Nov. 17, 2010

Credit Union Management’s Web-only “Facility Solutions” column runs the third Tuesday of each month.

In the belief that branch transactions are becoming redundant, Bank of America is closing a number of its community branches and replacing them with ATMs and online and phone technologies. This may be the right answer for a mega-bank focused on commercial banking, but is likely not the right answer for financial institutions that target consumer and small business markets.

Some pundits are telling us the branch is dying and will soon be dead, so why waste your money on such an expensive delivery system. Brett King writes in a recent ABA Banking Journal article, “Banks need to become channel agnostics – every channel is equally important, branches are just one.” King sums this up by saying, “The objective must be about deepening relationships.”

This might suggest that branches have equal weight with technology when it comes to relationship-building and profitability. I think King is saying that banks and credit unions must understand how their target market’s banking preferences are changing and rebalance their delivery priorities, rather than kill the branch.

David J. Cavell, FCIB, author of The Branch is Back: Global Case Studies in 21st Century Banking stated in a recent interview, “Over the next five to 10 years, I would place my bets on branches driving the highest profits. Today, relationship building is best delivered through the branch as long as three factors are in place: great location, effective branch design and competent staff.”

The relationship-building potential of branches is why Huntington Bank is spending $70 million developing and rolling out a new branch concept and Chase Bank is allocating an estimated $1 billion to convert Washington Mutual branches into locations that deliver a Chase experience. It is why an estimated $4 billion will be spent on bank and credit union branch rebranding over the next two years. Leaders in the industry are realizing that a well-conceived and well-operated branded branch experience can deliver both a visceral and an intellectual relationship-building experience currently unattainable through virtual means.

The need for branches is further confirmed by a recent study. Convenient branches remains the leading factor in selecting a financial institution for the vast majority of consumers. This remains true of Gen X and Y as well. Let’s look at how important delivery types are to selecting a financial institution from a recent study of 1,114 consumers done by Raddon Financial Group, a CUES Supplier member in Lombard, Ill.

Combined with many other consumer studies, this study suggest that branches will continue to be one of the best relationship-building draws and tools for nearly every financial institution. Mark Weber, president of Weber Marketing Group, a CUES Supplier member in Seattle, puts it well: “Inside every branch you own the most powerful and controllable brand experience available, a captive stage on which to deliver a rich brand experience that ensures you remain relevant to target customers as their financial needs and preferences evolve.”

It is likely more accurate to say, “The branch is dead, long live the branch,” as progressive institutions reassess the value of their branches within the context of the entire delivery network over the next 10 to 20 years.

Last month I interviewed David Hawkins, who led Umpqua Bank’s retail branching initiatives until his recent relocation to Huntington Bank to head their creative team. Umpqua has become the most successful bank in the country in terms of creating, managing and evolving a powerful brand experience. Umpqua locates branches in neighborhoods, rather than in communities or regions, so it can personalize the delivery approach to each.

Does this pay back? Umpqua branches consistently show faster growth and two to three times the share of wallet of local and national competitors in nearly every market.

When I asked David what factors caused Umpqua to pursue a neighborhood strategy, he identified four driving trends:

1.    Local first – “People are more and more adopting the ‘Think global/act local’ paradigm. It’s playing out in food, products, service. Increasingly people want to know where things come from and what the impact of their purchase decisions are. There is a growing distrust of big and distant, and a feeling that companies far removed from their customers might not have the best interests of their customers at the forefront of their thinking.”

2.    Slow down – “As the pace of change accelerates – and this plays out in communication, entertainment, product development and service delivery – customers are hungry for balance in their lives. They assign more value to businesses that can provide them with a break from their hectic routines.”

3.    The new luxury is people – “As more and more customers are forced on line to accomplish tasks for themselves, they appreciate more and more personal touch of real people providing real services. Think wealth management/private banking offerings of 24/7 connection to a real person. What we are trying to do is find a way to provide that kind of service experience to a mass audience.”

4.    Fewer transactions/more consultative – “Increasingly customers are realizing that managing complex aspects of their lives – like health and finance – require expertise and time they don’t have. We try to create an environment where bankers embedded in neighborhoods are available and positioned to take on that consultative role in a comfortable way.”

Umpqua’s success in neighborhood branching has been proved in terms of growth, profitability and elevation to the top of the national and international branding ladder. But, there is much more to operating a successful branch today and in the future than just the right location. The experience created for members and credit union staff within the facility is the key to great relationship development, retention and profitability over time.

In the following few months’ postings we will be looking at trends in branch design that drive success.

Paul Seibert, CMC, is vice president of EHS Design, a CUES Supplier member based in Seattle, and author of CUES Complete Guide to Credit Union Facilities.