going away. It may become a cost of doing business, but it is not going away. Branches will be a micro opportunity to test the big banks commitment to environmental sustainability. Customers will be constantly on the look out not only for Styrofoam cups at the coffee machine, but what types are cars are in the employee parking lot. It may seem unfair, but the environmental presentation of the branch will be a proxy for the corporation.
If banks have to invest in branches then branches should serve the bank. The best way to do this is by getting customers to believe in their bank again; by getting customers to trust their banks. Trust is an attitude. It can be identified, measured, managed, and encouraged, but banks have to earn this trust. Branches give them the stage where they can put on their best trust performance.
This is a tall order for banks, but the reward is enormous. Banks that crack this code will have loyal customers for life and an advantage on their competitors.
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