What does a bank branch look like in the future?

As with other physical spaces, COVID-19 drastically reduced or in some cases eliminated foot traffic to bank branches. As vaccines are more widely adopted, some consumers have returned to bank branches, although data suggests traffic has not returned to pre-pandemic levels.

In order to draw customers back to branches, banks must focus on banking needs that are better served in person. A focus on financial education and advice is a differentiated angle that can draw consumers in and result in mutual gain for the customer and bank.

Take a look at our recent paper featuring insights into why in-branch servicing and future support plans should be based on the who (which segments are interested in visiting the bank branch) and the why (what types of tasks and activities do they want to conduct in-person). We’ll also discuss why inspiration from other industry verticals – including hospitality and retail – could offer lead indicators of what to expect from the bank branch of the future.

KEY FINDINGS:

• Due to forced migration, bank branches in the U.S. must break established digital behavior
• Banks should pick segments of focus based on a nuanced view of in-branch servicing preferences
• Banks can enable more use through emphasis on financial education and advice
• Executives will find inspiration in hospitality, healthcare and retail verticals

The word “bank” reminds many Americans of days when they filled out deposit slips and finished transactions by talking to a smartly-dressed teller behind a glass partition. These associations are a distant memory to many digitally native consumers, but even more traditional banking customers may see these interactions as a thing of the past as COVID-19 changed the way customers accessed their accounts. Some may question whether bank branches are even needed anymore, but Ipsos research presents an opportunity to refocus consumers on the role of a bank by prioritizing a different set of needs. Traditionally, bank branches have been a headline of the core value proposition for U.S. banks. They allowed customers to easily transact and access their accounts, but also served as a symbol of trust for institutions that hold Americans’ life savings. The emergence of internet and mobile platforms allowed customers to transact virtually without the need for a branch, but many customers still regularly visited branches for tasks that could be handled virtually. To serve these needs, raise awareness and establish trust, banks developed expansive and expensive branch networks. As mobile and online banking capabilities became more widely adopted, some banks developed differentiated branches to try to increase traffic. These include Capital One Cafés, Santander Work Cafés, smaller-footprint, digital-friendly express branches from Chase and Wells Fargo, pop-up micro-branches from PNC Bank, and even high-tech unmanned Bank of America Advanced Centers. As with other physical spaces, COVID-19 drastically reduced or in some cases eliminated foot traffic to branches. As vaccines are more widely adopted, some have returned to bank branches, although data suggests traffic has not returned to pre-pandemic levels. In order to draw customers back to branches, banks must focus on banking needs that are better served in person. A focus on financial education and advice is a differentiated angle that can draw consumers in and result in mutual gain for the customer and bank.

The branch must break established digital behavior

Prior to the pandemic, many visited branches for tasks that could be completed digitally, such as opening accounts and depositing checks. Some of these tasks may be better handled digitally, but other high-value tasks, such as account opening or advisory tasks, may be more effective in person. The pandemic forced customers to stay home out of fear of a dangerous virus. Despite their hesitations to visit branches, the need for financial services was consistent or may have even grown due to a job loss in the household. This led many to increase their use of banking apps and website capabilities. Ipsos data shows that 13% of consumers in 2020 tried digital banking for the first time. Additionally, 30% of consumers indicated they are using digital and mobile banking more now than prior to the pandemic.

This digital-first behavior has become established as the pandemic continues. While some have returned to the bank branch, we are seeing changes vs. pre-pandemic numbers.

The majority of first-time users of digital banking say they will continue to use these digital financial services post-pandemic.

Changing behavior back to going to the branch for the desired tasks will require offering a value-add service vs. a current digital solution. For some, tasks like this may not be possible, but a branch design for those tasks that benefit from an in-person human touch, such as account opening and advisory tasks, have potential.

