11 April 2012
MCE Senior Associate Christian Dekoninck has more than 20 years’ experience in the consumer banking industry in different countries. During his career, Christian has on several occasions turned non-profitable bank branch networks into profitable networks. In March 2012, Christian sat down to explain to us how to make bank branch networks profitable. A transcript of Christian's comments follows.
What many banks struggle with today is too many branches. A second problem is that the branches follow a very transactional model. This costs the bank money and creates complexity, but it does not bring in revenues.
The problem can be traced back to when the decision was taken to open the branches. Banks often neglected to study the demographics, competition, and environment around the branch. They rushed to open branches to be present as markets grew. Second, they did not put the right people in place to run the branch. The role of the branch director is really important: it requires business knowledge and a feel for customer value creation. But banks often chose to put a junior person in charge and to staff the place with people who behave more like postal workers than customer service staff. These decisions were taken hastily as banks grew but they have consequences for many years.
With on-line services, some banks think they don’t need physical presence. This is a mistake. Just closing down sends a bad message to the market, and you lose the opportunities you can get from face-to-face contact with the customer. It’s better to try to make the branches more profitable. So, how can you do that? There are a lot of different elements to look at:
1. Segment Customers
First, segment your customers between the mass market and more affluent or wealthy individuals. Focus on providing efficient, streamlined services for the mass market. Focus individual time on building relationships with affluent customers. Build trust with both segments.
2. Organize to Deliver
Optimizing costs is about having the right branch in the right place.
Don’t open too many branches, or open in too sparse areas. I believe you need about 2000 customers per branch to make it profitable. Below that, there is a financial gap on the direct costs.
Then you have to organize to service your customers. If you have too few or too many staff, it doesn’t work. Mass market customers need to be served quickly and efficiently, and driven to on-line channels whenever possible. More of your staff time should be spent building relationships with and selling to affluent customers. It’s vitally important to spend the right time on the right customer. Limit time for customers who are not profitable.
I don’t believe back office functions should be in the branch. Branches should be lean, only focused on service and sales to customer. Centralised marketing services should help people in branches with customer segmentation, leads, existing and new customers. Don’t leave them to handle this on their own. Centralised marketing should be all about supporting branch sales.
Centralised services should also provide lots of training to branch employees.
3. Deliver Great Service! (at least, stop delivering bad service)
Banks are so bad at customer service compared to many other industries. I never saw a bank that felt like Singapore Airlines. With competition so intense, how can you afford to give such bad service? The good news is that there is a golden opportunity to differentiate from competitors by being better. Service excellence really will make the difference. Strong word of mouth, good recommendations, if your customers are happy they will bring new customers.
Not only do customers hate bad service, but your service people hate the processes imposed on them, and the customers feel it. Often there are inflexible performance criteria and wrong-headed incentives behind bad service. Banks have to teach people to be excellent in service and flexible and smart about how they approach customers.
Your people need to be selected, trained, and managed to give consistently high quality service. Branch employees often see their jobs as purely transactional. This is a waste of time, money and opportunity. Transactions can be handled on-line, or at least more quickly in a face-to-face situation.
Why do customers have to go to main branch for certain services? Why are computer systems so slow? Why are 20 signatures needed to approve a new account or loan? Slow systems and slow processes kill profitability and make employees and customers angry. Technology that does not show the full extent of the customer relationship also misses opportunities to provide better service, better advice, and to sell and cross-sell more.
4. Move from Hard-Sell to Advisory Services
Sales Advisory is also vital to profitability. Everybody in the bank should be trained on sales training. Service staff can cross-sell easy products, but more complex projects need a salesperson, and it can’t be done in the bank queue. You have to go to specialisation, and you work with a leads process within the branch. Service people and even salespeople should be incentivised to pass leads to the appropriate colleagues.
