Bank branches: A first step to rebuilding customer trust and loyalty
Dr. Nicos Rossides: CEO MASMI Research Group
Bud Taylor: Director Consulting MASMI Research Group
A demonized industry
Do you remember the global crisis in financial institutions before banks across the world started declaring healthy profits again in Q2 of 2009? Hate to remind you, but it did happen. Interestingly, there has been a negative reaction – particularly in the United States and many European countries – to the newfound financial health of the surviving banks, and especially the ensuing bonuses for their executives. People don’t want to hear about it. They feel ripped off and left behind.
So what are these poor banks to do so they can regain their customers’ trust? After all, they have to make money. Well, maybe part of the answer to winning back customer loyalty is in branch banking. That’s right, those bricks and mortar institutions that house real people to serve real customers.
Like It or Not, Branches Are Still Here
Banks have tried to kill retail banking for decades. It’s by far the most expensive way to conduct financial transactions. Technology has brought Internet transactions down to pennies per action; and of course we all know that young customers are tech savvy and don’t want to take time to go to their bank. So branches are disappearing, right? Not!
A recent Associated Press analysis in the US shows that 10,000 full-service branches were added to the system in the past five years; for example, J. P. Morgan Chase added almost 2,600 branches. Branches exist because customers want them. An American Bankers Association survey in the summer of 2007 found that 36% of U.S. consumers use branches as their primary banking method. Is that the death knell? Not really. That 36% is still the largest group for any one channel. Online banking came in second at 23%, followed by ATMs at 21% percent, mail at 8% and telephone banking at 5%. Likewise, an August 2009 survey by Synovate in Canada found that 57% of bank customers used a branch in the previous six months.
Ok, Ok. Branch banking still exists, but it’s just for the older customers – you know, those people who have a difficult time getting around and would find it most convenient to do their banking from their home. Yes, that group. Well, maybe they are the ones holding onto the legacy of the past, but does that mean that young people don’t want to do their transactions in a public location? The evidence only confuses matters further. The 2007 American Banker’s Association survey found that those who cling to the notion of going to a bank branch are generally older; but still, a substantial 25 percent of those under the age of 34 also prefer to do their banking in person.
The Conundrum for Banks
But not everything is turning in favor of branches. This summer Bank of America indicated that over the next three to five years it may cut up to 10% of its 6,100 branches. The economic recession may be forcing B of A into some cost cutting; and this is supported by data such as: its online accounts are up 15% from a year ago; and about 50% of its deposits are made at ATM’s – up 33% since 2006.
So banks want to reduce the expensive branches and go with the efficiency and accuracy of technology; however, customers still want to reserve the option of having a face-to-face relationship with those who deal with their money. What will be the future role of retail banking? How should bank executives get the most from the branch footprint that they will be required to maintain?
Loyal Relationships Through Branches
MASMI thinks that part of the answer rests in seeing a new mission for the retail branch. We believe that the branch should become the vehicle to deliver a relationship to the customer; a relationship that encourages customer loyalty.
Banks have no choice. They will have to use to technology to deliver transactions faster, better, and cheaper. This will be the table-stakes of competition and it will reduce the need for customers to “go down the street to the bank.” But that doesn’t mean that banks should start on a concerted strategy to eliminate all but their flagship branches in favor of technology.
Technology touch points are mechanical. They lead to customer satisfaction, but not customer loyalty. Technology can only drive more impersonal relationships with banks. Oh sure, we can give the web page a nice look and feel and make it user friendly, but we’re still talking to our computer, not our bank.
Particularly in today’s banking climate, customers won’t let banks close retail branches. The reason is simple: customers don’t trust big corporations and especially banks. Customers want to keep an eye on their bank and the best way to do this is when they walk in the door of the branch. Banks have to see this interaction as an opportunity to deliver more than “satisfaction”. This is a chance to extend and deepen the relationship with customers. It’s the time to build a dynamic relationship from what is essentially a mechanical transaction.
That dynamic relationship will be more than a greeter’s smile and spa music. The relationship will resolve the major values issues that customers have today with big business in general, and financial institutions in particular. Customers will want to see their banks as “sustainers”. They want to know that their bank is in business for the long-term, not just this year’s bonus.
Customers will judge sustainment in several forms:
- Moral Leadership: Stakeholders will trump shareholders. Doing the right thing will mean more than profits. Akio Toyoda’s apology for errors at Toyota will become an icon for his colleagues at AIG, Citigroup, and the defunct Lehman Brothers and Bear Sterns.
