IBM Business Consulting Services

Bank branch transformation

The root of a multichannel success strategy
With the popularization of the Worldwide Web, the conventional wisdom was that
banks would begin to lose branches like a willow in a windstorm, opting to build more
cost-effective business models around the virtual advantages of the Internet. But
customers made it clear they still wanted the human touch, and savvy banks now are
transforming branches to play key roles in a more expansive, multichannel strategy.

Every retail bank has a different idea about branch renewal, though, and the look of new
branch blueprints can range all the way from radical to retro-chic. But the underlying
business objectives are pretty much the same, and to that extent banks should be
guided by some fundamental considerations – the first of which can be summarized by
an old Oliver Cromwell quote: "Think it possible you may be mistaken."1

At least you may be underestimating how customers may respond. That’s exactly
what happened when retail banks saw the Internet as a potential way to offload the
significant overhead costs of brick-and-mortar branch offices. There was a growing
public fascination with the Web, to be sure. But, at about the same time, the financial
services sector was going through a period of intense consolidation, which generally
leads merged banks to conclude that they’re suddenly branch-heavy and in need
of some paring. Add to that high teller turnover rates and it’s easy to imagine that
the story that bank managers wanted to hear was one of the cost-effective virtues of
virtual branches.

Read on …
But, that turns out to have been only part of the plot line. The cost benefits of self-
service Internet sites aside, customers made it clear there was a value to them in
doing business with a real person. They liked being able to talk with somebody, both
behind the counter and while in line. Without that comforting personal interaction
customers felt a palpable loss of a sense of community.

ibm.com/bcs As appeared in Building an Edge, October 2004 1

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It’s also likely that a four-dimensional personal interaction adds to a customer’s

confidence in the finality of the transaction. They prefer to hand their deposit to
someone they can see, hear and watch, and know that their deposit has moved
directly into their account. No questions. No doubts. Just an honest-to-goodness
paper receipt. And with the latest focus on the dangers of identity theft, branch
customers can enjoy a sense of assurance in being recognized by name and face.

But equally important, customers have made it clear that they want access to a
variety of channels – the Internet for some transactions and balance updates,
ATMs for a quick influx of cash, telephones for those times when a computer isn’t
available, and walk-in branches when only a person will do.

By the numbers
In fact, leading U. S. banks are looking to differentiate themselves from competitors
by increasing their investments in distribution channels. One survey shows that,
if bank executives had additional technology spending money available to them
to improve retail bank profitability, they probably would spend 20 percent on new
product development, 20 percent to offset product pricing, and a full 60 percent on
development of delivery channel solutions.2

Even with more access to alternative channels, bank customers continue to

demand in-person branch service. Market research has shown that 92 percent of
U.S. retail banking customers use a physical branch at least once a month, and 50
percent actually prefer branch offices to automated channels.3 That’s why branch
transformation needs to be an integral part of an overall retail banking strategy that
focuses on sustaining, maintaining and investing in multiple channels, especially for
U.S. financial services institutions.

Generally speaking, most banks see branch transformation in terms of a move

toward customer self-service, but there is no single model being followed by any
one business organization. Washington Mutual, for instance, operates a few Ocasio
sites, a relatively radical approach in which a branch office operates essentially
like a store. Transaction areas are open and airy, and tellers go to the customers to
assist them with the specific business they want to conduct. Savings accounts?
Aisle 6. Certificates of deposit? Aisle 3. Consumers can even buy hats and t-shirts
and coffee mugs.

ibm.com/bcs As appeared in Building an Edge, October 2004 2

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Can we take your order?

