In the evolving multi-channel marketplace for financial services, the role of the branch is the subject of much discussion and some confusion. Enthusiasm for new technologies such as mobile banking and remote deposit capture is high, while teller transaction volume has begun to decline. Some are suggesting the branch will soon disappear. Most analysts, however, predict a continuing role for the branch in years to come.
Credit unions can build branches that grow revenues profitably in the near term and support evolving customer behavior over the long term. But to do so, they must take the following four steps:
1. Understand the branch’s role — and how it may change over time — in the credit union’s overall strategy.
One often hears that branches in the future will need to focus on sales and service. But properly understood, that’s all they have ever been about. A financial institution opens branches in order to make itself more convenient to prospective customers. And there is ample evidence that branch location remains a potent influencer of customer decision-making. (See “Why Location is King” for more on how branches influence customer behavior.)
To fulfill this customer attraction role, the branch must accommodate the routine needs of its customers — including teller transactions. A reduction in demand for teller services will not reduce the need for branches. It will, however, affect the size and composition of the staff, and alter the nature of the environment most appropriate to the new mix of activities.
2. Focus on what really matters
A well conceived and implemented branch layout can improve staff efficiency and sales effectiveness. The branch environment can influence customer perceptions and behaviors, and a credit union’s brand promise can be made tangible in the customer experience delivered at the branch. All of this requires careful planning and skillful execution.
Yet, having the right number of branches, at the right sites, serving the right markets, plays a greater role in credit union success than does any combination of decisions about carpet colors, merchandizing fixtures, or a coffee bar.
When making decisions about current and future branches, don’t let rigid ideas about branch size and cost dictate which locations can and can’t be profitable. A credit union’s approach to branch design should accommodate its overall location strategy, not the other way around.
3. Drive per-branch capital costs lower
High construction costs for new branches, along with real estate acquisition and development costs, can tie up capital resources needed for other strategic initiatives such as improved systems or enhanced electronic channels. As a result, promising market opportunities might be delayed or forfeited.
Conventional branch designs are based on assumptions that do not match today’s, or tomorrow’s, realities. Smaller branch formats, opened in lease space, require less capital and come on line quickly. Techniques borrowed from retail store design, such as increased use of prefabricated fixturing, can further reduce per-branch costs, increasing a credit union’s ability to act strategically.
4. Get branch operating costs under control
Minimizing operating costs, especially personnel expenses, is critical to the viability of individual branches, particularly where activity levels and revenues have yet to fully mature. Therefore, new branches should be designed to function most efficiently at low staff levels.
Conventional branches operate poorly when staff headcount drops, resulting in substandard customer experiences. New branch formats excel by supporting flexible staff response to variations in customer traffic.
Credit unions can afford new branches. But to maximize success, they must be willing to look for new approaches within this familiar strategy.