- Employee Commitment: Customers will penalize egregious pay, bonus and severance for executives if the trade-off is seen as lack of respect for employee pay, benefits and appropriate severance. Whole Foods in the US has set a 14:1 ratio as the policy of highest executive pay to lowest paid employee; whereas the average US CEO is paid 300:1 to the lowest paid employee. Measurement for the banking customer will be easy – employee turnover: Are the people they deal with staying at the branch, or do they change at an alarming rate?
- Community involvement: Local will be valued over global. Sure, banks are big and will continue to get bigger but what does that mean for “my community”. Certainly banks will sponsor local events, but are their employees involved? And how does the bank support and stimulate local business? Are there special loan terms for small business and personal relationships between owners and bankers? How often do bank managers change? Cross training may be good for their careers, but what does it do for the community?
- Environmental Respect: Green is not going away. It may become a cost of doing business, but it is not going away. Branches will be a micro-opportunity to test the big banks’ commitment to environmental sustainability. Customers will be constantly on the look out not only for Styrofoam cups at the coffee machine, but what types are cars are in the employee parking lot. It may seem unfair, but the environmental presentation of the branch will be a proxy for the corporation.
If banks have to invest in branches then branches should serve the bank. The best way to do this is by getting customers to believe in their bank again; by getting customers to trust their banks. Trust is an attitude. It can be identified, measured, managed, and encouraged, but banks have to earn this trust. Branches give them the stage where they can put on their best performance.
This is a tall order for banks, but the reward is enormous. Banks that crack this code will have loyal customers for life and an advantage over their competitors.
“Bank branch transformation: The new multi-channel reality”, CEO Eontec Limited and Mark Greene, General Manager, Global Banking Industry, IBM Corporation, The Bankwatch, March 23rd, 2005
“Bring Back the Branch”, Deloitte & Touche, September 2002
“Banks Race to add Branches”, USA Today, 19th June, 2003
“Inside Apple Stores, a Certain Aura Enchants the Faithful”, New York Times, 27th December, 2007
“Synovate research shows online banking grows in popularity while telephone banking, ATM use drops,” synovate.com, October 13, 2009
“How to Develop Stronger Retail Partnership to Accelerate Small Business Sales”, Martha Crawford, NBW Consulting Group, American Banker 8th Annual Small Business Banking Conference, October 2003
“Customers still like to use bank branches”, Dennis Jacobe, Northwestern Financial Review, August 1 – August 14, 2003
“The Branch Bank is Dead, Long Live the Branch Bank”, David Webber, The Banker, November 2000
“Long Live the Bank Branch”, Greg McBride, Bankrate.com, May 17, 2004
“Retail Banks Must Redefine Role of Teller to Meet Customer Demand and Achieve Overall Cost Savings”, Tom Brogan, TowerGroup Research, July 2008
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Lehrer, Jonah. Proust Was A Neuroscientist. New York: Houghton Mifflin Company, 2007.
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About the Authors
Dr. Nicos Rossides: CEO MASMI Research Group
Dr Rossides is Group CEO of MASMI, a leading independent research agency operating in Central Eastern Europe and the Middle East. Prior to joining MASMI he was CEO for Synovate’s CEEME region, the global head of solutions as well as CEO for its Loyalty Practice.
Nicos has more than 20 years of market research and consulting experience, much of which involved developing a research infrastructure in Central and Eastern Europe.
Prior to becoming a market researcher, Nicos was Senior Research Fellow at Kyoto University, where he received a Doctor of Engineering degree. A Fulbright and Mombusho scholar, he also received senior management training at MIT’s Sloan School.
Nicos has published a large number of articles in professional journals, contributed papers to numerous conferences and lectured at several universities and symposia.
Bud Taylor: Director Consulting MASMI Research Group
Mr. Taylor is a senior associate with MASMI where he advises clients on how to put their research data to work. Prior to MASMI he was an SVP and Global Director of Consulting for Synovate Loyalty. Before joining Synovate Bud was a Partner with Deloitte where he led its change practice in the US southwest.
Bud is a Canadian and naturalized US citizen. For over 30 years he has consulted to marquee clients in all major business sectors and in all parts of the world. Bud’s clients include: Microsoft Europe, the National Commercial Bank (Capital) of Saudi Arabia, the Whirlpool Corporation, Sony Electronics, and the Overseas Chinese Banking Corporation.
Bud contributes articles to professional journals and has published a business book: Customer Driven Change that demonstrates how to unite customers, managers, and employees in the process of organizational transformation.