See latest resources »
Branch Transformation: A Work-in-Progress

Branch Transformation: A Work-in-Progress

Source: BAI Banking Strategies

As banks experiment with many different aspects of branch transformation, they should view the process as a journey rather than a destination.


Bank of America’s recently announced restructuring is a particularly painful one to watch. It would be an over-simplification to attribute the bank’s sweeping expense reduction to one factor. Indeed, the bank has suffered a number of setbacks, including sizeable litigation expense associated with its acquisition of mortgage giant Countrywide Financial Corp. in 2008.

The result is this: Bank of America earns most of its revenue from its consumer franchise, but most of its profits from its wholesale bank. Some aspects of Bank of America’s plight may be unique, but there are elements of the bank’s story that are shared among other banks, large and small.

For most banks, the branch network faces challenges, from both a revenue and cost perspective. On the revenue side, the steady decrease of transactional contacts spurred by customers’ growing acceptance and confidence in self-service channels creates fewer branch interactions. In the short term, this means that branch cross-sale ratios must increase in order for sales simply to remain flat. In the longer term, this introduces the risk that customers will gradually move away from their relationship manager and their branch.

On the cost side, in a price-competitive and low-growth retail environment , there is strong pressure to reduce what represents, on average , 50% of total operating costs. The FMSI 2011 Teller Line Study illustrates the disturbing reality for most financial institutions: declining teller transactions alongside rising per-transaction labor cost (see chart, “Headed the Wrong Way.”

Transaction migration from the branch channel to lower-cost self-service mechanisms ought to be welcomed. After all, it is the customer who is driving these seminal changes. Despite the growing activity in “alternate” distribution channels, Celent contends that the branch will remain a relevant and strategically important delivery channel for the foreseeable future. The branch isn’t dead – it just needs to be different. Without cost takeout in the branch channel, self-service transactions will cost banks more, not less. And, without systemic improvements in the channel’s ability to sell and service customers, organic growth will be challenging. Accomplishing this will demand cultural, physical and technological change efforts.

The evolving regulatory, economic, social, and technological environment has created this imperative for branch transformation. Clear enough. What may be less clear are the specific series of efforts individual financial institutions should undertake to bring about this elusive “branch of the future.” How exactly do we define that and where do we begin?

Highly Evolved Branch Infrastructures

It may appear obvious that one must first create a well-defined vision of a massively re-designed branch infrastructure and proceed from there. We couldn’t disagree more. Such thinking will likely keep banks on the sidelines with proposed projects that are too big and with results that are too uncertain. There’s a better way.

Over the past year, we have conducted research on the topic of branch channel transformation. In the process, we interviewed dozens of financial institutions across the asset-size spectrum that shared common elements of “highly evolved branch infrastructures.” On one hand, the outcomes among the financial institutions couldn’t have been more diverse, suggesting there is no single blueprint for the “branch of the future.” On the other hand, beyond their common exceptionalism in terms of branch channel efficiency and effectiveness, we found common elements among these relatively few financial institutions.

One particularly compelling element in our opinion is the pervasive notion among these financial institutions that the “branch of the future” is a journey, not a destination. Viewed in this manner, these banks didn’t need (and didn’t have) a fine-tuned and highly precise game-plan to make progress – just a desired direction. Progress was made over time through a series of smaller, incremental initiatives alongside rigorous measurement and a culture willing to challenge the status quo while being committed to continual improvement.

Although differences are many, Celent observes at least two axes of branch channel evolution: 1) the extent of transaction automation within the branch and, 2) the extent of physical redesign beyond what has been widely accepted as normative (see chart, “Evolution of Branch of the Future”). Examples of transaction automation in use among a minority of North American financial institutions include: CRM systems, teller capture, teller cash recycling and automated account and loan origination systems. Examples of physical redesign include: teller pods, lounge areas, branded destinations, concierges and self-service areas.

Most North American financial institutions operate with traditional physical branch designs and mostly manual work processes. Northway Bank in New Hampshire, for example, markedly improved its branch sales effectiveness through a low-cost CRM implementation and rigorous cultural change. Yet its branches remain largely traditional and non-automated – for now. Spokane, Wash.-based Sterling Savings Bank and Webster Bank in Waterbury, Conn., by contrast, have benefited from a high degree of automation in routine branch transactions within otherwise traditional branch physical designs. Each of these three banks can be considered examples of early-stage branch evolution. All have enjoyed the benefits of incremental change.

Portland, Oregon’s Umpqua Bank and North Shore Credit Union, Vancouver, Canada, are examples of highly evolved branch designs with modest transactional automation. Italy’s BPM Group (Banca Populare di Milano) and Temple, Tex.-based Extraco Banks are examples of highly evolved branch infrastructures that reflect both significant physical redesign as well as thorough business process engineering to reduce administrative tasks and produce operationally efficient branches. These latter two banks have been on their journey for years.

Despite the extraordinary diversity among the financial institutions cited in our study, we found that they share at least two other common elements. First, each financial institution leverages workforce automation solutions to ensure appropriate branch staffing levels and to facilitate scheduling. In many cases, this was the first thing they did in their branch transformation journey. Celent estimates that just 3% of North American financial institutions use these solutions. Most of these institutions started out as overstaffed and enjoyed rapid returns on their workforce automation investments to the tune of $20,000 to $30,000 per branch in the first year without an adverse impact on customer satisfaction.

The other thing all these financial institutions have in common: each would tell you that they “have not arrived” at their destination of branch transformation; each is still looking for ways to continually improve.

Mr. Meara is senior analyst with the Banking Group at Boston-based Celent and will be providing a more detailed presentation of this topic at this year’s BAI Retail Delivery. He can be reached at

BAI Banking Strategies

Comments: (0)

Event Information resources
See all Event Information resources »
/event information

APP scams: who is truly responsible?

Register for our upcoming webinar with ACI Worldwide on Tuesday 1st March at 3pm GMT, as industry experts discuss the rise of APP scams and the impact they can have on consumers and banks.

Anubis Horribilis – fending off large-scale automated mobile banking malware
/event information

Anubis Horribilis – fending off large-scale automated mobile banking malware

Register for our upcoming webinar with Onespan on Tuesday 15th February 2022 at 15:00 GMT, as industry experts discuss how easily can financial institutions address the problem and shore up their defences?

SWIFT Customer Security Control Framework: how to remain compliant in 2022
/event information

SWIFT Customer Security Control Framework: how to remain compliant in 2022

Register for our upcoming webinar with Eastnets on Thursday 17th February 2022 at 3pm, as industry experts discuss how to secure environments, limit access and respond to detected attacks.