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Branches in bloom
Will growing investment in branches bear fruit for banks?
It was not long ago that electronic banking was expected to replace the branch
as customers’ channel of choice. However, many of the developments that were
expected to signal the branch’s demise are increasing its importance as a critical
component of banks’ customer service strategies. The adoption of self-service,
alternative channels has increased customers’ demand for 24x7 multi-channel
access to accounts and has raised expectations for convenient, professional service
from branch personnel.

Major banks are now in a race to expand and renew their branch networks as a way
to enter new markets, increase penetration of existing markets and build wallet share
among customers.

But simply having the most extensive or best-designed branch network may not be
enough to succeed. In order to differentiate themselves from their competitors and
achieve their growth objectives, banks must be able to attract customers to their
branches, identify the needs of each customer in the branch and have the in-branch
capabilities necessary to meet those needs. For branch transformation efforts to
bear fruit, banks must blend their physical presence with innovative products, trained
and motivated personnel and IT proficiency (both out front and behind the scenes)
for a fully integrated approach to creating value.

Back to the future: Banking on the branch

Branch transformation has been widely touted as a target area for opportunity and
growth. Research shows that branch network expansion and renewal can contribute
to asset growth and stronger operating performance.1

In the midst of increased competition, the key to creating value will be to move past
what branch banking has been to understand what it has the potential to be in the
future. A successful branch strategy depends on making smarter choices that will
bear fruit long into the future.

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To boost productivity, increase sales and cut costs, banks must choose the right
blend of three crucial elements:
• The integration of a renewed branch presence and innovative products and
services tailored to meet defined customer needs
• The selection, training, compensation and motivation of branch staff
• The proficient use of IT to support sales and streamline customer-facing and
back office processes across channels.

Beyond the buzz: Basis for change

Branches still have considerable impact on where and how customers bank. How
customers pick a bank depends largely on the branch network – 49 percent of
customers cite convenient location as a top reason they chose their bank.2 And in
spite of the availability of online channels, branch activity is nearly uniform across all
age demographics when it comes to purchasing new products.

But customers’ continued reliance on the branch does not guarantee fruitful
business results. The vast majority of customers seek branch service for low-value
transactions. Forty to 60 percent of teller transactions are high-volume, low-value.3
These low-value transactions drain banks’ resources, taking time away from
potentially higher-value customer relationship building activities.

Forty-seven percent of banks say increasing product sales (e.g., new accounts,
loans, deposits and CDs) will be the cornerstone of their branch strategy.4 Many
banks, however, struggle to execute on this strategy since their branch staff lack
necessary sales skills. Furthermore, banks are facing turnover rates as high as 30
percent resulting from exceptionally low pay and limited career opportunities.5

Banks are also increasing their investment in renewing and improving the capabil-
ities of existing branches. IT spending is expected to focus on communication
technology upgrades, teller systems and Customer Relationship Management
(CRM) functionality. However, it may be difficult for banks to benefit fully from IT
investments without also addressing workforce and sales strategy challenges.

Finally, banks have to attract profitable customers to their branches before the
competition does. Recent rapid expansion, and the race to gain wallet share
through the branch, has amplified competition.6

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Getting a high yield from branch strategy

Taking branch transformation to the next level requires an integrated approach.
Focusing on finding the right mix of the following elements can help banks differen-
tiate, and overtake the competition.

Presence and products: Tailored by design – Some banks are changing branch
presence and products to better cater to customers. By changing the look and
feel of the branch, improving and streamlining service and offering attractive and
innovative products, banks aim to target customers interested in high-value transac-
tions. Successful branch strategy includes a blend of location, look and feel, and
products that are tailored for target customers.
• Physical presence – Optimizing the branch network helps banks take advantage
of their organizational assets, including physical locations, human capital
expertise, distribution alliances and brand equity. Banks should also consider
redesigning their branches with layouts that serve customers more effectively and
increase sales activities. Upon entering the branch, customers should be directed
to the most effective point of service either by branch personnel or through clearly
designated branch layout cues – or better still, both. Banks have begun taking
cues from leading retailers, making the branch a more welcoming, efficient and
exciting place to be. Their new designs include a mix of self-service options (to
direct low-value transactions away from tellers), more free-roaming branch staff
that ask and answer questions, and centralized and open “discovery zones”
where customers can browse for information on banking products.
• Products – Providing access to higher-value, consultative products and services
including financial advice and planning, wealth management, investments,
retirement products, insurance, tax and accounting services, and business services
should be a key tenet of any branch transformation strategy. Products should be
innovative, competitively priced and marketed to target customers at appropriate
points in their lifecycles, instead of on a transaction-by-transaction basis.

People: Building a sales culture – In a recent survey, banks’ goal of increasing

product sales was superseded only by the desire to improve staff productivity (see
Figure 1). In fact, developing and retaining effective and efficient branch personnel is
critical to the success of any branch strategy.

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Figure 1. Main business goals of banks’ branch strategies.

Improve staff productivity 50

Increase product sales 47
Enhance wealth management 43

Automate core teller functions 33

Integrate branches with other channels 18

Cut business costs 5

0 10 20 30 40 50 60

Percent of respondents

Note: Survey base includes IT executives at 50 U.S. banks.

Source: Datamonitor, “Branch renewal for community banks and credit unions,” June 2004.