A nuanced view of in-branch servicing

While digital adoption has accelerated during Covid, and overall usage of bank branches has reduced during this time, customer needs and preferences continue to vary greatly by customer segment. It is critical for banks to define in-branch servicing and support plans for the future based on the who (which segments are interested in visiting the bank branch) and the why (what types of tasks and activities do they want to conduct in-person). It’s not a simple age split where younger generations prefer digital channels to older generations. In fact, Gen Z adults are most likely to avoid digital channels while Gen Xers are the generation most likely to reject the bank branch altogether. (See Figure 1.)

However, life stage and financial maturity likely impacts servicing preferences more than age. A single 30-year-old renting an apartment has very different financial needs and preferences than a 30-year-old married with two kids looking to refinance a home. The ability of banks to guide customers to digital channels and ATMs for more routine tasks—such as checking balances, paying bills, and withdrawing/depositing cash—while simultaneously encouraging customers to visit a bank branch in person for lower frequency, higher-order tasks—such as getting financial or investment advice, taking a loan and refinancing a home—depends on a clear and deep understanding of how varying customer segments use different bank service channels. And, again, it’s often not as simple as “younger customers prefer digital channels” vs. “older customers seek in-branch servicing.” For instance, although older consumers tend to gravitate to independent financial advisors, younger consumers are more willing to meet a bank’s financial advisor at the bank branch to discuss their financial future. While only 12% of the general banked population goes into a branch to use its advisory services, a closer look at the demographics shows that younger Millennials, especially men, are meeting with bank financial advisors. (See Figure 2.)

Emphasize financial education and advice

Consumers use spaces based on two factors: What are they seeking to accomplish? What does the space enable them to do? A consumer seeking coffee may visit either a Dunkin Donuts or a Starbucks for coffee, but they are more likely to go to Starbucks to meet a friend, not because the coffee there is better but because the space offers additional seating space and welcoming décor.

Influencing bank branch use will require an in-depth understanding of what customers desire to do in person or with a human and what the branch enables them to do. If a space focuses on transactional activities, such as withdrawing/depositing, customers will primarily think of the branch as a transactional space. For many, these transactions are likely best handled digitally or at a closer remote location (e.g., an ATM). Driving branch usage back to pre-pandemic levels will require a shift in the focus of the branch to complement digital transactions with an advisory service. Today, 90% would consider visiting a bank branch in-person. While most will primarily think of visiting a teller or withdrawing cash, 44% indicated they would be most motivated to visit to receive advice.

Advisory services such as financial planning and account opening are high-value tasks for both the bank and customer which justify the investment in the location and staff. Additionally, interacting in person rather than virtually (i.e., video chats) is likely to drive higher conversion for the bank and greater understanding and trust for consumers. Even non-personalized advice or financial education material and staff can 45%fill a needed gap for many Americans. 45% of consumers indicated their family or friends are not very confident with finances, including investments, budgeting, managing debt, planning for retirement, or deciding which financial products they need.

Advisory and educational tasks lead to longer-term customer relationships and enrich customers financial lives for mutual gain.

