Today’s financial institutions face yet another challenging stage of change: to align digital and physical touch points with the needs of today’s account holders in the most cost-efficient, effective way possible. Branch transformation strategies must balance, as well as integrate with, the game plans for online and mobile. After all, account holders expect (demand, even) a seamless banking experience.
Thus even as institutions continue to innovate and compete on the digital side of the equation, they cannot neglect the physical side of banking. Humans are, of course, physical beings. We require ways to transfer physical assets like cash into and out of digital accounts. So we can’t negate the need for physical touch points.
That established, more banking than ever takes place in the virtual realm—and brick-and-mortar nodes become increasingly difficult to cost justify in a digital-first world. Ultimately, this drives the need for branch transformation.
One recent survey found at-home internet and mobile represent the most frequently used channels for banking. For two-thirds of Americans (66 percent), these channels are first choices for accessing their bank accounts. However, accountholders prefer an “and” approach to digital. This means combining digital channels with ATM and branch use. Data from the FDIC, compiled by Mercator, shows 72 percent of online banking customers also use ATMs, while roughly three in four (74 percent) interact with branch tellers.
Branch transformation, smart distribution: three paths
- Branch/in-house ATM NetworkBefore online and mobile banking became common, banks had few other reliable ways to offer a full suite of services to customers. Today, digital banking tools meet many banking needs in an extremely effective way. While account holders value the occasional branch visit, immediate access isn’t as vital in terms of convenience. Novantas found that the consumers’ perception of convenience has changed. While “a branch near me” was the leading indicator of convenience in 2014 for 30 percent, only 19 percent felt the same way by 2018. Digital banking has powered this shift, rising from 20 to 25 percent over the same four-year period and now the number one driver of perceived banking convenience.
Amidst this decline, operational costs of in-house ATMs and branches are under the microscope. Celent notes that rising operating and labor costs constitute a significant element in a slow-but-steady drop in branches nationwide. Mercator data shows that four in five large financial institutions (81 percent) reduced or maintained branch presence between 2012 and 2017—while just 19 percent increased it.
- The digital channelA digital-first approach can alleviate many costs related to opening and maintaining branches and in-house ATMs, with cost savings fueling better rates, rewards and financial management tools, as well as a superior mobile experience.
But there are drawbacks. PwC’s 2018 Digital Banking Consumer Survey found that 65 percent of customers feel it’s important to have a local branch, and a full quarter won’t open an account with a bank that lacks it. In addition, online-only institutions have more trouble attracting account holders in underbanked and unbanked communities.
- Channel optimization
Balancing branch costs with investments in digital resources—without reducing functionality or account holder access—poses a challenge. The strategy must meet the desires of today’s customers while maintaining competitiveness in a market where incumbents and fintechs make significant investments and drive innovation.
As consumers integrate self-service into their everyday lives, ATMs fill the physical access role once dominated by the teller line. They provide the convenience and physical access customers require while allowing for branch rationalization. Mercator highlighted the ability to shift transactions away from branches to ATMs, with 65 percent of consumers treating the convenience of a nearby machine as a major consideration in adopting a new financial institution.
ATMs can indeed fulfill much of a bank’s physical infrastructure with many fewer branches. But just as important is figuring out how to provide that ATM access. High, variable costs—due to regulatory changes, network improvements, software upgrades, security concerns and more—make internally managed ATM networks harder to manage for many financial institutions.
Instead of going it alone with a non-core asset, banks can partner with ATM experts. They not only bring knowledge of ATM best practices but also offer access to otherwise unavailable locations and networks. To provide ubiquitous access, surcharge-free ATM networks offer a fast, cost-effective option that rivals or exceeds the largest banks for location convenience. In fact, Mercator reports that a surcharge-free network ranks as very important for 65 percent of consumers when they choose a banking partner.
When growing in current or new markets, or defending against challengers, financial institutions can leverage ATM branding to improve access, boost brand awareness and offer opportunities to market to prospective customers thinking about their ATM-based banking relationship. Branded ATMs can simply dispense cash or with the right partner serve as mini-branches with full deposit capabilities. Finally, financial institutions can save money and reduce long-term headaches by outsourcing management of ATMs at the branches and locations they maintain. Today’s ATM outsourcing arrangements allow banks to improve user experience, employ best-in-class technology and provide a stable, secure transactional environment—even as the refocuses on core strategic assets.
Putting it all together: Top-flight strategy meets critical timing
Financial institutions have an alternative to the high costs—financial and otherwise. That is, they can build and maintain branches, and deploy an in-house ATM network as they balance the ubiquity of robust digital banking tools. With a proven strategy of utilizing a partner’s ATMs and expertise, financial institutions can balance physical and digital touchpoints. In the end, and thanks to you, customers will get the convenience, accessibility and broad range of functionality they desire: major deposits in anyone’s emotional bank account.
Source: David B. McCrary