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Fending off the Fintechs with a Different Kind of Branch

February 2, 2016

This article was initially published in the Credit Union Journal and can be found here

By Meredith Deen, President, FMSI

Some branches are becoming lonelier places at the same time the competitive field of financial services providers is bulking up with new entrants.

The movement is getting elbowed not only by big banks and their community counterparts, but by Walmart and other major retailers looking to brand their own financial services, technologygiants like Google and Apple, and a whole host of “fintech” startups. Many of the latter, including the likes of Square (mobile payments), Prosper (peer-to-peer lending), Credit Karma (personal credit and financial management), and Robinhood (low-cost mobile brokerage access), have become the darlings of venture capitalists. One estimate put investments in new financial technology companies at $23.5 billion over the last two years, and Business Insider reports that venture capital support for this sector is expected to double in 2015.

To be fair, members aren’t yet deserting their institutions en masse in favor of these new providers, but a more crowded marketplace intensifies the longstanding struggle to connect with Millennials, especially over the hubbub of fintechs launching solutions designed specifically to suit the preferences of young, tech-friendly consumers. Even if they don’t capture the business of a significant portion of this juggernaut generation—the largest population cohort in U.S. history—every innovation moves the dial on collective expectations for seamless, simple, and secure account access via one’s device of choice. As just one example, four out of five Apple Watch wearers have embraced Apple Pay as their preferred payment method at checkout.

Institutions need to rise to this challenge by keeping pace in offering mobile payment solutions, engaging mobile services, and ready access to their full array of financial services and educational resources online. At the same time, they must explore how best to parlay into a distinctive advantage the one delivery channel their upstart competitors cannot claim.

A Different Kind of Branch is Required

It is clear that business as usual in the branch is not a strategy likely to lure new members through the doors. Branch traffic continues to dwindle even as operational costs rise steadily, straining financial performance. According to the FMSI 2015 Teller Line Study, average monthly transactional volume at credit union branches has declined 12.2 percent over the past five years, while branch staff productivity, as measured by average transactions processed per teller hour, has dropped 7 percent. Since FMSI began conducting this study in 1992, teller transactions at credit unions and community banks have declined 45.3 percent, while labor costs per transaction have jumped 133.3 percent.

If your institution can justify maintaining a branch network primarily to accept deposits and dispense cash at teller windows—even though these transactions can be handled more cost-effectively via technology channels—then by all means, stick with tradition. Maintain the standard branch layout, focus on hiring staff with previous banking experience, and look only to other financial institutions for ideas on how to improve member service.

On the other hand, if your institution expects its brick-and-mortar infrastructure to function as a profit center in the future rather than a drain on revenue, it may be time to start moving from a deposit-centric model to a sales-centric approach. A branch designed to encourage “higher quality” exchanges with members and staffed by employees trained to guide members in conversations about the products and services that can save them money and time could generate significant increases in new accounts. This novel approach could also help position the financial institution as a trusted and readily available source of advice on important financial decisions.

The Branch is Not Dead

Almost 9 in 10 Americans (86 percent), including Millennials, prefer to do at least some of their banking in person, according to the 2015 Consumer Banking Insights survey. There are some things you can’t do on a watch or a smart phone, like sit down with a financial services specialist to review options for the best mortgage, to talk about retirement savings options, and to examine your credit report for errors and personalized recommendations on improving credit scores.

These exchanges can more easily take place in branches where the teller counter has been replaced with an engaging, open design in which staff and members can meet to converse rather than transact. Members who persist in driving to a branch to deposit a check can be directed to self-service stations so employees can focus on serving members who want to consult on choosing financial products or solving a problem.

In addition to redesigning the office, a successful sales-centric approach might involve a different staffing philosophy, training employees as universal agents who are well equipped to deliver high-quality sales and service interactions. A new staffing model may also entail developing enhanced metrics that redefine productivity in terms of quality of member interactions and attainment of sales goals.

A Fresh Look at Branch Operations

Taking a fresh look at how your institution delivers personal member service opens the door to adapting service innovations from other business sectors. Instead of secret shopping the bank branch down the street, you might find inspiration from service interactions with restaurants and hotels, retail outlets, and technology providers. How do these service pros pamper customers and treat them like familiar, favorite guests? How do they engage them in remarkable experiences that generate word-of-mouth referrals? How do they demonstrate they value their customers’ time with prompt service? And, most pertinently, how can you translate those strategies into providing an extraordinary experience for your members?

The commitment to “account holders first” can still resonate in today’s crowded financial services marketplace, especially when credit unions consistently deliver on their brand promise across channels. That mix should combine mobile and online services on par with competitive offerings with the option of unparalleled personal service from trusted financial advisors at a nearby branch.

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