Pub. 4 2015 Issue 9

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 14 MAKING THE CASE FOR BRANCH TRANSFORMATION David Peterson is Chief Strategic Officer of i7strategies, an independent strategic planning and consulting firm for finan- cial services and electronic payment initiatives. Mr. Peterson will keynote KBA’s 2016 Bank Technology Conference & Showcase on February 8 and 9 in Wichita. O VER THE PAST 40 YEARS, THE U.S. population grew approximately 1.5%. Over that same period of time, the number of financial institution branches increased by 3.4%. Why would we need twice as many new retail branches compared to the growth of the potential consumers who would visit them? Well, to answer that question, you need to understand the purpose of a branch. Branches were created: • To conduct transactions • To allow financial products and services to be explained and sold • To be marketing beacons to the communities they served Branches were built large, both to hold the largely paper- based processing systems and the crowds of people who were required to go to a branch to conduct transactions. People went to the branch because they HAD to. Over the past 10 years, advancements in online banking, which I will collectively call the virtual branch, have allowed people to access their financial institution at a time and place of their choosing with whatever device they have in their hand. The explosion of smartphones and tablets and the general increase in virtual access in nearly every aspect of our lives has dramatically decreased branch visits. This corresponds with a rise in the number of millennials who are accessing primary financial services and a decrease in the number of baby boomer customers. This demographic shift is occurring everywhere, but in some areas, the shift is more dramatic. This leaves financial institutions in a position where their branches are: • Too large • Too numerous • Too empty So, is the situation just “too bad” for banks? If you have more branches than you need, and the ones you have are too big, what can you do about that? If you try to close branches, particularly for a community-based institution, the negative PR can be difficult to overcome. Many institutions address the issue of too much square footage by staffing the branch at levels commensurate with the transaction traffic. This has the negative effect of making the branches look “dead.” There are few people inside—few customers and even fewer employees. Closing branches and understaffing is not the answer. In order for your branches to be strategic assets, you have to change your perception of the purpose of a branch. If it is no longer about transactions (… it’s not), then what is the purpose? I believe there are three primary components to a vibrant branch of the future. They are 1) Consultative Selling, 2) Education and 3) Problem Solving. Let me examine these three elements in more detail. Even if your bank achieves a high level of personalized service, it is unlikely you have truly embraced consultative selling. A consultative selling approach is where the prospective customer can describe his unique situation and desires to an actively listening associate, who asks questions to ascertain true needs. This is important, as most people ask for what they want, not necessarily what they need. There is a dearth of financial literacy in contemporary education. Young people no longer learn basic money management in school. If they don’t pick up good habits from their parents, they enter the world of financial services woefully uneducated about how it all really works. This leads to stories of a $72 Starbucks coffee (after all of the overdraft charges and late fees are assessed)! Compound this with the fact that we have more advanced devices and online services than ever before. A new customer might walk out with a new share draft account, access to online banking, ATMs, a debit/ POS card, mobile apps, and so on. Exactly what education or training did we provide her on safely and effectively using any of these things? Probably none. And not the least is problem solving. Studies show that solving vexing problems raises the probability that a customer would recommend the institution. In an era when there is little loyalty left in financial services, we should carefully examine how we can promote activities that endear our customers to our institution. Consultative selling, education and problem solving. Does the combination of these three elements bring to mind any particular retailer that has embraced these to near perfection? If you guessed the Apple store, then kudos to you! The Apple store is an amazing example of the type of engagement that can absolutely occur in our branches if we but have the will to make it so. Think about these statistics. In 2012, the average annual revenue per square foot of all stores in malls was $341. Tiffany’s was number 2 with annual per square foot revenue at $3,017. And who was first? Of course, Apple, with a whopping $6,050 annual revenue per square foot. You say, “Well, David, they are selling consumer electronics. That’s mighty different than selling financial services.” My point is not whether you approximate Apple’s per square foot sales. The point is that Apple had a perfectly great model of selling computers and providing service without any retail stores. Did they need to create stores to sell products? Nope. They created stores to create raving fans, to have places where existing users and new prospects could come and learn about what products work best, to receive education on what they had purchased and to get help for vexing problems. There are more details to this story of course. I hope you will join me at the Kansas Bankers Annual Conference on February 8th where I will deliver a keynote on this most important topic. I look forward to sharing more details on the transformative changes that are approaching for community bankers and meeting you in person. Learn more from David by attending KBA’s 2016 Bank Technology Conference & Showcase on February 8-9 in Wichita. See facing page for more information.