Commerce Bank branches set themselves apart by being open every day, including
Sundays, and ING Direct CEO Arkadi Kuhlmann likens his retail bank to financial
services fast food. "The difference between ING Direct and the rest of the financial
industry is like the difference between take-out food and a sit-down restaurant. The
business isn’t based on relationships; it’s based on a commodity product that’s high-
volume and low-margin. We need to keep expenses down, which doesn’t work when
customers want a lot of empathetic contact."4

ING Direct’s strategy is to target a specific retail banking niche – the 8 percent of
customers who don’t visit a branch office approximately every 30 days.5 But, for
banks more interested in the nine out of ten customers who do visit at least monthly,
the essential objectives for branch transformation are to:
• Create competitive cost of operation by improving efficiency and effectiveness
• Update, replace and reengineer processes and systems to more efficiently
support staff and customers
• Leverage all retail channels to optimize value to customers and the bank
• Grow revenue by becoming the provider of choice
• Improve service delivery by deploying a more flexible, reliable IT infrastructure.

The idea is to market to each customer while he or she is on the premises. To

accomplish that, banks need to have a more complete picture of that customer,
including their current financial requirements, their current life events and the kinds
of services that can be presented as sensible follow-up offers. There are no single
solutions to the problem, but there are a series of incremental steps that banks can
and should be taking to develop their own particular models.

For instance, each bank should make up-front decisions about functional and
operational issues. Are tellers going to be transaction-processors, or, as part of an
effort to imbue a deeper sales and service culture, will they sell, too? Maybe the
better approach is to have them do both – and refer services at the same time. Any
of these choices requires training.

And what about technology? Is it flexible and resilient enough to support a

multchannel architecture and provide a common and comfortable customer
experience? In answering that key question, banks need to consider not only back-
office systems, but front-office equipment, cross-enterprise networking infrastructures
and the cost and strategic benefits of leading-edge technology such as voice-over
IP and customer relationship management software. To enhance security, some
banks are beginning to move toward fingerprint stamping and retina scanning, for

ibm.com/bcs As appeared in Building an Edge, October 2004 3

 © Copyright IBM Corporation 2004
example. Others are revamping to incorporate broadcast readers and smart cards to IBM Global Services
instantly recognize customers as they walk through the front door, alerting managers Route 100
Somers, NY 10589
and sales persons, not only about their physical presence, but their financial U.S.A.
and account histories as well. In the end, functionality, ease-of-use and customer Produced in the United States of America
11-04
interaction will be determined by the IT infrastructure on which a branch bank is built. All Rights Reserved

IBM and the IBM logo are trademarks or

The bottom line in bank branches is this: They’re how a financial institution’s customers registered trademarks of International Business
see and talk to the firm itself, and to that extent, branches are invaluable assets in Machines Corporation in the United States,
other countries, or both.
terms of capitalizing on customer needs and market opportunities. Transforming them
Other company, product and service names
– taking them to the next level as a key part of an overarching, multichannel business may be trademarks or service marks of others.
plan designed to differentiate services and raise customer satisfaction – can help References in this publication to IBM products
and services do not imply that IBM intends to
banks to reduce operational costs, generate new revenue, reverse employee turnover make them available in all countries in which
and position the business for rapid market and customer response. IBM operates.

About the author:

Jim Clarkeson is a certified Managing Consultant in the Multichannel Transformation
Solutions Practice of IBM Business Consulting Services. He has 25 years experience
in the financial services and telecommunications industries, with broad experience
in mergers and acquisitions, process analysis and currently specializes in retail bank
transformation. You can reach Jim at clarkja@us.ibm.com.

About IBM Business Consulting Services

With consultants and professional staff in more than 160 countries globally, IBM
Business Consulting Services is the world’s largest consulting services organization.
IBM Business Consulting Services provides clients with business process and industry
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References
1
Quotes of Oliver Cromwell, 1599-1658. Accessed November 3, 2004.
http://www.olivercromwell.org/quotes1.htm
2
TowerGroup and IBM Institute for Business Value 2002 survey.
3
Retail Bank Branch of the Future, Tower Group, August 2001.
4
“How to Get Tough With Bad Customers,” Business 2.0, October 2004.
5
Ibid.

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