As demands on branch personnel increase, banks need to modify their criteria for
hiring and promoting front-line staff. Furthermore, employees need to know how
they are doing in order to continue to develop their skills. Banks should provide
supervisory on-the-job coaching as a tool for sales management. Continually
reassessing how sales strategies and employee incentives are implemented
is paramount: building a sales culture is an ongoing process of experimenting,
learning and refining. The branch sales strategy should be regularly amended to
reflect changes in target markets, types of products sold and the capabilities of
branch staff.

IT proficiency: Optimize your assets – Technology investments should do three

things: support employees’ ability to sell, improve customer service and cut costs
by improving efficiency. Whether a customer is banking online, at an ATM or at the
branch, interactions should be seamless – both behind the scenes and on the
sales floor.
• Multi-channel sales and delivery – While only one-third of all customers prefer
to use multiple channels, the majority of heavy bank users seek multi-channel
access.7 Banks are increasingly motivated by the opportunity the branch presents
as a key part of an integrated delivery system; the branch is expected to continue
to lead all other channels in multi-channel delivery solution spending.8 But the
true value of the branch network can be realized only if it is supported by a multi-
channel delivery strategy and architecture. This architecture should leverage
common business logic so that individual channels handle customer transac-
tions identically. A component-based architecture allows the bank to assemble
and configure enterprisewide, scalable business systems quickly, recycling
components across delivery channels.

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• Technology and process improvements – Pairing the right technologies with

process reengineering helps branch staff focus their time on customers, instead
of transactions. In addition, reengineering and streamlining branch processes to
increase service efficiency, reduce manual and paper-based intervention and
enable better integration across channels is crucial. But to remain competitive,
banks need to take technology to the next level in the branch. Branch personnel
should be equipped with advanced sales tools including mobile devices,
knowledge management and scripting applications, as well as staffing optimi-
zation and performance monitoring applications that enable more effective sales
efforts. Migrating transactional, or low-value, customer interactions to self-service
channels and refining process automation allows branch staff to spend more time
selling products to customers.

Test yourself
To get the most out of your branch transformation investment, you first have to ask
the right questions. A well-integrated branch strategy hinges on the knowledge that
success is not wholly dependent on any one aspect of change – be it physical
presence, people or IT proficiency – but on how these aspects are blended to meet
banks’ goals. The following questions are designed to help banking executives begin
to formulate a more fruitful approach to branch transformation.

Figure 2. How fruitful are your branches?

Do you have the branch

designs and product
offerings necessary to
optimize revenue?

Does your branch provide Do branch design, processes

a customer experience that and technology effectively
supports sales goals? support branch offerings?

Do your employees have Are branch employees Do you have the in-branch
the skills and incentives equipped with the customer tools and integrated multi-
necessary to build a sales data and tools they need to channel capabilities needed to
culture in your branches? sell effectively? optimize branch productivity?

Source: IBM Institute for Business Value analysis.

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Conclusion
Is there an overarching, prescribed strategy for making branch transformation
investments worthwhile? Unfortunately, no. It’s not as easy as an innovative lobby
design. Nor is the answer a slick IT application. In order to draw out the most value,
banks must choose the precise blend of physical presence, products, people and
IT proficiency for their particular needs, as well as the needs of the customers they
want to target.

To gain competitive advantage and achieve a fruitful return on investment, banks

must blend the elements of branch transformation to not only generate more
revenue, but to serve customers throughout the customer lifecycle as well. Branch
banking must also become a fully integrated aspect of multi-channel banking where
customers can receive exceptional in-person service from knowledgeable, well-
equipped bank personnel.

To request the full version of this paper and understand how your company’s
branch transformation investment can become more fruitful, please e-mail us at
iibv@us.ibm.com.

About the authors

Sunny Banerjea is the Global Banking Industry Leader for the IBM Institute for
Business Value. He can be contacted at sbanerjea@us.ibm.com.
Kimberly Hedley is a Senior Consultant for the IBM Institute for Business Value. She
can be contacted at khedley@us.ibm.com.
John White is a Managing Consultant for the IBM Institute for Business Value. He can
be contacted at jmwhite3@us.ibm.com.

Contributors
Daniel W. Latimore, Partner, Executive Director, IBM Institute for Business Value
Bryan Lee, Retail Banking Solutions Management, IBM Global Financial Services Sector

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About the IBM Institute for Business Value

IBM Business Consulting Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior business executives around critical
industry-specific and cross-industry issues. This executive brief is based on an in-
depth study by the Institute’s research team. It is part of an ongoing commitment
by IBM Business Consulting Services to provide analysis and viewpoints that help
companies realize business value. You may contact the authors or send an e-mail to
iibv@us.ibm.com for more information.

References
1
IBM Institute for Business Value analysis of public company information.
2
Shevlin, Ron. “What Influences Consumers’ Choice of Banks?” Forrester Research,
Inc. October 2004.
3
Taylor, Keith. “Counter Those Teller Problems.” thebanker.com. December 2003.
4
“Branch Renewal for Community Banks and Credit Unions.” Datamonitor.
June 2004.
5
De Paula, Matthew. “With Rising Teller Turnover, Banks Aim to Retain.” U.S. Banker.
January 2005.
6
Spieker, Ronald L., “Bank Branch Growth Has Been Steady – Will It Continue?”
FDIC. August 2004.
7
Anderson, Doug. “Back to the Future: Bank Branches in an Electronic Age.”
TowerGroup. June 2002.
8
“Retail Bank Delivery Channel Spending in the United States: 2001-2005.”
TowerGroup. December 2001.

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