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Branches to morph into “stores”

Brick-and-mortar must be reimagined

Branches to morph into “stores”

The growth of mobile banking is accelerating the shift of banking interactions from physical channels to digital ones, leading banks to change the culture of their branches, according to new research by Ovum.

This trend is driven by banks’ desire to cultivate greater levels of loyalty and profitability from their customers, with the in-store experience a key differentiator.

Digital channels are changing the way customers use banking services. Their convenience means consumers are now more likely to access their finances on their mobiles than ever before. This has been beneficial for banks, as digital channels are cheaper to use, with the cost per transaction being much lower for them compared to physical locations.

Rethinking branch’s purpose

Although many of the infrastructure costs for branches are fixed, banks still strive to streamline their operations, but this is a short-sighted approach. With improving economic conditions, organizations realize they cannot grow by solely cutting costs and need to look at new revenue opportunities.

Research from Ovum—The Impact of Digital Transformation on Bank Branches— demonstrates that major banks understand this, revealing that branches were the third-highest investment priority for them, behind online banking and mobile banking, respectively. This is reflected in another Ovum report in which it is predicted spending on branches will rise by 3.44% annually on average between 2014 and 2018.

“For many banks, the long journey of branch transformation is just beginning,” says Jaroslaw Knapik, senior analyst, financial services technology, Ovum. “The first steps will involve rearranging stores. This will take inspiration from retailers, who are experts at the science of sales-driven store design.”

Behavioral adjustment will have to be part of the approach, says Knapik. “With people unlikely to sign up for new products and services after queuing, making customers relaxed throughout the experience is key in transforming branches,” he explains. “This will occur alongside a focus on increasing efficiency, including reducing headcount and the installation of express banking terminals.”

Tech’s role in branch reimagination

A successful branch transformation project requires the right technology. Consumers now expect banks to have a seamless, single view of their financial institution. Banks on the other hand, desire to sell to their customers in a more informed manner, meaning they need consistency and unification, something customer relationship management integration technology enables.

Staff must also be supported by technology in new branches, with services that speed up processing of queries critical. Video technology can also play a key part in transforming stores, as it means specialists can hold dialogue with consumers wherever they are, reducing costs and improving customer experience.

The shift from physical to digital banking means banks to need to alter their stores to become sales-oriented, rather than focusing on service.

“It is key for banks to increase customer intimacy in branches, as this can lead to greater customer loyalty and profitability,” says Knapik. “They should invest more in enhancing the customer experience, in turn creating a sustainable model for the branch network of the future.”

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The U.S. has come a long way in its journey to real-time payments, with TCH and Zelle in market and FedNow just around the corner. COVID-19 has accelerated that demand to move to real-time. Yet many financial institutions remain unconvinced of the need to move, with less than 3% of financial institutions signed up today.

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