Salespeople tend to be reactive, waiting for the customer to contact them. They sit with nothing to do during slow times and rush during busy times, providing inadequate service. Salespeople should be proactive with customer. Take the lead contacting them and scheduling appointments to give better service and create more sales.
Create a sales plan, be proactive about finding new customers and cross sell to existing customers. Close monitoring of use of time, schedule, need to make sure you have a number of meetings with right customers leads to more sales.
This should be supported by a leads process, from centralised marketing and from front desk service people or on-line channels.
Build redundancy and back-up into your customer relationship management. Each account manager needs coverage while on holidays, ill, or busy. You need to capture customer data so the customer doesn’t have to explain a situation each time to a different person. The back-up person should also be known to the customer. Transition if there is a new service person taking over some clients. People like to have someone they can trust and tell the whole story to.
Finally, set meaningful KPIs for sales and service results. Monitor them closely, hold regular meetings to discuss results and how to improve on them. This is normal in customer-focused industries - more banks should adopt it!
5. Balance your Channel Mix
You need to get the right channel mix between physical and virtual. Transactions are best handled virtually. Mass customers with mainly transactional needs should be driven to remote channels. Wealthier customers should be invited into banks and provided high quality advisory services.
You still have to meet the needs of customers in all segments who prefer branches (for example the elderly), but you need better time management in meeting them. Don’t forget they also have family and friends who are also your customers, so you really have to treat them well if they are not comfortable with on-line services..
6. Optimize Physical Space
Some branches are too big, with too many people and too much unused space. Customers don’t like huge branches.
Others are too small. When I first came to Citi Handlowy in Poland, they had too many small branches. They were so transactional there was not even a place for customers to sit down, losing opportunities to do real business. If you can do only one thing to reorganize your physical space - reduce the floor space for transaction to create a space for advisory services.
If you have the luxury of opening new branches in new locations, do it right! Don’t open too many. Do your due diligence, get your locations right and understand the demographics of the area you are serving, the mix between mass and affluent. Organize the branch accordingly. Also consider where you are placed relative to your competitors.
Visibility is important to the branch in general. Customers need to see it, it needs to be mid sized. Not too small, it has to be comfortable enough to provide space for services, privacy for wealthy customers.
Provide security. Customer wants to feel safe and discrete, especially walking into a private bank. You need some luxury but you need discretion and security. You can offer extra services to customers, but it should not be visible from the outside.
Try to create a standardized look among branches that people can recognize. This is good for brand recognition.
7. Get the Right People
It is vital to have the right branch manager. Too often, banks put junior people with transactional mindsets in charge. They are cheaper, but they do not lead to profitability. Branch managers need to be experienced, with business development and service excellence mindsets…. Even if they don’t know that much about banking at first, they can fix this. It’s hard to change mindset, though.
Next, the branch manager needs to be involved, in the branch, meeting the customers, see what is going on, constantly coaching people in right direction. Central services should not go around the branch manager, for example, to train employees. They should work with the branch manager.
Change your staff if you need to. Do your bank employees behave more like Singapore airlines, or more like post office employees? You need open and friendly people with standards of service excellence. They need to know how to develop business.
8. Manage Change
You need to implement change management, because we are talking about a long history and strong culture, it will be hard to change. In some markets, you cannot fire people. But you can incentivize the right behaviour, even if this is sometimes difficult in high tax markets. In emerging markets, it’s hard to hold onto your people, much less impose change. But this is changing….
Again, the branch manager’s role is all-important. She or he has to provide leadership and make the difference. His or her role has to be more business-focused. Coaching, incentivizing, pressuring people to change, focusing on customer, focusing on business model, profitability.
A lot of banks say they want change but don’t stick to really implementing change. While you are being slow and inept, one of your competitors may figure out how to jump ahead of you. Why not jump ahead of your competitor first?
MCE can help you drive change in your bank branch network for better profitability. We offer consulting, coaching, development and in-company workshops.
Click here for an overview of trends and MCE services for the banking industry.