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Bring back the Branch

September 2002

The branch will be the engine

of future growth for banks,

These are some of the primary findings of a consumer survey conducted by Taylor Nelson
Sofres during February this year1. They directly contradict entrenched beliefs such as:

according to a new research

sophisticated customers avoid branches;

report from Deloitte & Touche.

young consumers prefer the Internet; and that

branches primarily attract the poor, the old and those in need of social stimulation.

It is used by more than 80% of

all bank customers and is the
preferred channel for 52% of
consumers interviewed.
Importantly, the branch is
preferred by 45% of customers
in the more affluent AB
segment of the population,
and by 48% of C1 customers.
It is also liked by the banks
future potential big spenders,
the 16-24 year old account
holders, 78% of whom use it in
preference to the Internet or
phone.

There is also evidence to suggest that the major banks in the UK are planning to reverse
a decade of under-investment in the branch network by placing the network once again at
the heart of their customer acquisition and retention strategies. Nick Sandall, Partner for
Retail Financial Services at Deloitte & Touche in the UK, elaborates:

Although some banks, such as Abbey National, are ahead of the game in their
efforts to revolutionise the way in which they use branches to reach the consumer,
we expect all banks to invest substantially in reshaping their branch networks and
the activities within.
But whilst the future may look rosy, the present is somewhat less enticing. Many
branches still require customers to stand in queues before attempting to interact with
staff through a plate glass window. Not only is the environment intimidating, it is not
conductive to the development of trust and confidence which are essential precursors to
the initiation of higher value business, like mortgages, insurance and other more
complex financial products and services.

Interviews were conducted on Taylor Nelson Sofres Phonebus Omnibus survey using Computer Aided Telephone
Interviewing in February 2002. Quotas were set to ensure that the sample was representative of the UK population. 2,709
individuals were contacted of whom 2521 could deal with a main bank at a branch. This quantitative research was then
supplemented by qualitative interviews with a number of leading banks.

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Bring back the Branch

A further problem with many branches is that they

are in the wrong place, often in city centres or high
streets, which are not readily accessible by car and not
where the majority of consumers do their shopping.
Such sites tend to be expensive to maintain and have
been acquired on costly long-term leases, placing
further pressure on the branch to deliver a higher
return on investment.
The staff in such branches are perceived as lacking
the skills or opportunity to provide good service and
financial advice. Indeed, customers surveyed felt that
bank staff lacked the skills, training and technology to
provide such service.
Clearly then, something needs to change if the banks
are to capitalise on consumer preference for doing
their banking in-branch and to achieve maximum
leverage from their asset base. In essence, the banks
need to re-position and re-purpose the role of the
branch, both in the mind of the customer, and for
some banking institutions, in the thinking of senior
management too.

What needs to change?

The successful retail bank of the future will need to
give careful consideration to the following:


Branch location.

Branch design.

Staffing.

Branch purpose (association with fellow retailers).

Getting these four things right will achieve two goals.

Firstly, it will change the mindset of the customer
who will enter the premises in a more relaxed and
open frame of mind. Secondly, it will enable the Bank
to cross-sell to more of their customers. Indeed,
Abbey National reports that banking product sales
have increased by 40% on average in its new-style
Costa Coffee locations.

Location
Location has always been the mantra for success in
the retail world and banks experience further proves
the rule. Out of town centres with good transport

September 2002

links and plentiful parking have been all too

successful in pulling customers off the High Street.
In the UK the banking industry has been slow to
capitalise on this trend. In the US by contrast, the
number of branches has been increasing, rather than
decreasing, over the past 10 years and the out of town
centres and dedicated shopping malls have been the
chief beneficiaries.
As one industry player observes:

You line your business up by wearing the shoes of

your customer. If we are located next to a railway
station we can open at 6.30 in the morning and at
7.30 in the evening but we might want to close
during the day.

Branch design
Without the physical constraints of traditional
business premises, often architecturally worthy but
inflexible to the needs of modern business, banks
have been able to experiment with new retail formats.
Modern decoration, comfortable seating, quieter
areas, zones geared to different customer segment
needs are on the agenda for many currently still
locked into the high street straight jacket.Creating an
environment in which it is possible to form a closer
relationship with bank staff is seen as an essential
precursor to building volumes of higher value
business in-branch.