Look for inspiration in hospitality, healthcare and retail verticals

As banks seek to create branch experiences based on who the customer is, why they are using the branch and how it fits with the overall strategy, inspiration can be found in other industry verticals —including hospitality and retail. We can look to these industries as lead indicators of what to expect from the bank branch of the future. An Ipsos researcher recently stayed at a Moxy hotel, a midscale brand from Marriott International that the company classifies as a Distinctive Select hotel brand based on type of offering (Classic vs. Distinctive) and quality tier (Luxury vs Premium vs Select). Moxy positions itself as a “stylish & playful” brand for millennials and younger travelers that offers “small but smart rooms” and amenities for travelers on vacation, such as a complimentary cocktail at check-in—which is at the bar, not the front desk—and emphasizes “playful communal spaces” such as the branded ‘Living Room’ lobby featuring games and music. It was clearly not intended for the researcher—a Gen Xer on a business trip—but it was fun to see the hyper targeting at work and observe the lively and immersive guest experience especially in the communal spaces. Although the travel and hospitality industries have been battered during the pandemic, the overarching brand strategy of the biggest hotel chains including Marriott and IHG remains unchanged, with distinct brands focused intentionally and exclusively on creating unique experiences for specific types of travelers and hotel usage. Banks can learn much from the hospitality industry by using a highly segmented strategy to create distinct branch designs and layouts (all while main- taining a single bank brand) focused intentionally and exclusively on creating unique experiences for specific customer types and branch usage occasions. In healthcare, an inherent hierarchy exists in terms of servicing costs from emergency care being the most expensive to urgent care, then primary care, and finally virtual care or telehealth being the least expensive. The push to less expensive forms of healthcare received a strong catalyst in the form of the COVID-19 pandemic with virtual care and telehealth usage increasing dramatically. However, the post COVID-19 reality is that health-care 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 trans- actional tasks but coming into the branch in person for more complex tasks. In retail categories, the landscape has evolved from a proliferation of purely digital, direct-to-consumer (DTC) brands to omnichannel selling and experi-ences, with DTC brands such as Warby Parker, Allbirds and Bonobos opening brick-and-mortar stores. The pandemic has not slowed these trends— if anything, it has brought into sharp focus the importance of experiential retail with engaging, immersive experiences in the physical stores and highlighted the creative use of the channel e.g., by emphasizing BOPIS (buy online, pick-up in store). Can we similarly expect to see fintechs opening a select number of physical locations to enhance customer service and to create engaging and unique in-person experiences and communal spaces for customers? That day is not too far away, especially with companies like SoFi broadening their product portfolio and entering the last mile of their bank charter application. Banks and traditional financial services firms should expect that in order to sustain an advantage with their physical branch networks, they would need to upgrade their branches by designing superior in-person experiences catering specifically to their customer segments and usage occasions.

WHAT’S NEXT

Take control, become partners

Banks that focus on the pre-pandemic branch playbook are unlikely to be successful in justifying the large overhead costs associated with those branches. Banks that take control in providing a differentiated in person experience with a focus on needs that require a human touch are more likely to see the needed traffic and see a higher weight of use for high-value task. What does taking control look like? Look to behavioral science to influence consumer behaviors.

1. Reward desired behavior (Operant Conditioning) Providing incentives for using the branch as desired is a direct way to influence behavior. Financial incentives are the most likely to be preferred (e.g. cash back/rate reductions) but additional perks may also have an impact such as access to additional education materials/staff or sweepstakes. Preferences for rewards may differ by segment. It’s critical to know your customer so you can offer the reward with the greatest impact.
2. Refocus visitors (Framing) When a customer walks into a branch, they will use the spaces/staff they see. If the teller is front and center, they will believe this is the primary focus of the branch. If they enter the branch and are greeted by an investment or loan advisor, they will think the primary use is for these other services. Reorient the branch to ensure the services that need a human touch and are high value to the bank are front and center.

Focusing physical spaces on advice and financial education will also help banks place themselves among other industries that no longer look at their customers as a way to make profits. A focus on advice and education shows customers that they are seen as partners from which both sides can benefit. This gives the bank a larger purpose in the greater community. We recognize this is a complex issue. Branch updates take years, not months. Training staff on educational and advisory materials is more expen-sive than transactional activities. Some customers will always want to transact in person; some elements of the traditional branch will have to stay in place. As such, it will clearly be necessary to weigh the business potential of the reoriented services at the bank branch against the capital investment required to evolve the physical space itself in order to ensure that your long-term bank branch evolution plans are rooted in a sound business model that makes financial sense. Ipsos recommends an educational and advisory forward space that will differentiate providers and establish long-term relationships with customers and purpose within the communities. Tailor educa-tional materials and advice to the customers you serve. Smaller and regional branches likely need different material and staff than those near a college campus or the financial district of a major city.