US banks are set to drastically transform their branches in an effort to turn them into financial centers for high-value sales and advice, reveals a new report by independent market analyst Datamonitor. The report, ‘Branch Renewal in US Retail Banking’, estimates approximately 30,000 (26%) US bank branches will be renewed by 2006. A key IT implication of this will involve replacing legacy networking infrastructures, developing a next-generation, CRM-enabled branch desktop, with IT spend expected to reach $1.4bn by 2006.
In a separate study published last year, Datamonitor said it expected renewed European bank branches to constitute between 33% and 40% of all branches by 2005. Compared to the US, European branch renewal IT expenditure is predicted to reach almost $1bn by 2005. The rate of branch renewal is expected to be highest in the UK, France and Benelux with top-tier banks expected to be more aggressive in their rollout. For the customer, branch renewal is likely to dramatically transform the traditional banking experience. Gone will be the glass divide. Self service stations will be made available for them to process simple transactions. Wireless technologies will become an increasingly important part of the branch infrastructure and layout, giving staff the ability to move freely within the branch to service customers.
Only a few years ago, the advent of the Internet and other, fully automated channels was widely believed to spell the end of branches. Once familiar with these new channels, customers were expected to favour the convenience and cheaper products they offered and the 24/7 access to the bank. Consequently, as banks poured vast amounts of money into the development of new channels, such as the Internet, the branch was neglected in investment terms.
Today the emerging picture is decidedly different. Not only are branches still widely used by customers. Banks are also realizing the Internet may not lend itself to selling high-value or complex products, and branches are optimally positioned to do so. To optimize the use of branches within a multichannel context, banks will aim to leverage the face-to-face nature of interactions in the branch by turning branches into sales and services centers, while automating the greatest possible amount of simple transactions.
Already Bank of America and Washington Mutual are piloting rejuvenized branches. Recently a bank on New York’s 5th avenue advertised to customers it was closed for ‘fashionable’ refurbishment!
Renewed focus on the branch will have far-fetched technology implications. In order to achieve their aim of turning branches into sales and services centers, banks will have to overcome significant legacy technology issues in the branch. In particular, banks will have to replacing legacy networking and IT infrastructures and undertake desktop refresh programs in order to be able to re-engineer the core teller application. This endeavour will lead banks to migrate off legacy platforms, such as OS/2, and develop browser-based environments in branches.
The teller platform is at the core of US banks’ branch renewal efforts. Datamonitor believes that banks are focused on browser-enabling the teller front end and allowing for greater process automation, notably through automated product origination and check imaging. That said, banks’ aim of turning branches into sales centers is also leading to increased investment in CRM for the tellers giving them access to all relevant sales and servicing tools, as well as to all customer data and product information.
In the long-term, Datamonitor expects to see shift in banks’ focus away from the teller platform, with banks focusing more heavily on straight through processing-enabling core processes and the introduction of self-service devices. Overall, Datamonitor expects branch renewal to be a key driver for US retail banking spending going forward, with branch renewal related IT spend reaching $1.4bn by 2006, and growing at a compound annual growth rate of 21% between 2003 and 2006.
“2004 will be a turning point in terms of branch renewal, with banks beginning to execute on their branch strategies,” says Christine Skouenborg, financial services technology analyst at Datamonitor. “However it is important to understand that branch renewal is a long-term undertaking. Not only are there important technology implications, which will leave banks taking a step-by-step approach to branch technology investment, but there are also significant operational issues with respect to branch renewal. Banks will need to tackle low skill-sets in branches and optimize branch staff productivity while focusing on how to deliver the best retail experience to the customer.”