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Are Full-Service Branches Here to Stay? Don't Bank on it.

 

Bank Research CMBThirty years ago, the ATM revolutionized banking convenience by letting customers conduct their business at any time, and without stepping foot in a branch— there are now several generations who can’t remember a time before you could just “hit the machine.”  But all that automation meant fewer bank customers face to face with bank reps and the products they sell. Decades later, rising cost pressures, new regulations, consumer desire for added convenience, and diminishing returns on full-service bank branches have created an economic challenge for banks.

To understand the impact of these changes, through our Consumer Pulse we explored customer perspectives on bank convenience, fees, and branch alternatives. We found what bank customers say they value, doesn’t necessarily match up with what they’re actually doing.  We asked people how important having a branch nearby was to their sense of banking convenience—most (67%) reported it was “very important.”  Taken by itself this isn’t a shocking statistic; we know bank customers appreciate personal service and convenience. But asked how often they actually go to a bank (not an ATM—a full-service branch) nearly half (45%) go fewer than 5 times per year.   

What explains this disconnect between what consumers say they need and what they actually use?  Online and mobile banking services mean customers can conduct most transactions from the comfort of their home or office. Although a trip to the local branch is often unnecessary when you can check your balance, transfer funds, or make payments from your phone, customers find full-service branches appealing. Still, fond memories may not be enough to keep branches, as customers know them, open.  

For the first time in over a decade, banks are closing branches faster than they’re opening them, and banks are looking to alternatives with lower overhead and operating costs. To understand what alternatives were most and least appealing, we asked respondents to participate in a trade-off exercise to evaluate new banking concepts. When forced to choose, customers were willing to give up their local branches rather than see fees rise. These findings suggest branch proximity, while still important to many, is not as critical to a convenient banking experience as it might have been in the past.

One of the alternative banking concepts we tested was the” teller-less” branch. The teller-less branch is largely automated, but sales professionals are available to discuss bank products, and customer representatives are available by phone. In one of the more surprising findings, customers said they would rather have their local branch close altogether than have it replaced with a teller-less branch. This finding, while counter-intuitive, is telling—banks will need to educate their customers on how new banking concepts will affect and benefit them.

While the full-service bank branch may become a thing of the past, banking convenience and service are as relevant to today’s bank customers as ever—even as the modes of service change.

Banking research CMB Consumer PulseDownload the full report: The Future of the full-Service bank Branch here.

Posted by Jim Garrity, Jim is Managing Director of CMB’s Financial Services practice. He hasn’t stepped foot in his bank branch in months.

Comments

When I worked at AAA we faced the same discrepancy - members' assertions that having nearby branches was important, but low usage of those branches. We, however, had the advantage of a natural experimental design in trying to resolve the paradox. In fact our ability to sign up members and the renewal rates were higher within a 20 minute drive of a branch office despite the fact that the vast majority of members never stepped foot inside one. In that case, and possibly in this one, the key was that members felt they had someplace they could go not because they expected to, but in the event they might need to. They knew where they could go to wring somebody's neck, and they knew they would be able sit across from someone until their problem was solved, etc.  
 
 
 
Perhaps the paradox is caused by our assumptions. We assume the preference for a branch is about convenience/preference of service that then goes unutilized, but perhaps that's us/bankers projecting our biases onto the data. Perhaps the preference is actually about customers (like in the case of AAA members) "hedging their bets." If that is the case, then there’s no paradox at all, just the challenge of making sure there’s somewhere to go that’s within a reasonable distance. 
 
Posted @ Thursday, June 14, 2012 10:12 AM by TJ Andre
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