Staffing
Inevitably, there will need to be a significant change
in culture to match the changes in the environment.
Staff will need to be more proactive and willing to
mix amongst the customers.
A senior executive of a leading retail bank comments:

Many staff have been with the bank for a long

time. What are the opportunities to move them
from a processing job to a retailer? It involves a
change of mindset, different ways of operating,
different opening hours, contracts, pay, etc. It
involves different skills.

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Bring back the Branch

How many staff can be re-trained to suit the new

model is a critical question for many. Interestingly,
almost one in three consumers interviewed stated
that they would seek broader services from their
branch, including financial advice, if they felt that
branch staff were better equipped to understand their
financial needs.

Branch purpose
The traditional branch network struggles to provide
financial advice to more than 3% of customers,
according to the survey. And only 4% of customers
said that they used the branch to purchase a new
product or service. Instead, customers see the branch
as the place to conduct every day transactions pay in
cash, withdraw cash, transfer money between
accounts, or pay bills. Changing this mindset so that
customers enter the banking space with a mind open
to making financial purchases is essential if banks are
to leverage the investment in branches.
Co-location with other retailers is now being seen by
many, and espoused by Abbey National, as the
quickest route to achieving this change of mind. The
group has begun by co-locating with Costa Coffee and
will extend the experiment to others, specifically
Homebase and Safeway.
As one industry player commented on the
Abbey National strategy:

I was a bit of a sceptic when they started their coffee

shops, but I have changed my mind completely. Ive
watched what people do in the Costa branches; they
do play with the Internet, they do play with the
enquiries on mortgage rates.
The perceived benefits of these initiatives include
longer opening hours (twice as long as standard
high street branches) and the biggest car parks in
the UK, all of which adds up to greater convenience
for the customer.

September 2002

Who needs to change?

Though customers seem ready to embrace change,
many banks continue to move slowly to take
advantage of the innovation in the market. For these
banks, the biggest barrier to change seems to be
internal, rather than external.
As the retail sales manager for one of the innovators
in the field commented:

Theres nothing to stop others copying us apart

from their culture. They dont have the retail
culture. The longer they take thinking about it,
fantastic. Suits me down to the ground.
The sales and service director for a more traditional
bank elaborates:

We need to get the appropriate level of advocacy at

the highest level of the company ... It needs more
than a compelling business case, it needs someone
working the corridors of power ... to gain support
for the vision ... to get the money behind it The
mindset for years has been around the contraction
of the network, taking cost out, removing people.
This is more around right sizing, it is more around
the right location, it is more around retail format,
it is around products, it is around the sort of people
we have working in these outlets.
Nigel Moden (Director, Deloitte & Touche UK)
summarises:

"There is a recognition within the retail banking

industry that the branch is not going to go away and
that it remains the channel of choice for the majority
of consumers. Initiatives are ongoing at a number of
financial institutions to equip branch staff with
enhanced sales support technology and upgraded
customer databases. What appears to be lacking at
present is a strategic blueprint that is sufficiently
compelling to persuade consumers to do anything
other than conduct their routine banking transactions."

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Implications for channel strategy

Recommendations for the future

The research also showed that the telephone was not

as popular among consumers as the Banks might
have liked, only 16% preferring to bank by phone,
compared to 52% preferring the branch and 8% the
Internet. In the younger 16-24 age group, only 13%
would consider telephone banking.

Whilst a small number of innovators continue to

push the boundaries of the possible, the rest of the
industry is still getting its head around thinking like a
retailer, rather than a clearing bank.

Deloitte believes that these low levels of enthusiasm

for telephone contact, particularly among the young,
further support the recommendation that banks refocus on the branch and on the Internet, which is
gaining ground at the expense of the call centre.
Deloittes Nick Sandall comments:

Banks have invested heavily in call centres over the

past 5 years but consumer preferences remain
broadly unchanged. Going forward we believe that
further investment in call centres will be increasingly
difficult to prove in pure ROI terms.
The Web is a relatively cheap channel to develop and
is already used by over 20% of consumers with means
of access.

As Deloittes Nigel Moden concludes:

It is time to re-position and re-purpose the role of

the banks. Its a matter of location, staffing, design
and culture. There is presently a gap between
customer expectations and branch performance
which needs to be addressed.
We believe that banks need to readdress their
strategic aspirations for the branch network and
put in place a concerted programme of change in
order to unlock the value in their asset base.

For further information please contact:

Nicholas Sandall
+44 20 7438 3969

nsandall@deloitte.co.uk

Nigel Moden
+44 20 7546 9395

nmoden@deloitte.co.uk

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