Beyond the Teller: Strategic Roles for Bank and Credit Union Branches

Conversations about branch banking typically center on these familiar trends: COVID-19’s devastating impact on foot traffic, a surge in branch closures that preceded the pandemic and the maturation of digital channels. Analytics and anecdotes consistently point to the demise of the branch. But what’s less talked about is the current purpose of brick-and-mortar branches.

Clearly, branches are no longer the default style of banking. Instead, they’re one part of a larger ecosystem of customer touchpoints, or what McKinsey calls “evolving interdependencies between channels.”

So what’s the value proposition for branches in 2023?

It’s complicated.

Determining the value of branches for banks and credit unions can be complex and confusing. Do consumers want them or not? BAI offers what could be seen as two conflicting answers:

• “Customers who commonly use branches for transactions and financial guidance cite a shrinking branch network as a key reason for changing banks to one with a greater physical presence in their area.”
• “The old ‘location, location, location’ mantra is less important as consumers rely less on physical branches.”

Instead of approaching those ideas as “either/or” (in opposition), it’s more helpful to consider that both are true. Some customers rely on branches; others don’t. Some tasks favor digital; others benefit from human interaction in-branch. One size does not fit all. To get to the right value prop, FIs must understand their unique customer bases (with the help of both customer surveys and hard data on actual customer behavior) and the competitive environments in which their branches operate.

In other words, even though credit unions aren’t closing at the same rate as banks, both banks and credit unions need to evaluate this channel with the same discernment they use with other channels. They must know how branches currently contribute to their customer relationships segment by segment and how they may be able to leverage branches more effectively in the future to reach larger business goals.

A new strategic role for bank branches

The Financial Brand predicts continuation of branch closures but says physical locations remain “important for marketing and market presence.” While the significance of this kind of brand recognition and awareness cannot be overlooked, it’s also not enough. The most powerful strategic role for branches may lie in how they do (or can) nurture customer relationships, specifically how they boost engagement and build trust.

Chase calls this “community building.” Like credit unions, the brand has bucked the closure trend, actively pursuing a net total of more branches, not fewer. As it announced in August 2021, it reached an important milestone with a branch opening in Billings, Montana, becoming “the first national bank to have a retail presence in all of the lower 48 states.” Its expansion plan, according to a 2022 investor report, is three-fold: optimize mature markets (closing a branch or reducing size/staffing), expand into high opportunity markets (new branches) and tailor its brick-and-mortar presence to the market. 

While this approach works for Chase, other FIs need their own logic for physical footprints. As they look to define their strategies, including how to boost the bottom line, banks and credit unions will want to consider these potential (and evolving) roles for branches:

• Branches as an integrated component of service and choice. It’s important to empower customers to choose how they bank: in person, through digital channels or both, via a hybrid of approach of their own making. As they do so, their experience should be seamless. FIs must carefully “optimize the handoff between digital and human assistance,” says The Financial Brand, and ensure “whichever channel they start in allows them to conveniently self-serve, research and connect with a specialist or get support and assistance when needed.”

• Branches as a tool for reaching varying audience segments. The solution for one demographic may not work for another. FIs should consider how different branches can help them serve customers in specific demographics. CU Insights reports, for example, “Approximately 68% of Millennials and two-thirds of Gen Z feel [branches] are essential and prefer to visit in person for specific services.” And Credit Union National Association (CUNA) says branches carry greater importance for certain populations, like “small businesses (SMBs), seniors, rural areas, low-income households and families with unreliable broadband access or insufficient technology,” according to CUNA.

• Branches as the right space for “high-touch” solutions. While digital channels work well for basic transactions, some services are better face-to-face. These may include “truly complex, empathy-centric situations” (McKinsey), such as SMB lending, mortgages, home equity loans, financial planning, investment advice and complaint resolution. CUNA puts it this way: “Members want to feel they can trust their financial provider to listen to them, empathize, have their best interests at heart and resolve their problems. This is typically best achieved in face-to-face interactions.” It’s interesting here to note that even though in-person may be best for some types of problem-solving, the branch shouldn’t be just a backstop. For example, BAI says SMBs tend to start many transactions online but then go to the branch anyway: “Nearly 70% of business owners preferred to open deposit accounts online, but 60% ended up opening them up in the branch. And 56% of business owners preferred to open loan accounts online, yet 60% of them ended up opening them in the branch.” This raises an important question for FIs. If SMBs have a digital preference, why are banks frustrating them with trips to the branch vs. making more transactions easier online?

• Branches as a provider of credible financial guidance. As we’ve noted in the past, the success of social media “finfluencers” points to the public’s voracious appetite for financial education. However, like anything else on the internet, the information customers find may not be credible. Through content marketing and in-person guidance at branches, FIs can fill this gap.

• Branches as the only point of access to financial services. Some bank branches are customers’ only option. CUNA says there are now “hundreds of ‘banking deserts’ across the country,” and it notes, “Rural, diverse and low-income communities are particularly vulnerable … There is growing concern that branch closures in disadvantaged communities may exacerbate existing inequalities in access to affordable financial services.”

• Branches as a resource for building trust. In the collective, many of these branch roles are related to trust. As reported by Ipsos, in-person exchanges can show customers “they are seen as partners from which both sides can benefit. This gives the bank a larger purpose in the greater community.”

How FIs are encouraging in-person customer engagement

To fulfill any of these strategic purposes for branches, banks and credit unions need to get people in the door. And now that communities are learning to live with COVID-19, we’re seeing a return to events and activities that have historically and traditionally been part of the bank branch. These include community events, giveaways and classes, such as

• “shred days” hosted by Texans Credit Union and Gulf Coast Educators Federal Credit Union;
• clothing drives and donation collections hosted by Commerce Bank, All In Credit Union and Extra Credit Union;
• free “merch” at Sunmark Credit Union branches; and
• personal finance classes in an Oklahoma City branch of the Federal Reserve Bank of Kansas City.

In addition, it’s been nice to see FIs like Mutual Savings Credit Union promote availability of instant issuance for new or replacement credit and debit cards, an in-branch service for which customers are always grateful.

We’ve also noticed several FIs thinking outside the box to get customers into their branches. Here are a few recent examples:

• an art gallery/art show within a Bank of America branch in the Bay Area;
• a pet adoption event at a 1ST Bank branch;
• professional family and pet photos at Marine Federal Credit Union and Commerce Bank branches; and
• coworking spaces within Comerica Bank branches.

What else does branch innovation look like? According to CUNA, it may start with a welcoming space conveyed through branch design: “While fewer members may enter our doors on any given day, those who do may be the people who most need our help and support. We could redesign branches to better cater to personal relationships and longer conversations, such as by having more open floor plans, quality coffee and snacks, waiting areas for children or free Wi-Fi.”

Of course, no conversation on branch innovation would be complete without mentioning Capital One Cafés, described by CU Insight as “a combination of coffee shops and banking services — where customers can casually sit with a banker and talk about their finances over a hot cup of coffee. The cafes provide food and drink, free Wi-Fi, ATMs and iPads that deliver financing lessons, money quizzes and digital financial coaching.”

But Capital One is not the only big bank testing new branch models. Here are some others that have emerged in the last few years (some prior to COVID):

• Santander Work Cafés,
• Chase “Everyday Express,”
• Wells Fargo Express (like this one in a YMCA branch) and
•  “tiny branch,” pop-ups from PNC.

A full flip of traditional branches to cafés (or other community gathering spaces) isn’t necessarily the solution. It’s simply what these FIs are trying. CU Insight emphasizes that several kinds of interactions are possible: “Creating more opportunities to foster moments of human connection at brick-and-mortar locations will be important — by rethinking sitting areas, meeting spaces and teller interactions.”

Takeaways

FIs are seeking ways they can use branches to maximize face-to-face time, boost engagement and nurture relationships through models that allow customers to express their own combination of in-person and digital preferences. Within this hybrid approach, the value of branches for banks and credit unions is likely to vary wildly across FIs, customer bases, geographies and other factors.

What matters is that FIs can clearly define the role for their branches and work toward their success. Part of this falls to strategic planning, but another element that can’t be ignored is vision. Can FIs imagine the possibilities?

A recent Ipsos report encourages FIs to look to other industries—like hospitality and healthcare—for inspiration. When it comes to envisioning innovative uses for branches, it says, “Banks can learn much from the hospitality industry by using a highly segmented strategy to create distinct branch designs and layouts (all while maintaining a single bank brand) focused intentionally and exclusively on creating unique experiences for specific customer types and branch usage occasions.”

And when seeking a possible analog for navigating a hybrid digital/in-person model, Ipsos turns to healthcare: “The post COVID-19 reality is that healthcare providers need a balanced approach of in-person and virtual care with continued in-person care for emergencies, combined with increasing virtual care for preventive healthcare and even virtual urgent care. Similarly, while banks continue to push towards less expensive servicing methods, from in-person to telephone to ATM to digital servicing, the focus ought to be on an omnichannel approach, with customers being serviced digitally for many transactional tasks but coming into the branch in person for more complex tasks.”

Header image uses art by storyset on Freepik.com