With all the continuing financial pressure on banks, it was surprising to learn yesterday that Citigroup plans to continue to open new branches, despite its rising expenses.
What Citigroup needs — as do many banks — is a more enlightened approach to branch banking. I’m expecting that to be one of the major themes of 2012.
It is simply impossible for banks to consider their branches without also pondering the entire gamut of their retail banking operations. Online banking and mobile banking, in particular, have already changed how consumers view their banking practices (and the fees they pay — a topic I will address in a future blog). Banks should, too.
One bank that clearly understands this change is U.S. Bancorp. Richard Davis, U.S. Bancorp‘s chairman, yesterday laid out his principles for branch banking, and they deserve investigation. First, Davis said banks need to understand the changes in consumer behavior.
First of all, the transaction activity in the branches more likely, I think, we all agree is going to come down. People have, with mobile banking and just changing behaviors, they don’t see the need to come into a branch as often as they used it to meet with the teller for a nonconsultative activity just to move money across the counter.
Because of this, Davis said, banks need to change their branches’ DNA.
I think we also see an entirely higher value of this guidance-giving consultative role that you have for an investment decision, a trust, a long-term family trust, an opportunity to buy a home. And in this case with interests low, you can’t see the value of what branches will become when rates start to move up again. And the traditional old-fashioned CD, which just rolls over on its own, starts to become less attractive like it was 5 or 6 years ago because there is a less-insured alternative in a mutual fund or an annuity that really deserves a lot of conversation and some eyeball-to-eyeball opportunity or branches will kick in big time and will have all kinds of opportunities for them to become more effective.
So what should banks do practically? Here’s Davis’s recipe:
- Shrink the teller line;
- Increase the privacy areas;
- Change your hours to make the bank more available to people when they need to come and talk about something private and personal; and
- Change the branch’s staffing composition accordingly.
But Davis emphasized that branches still serve a profound need.
[Y]ou still have those locations on the corner of Main and Wall, I guess, for people to come in and do what they can’t do over the phone, and probably for a long time, won’t want to do online.
2012 will be the year when banks — other than Citibank, it seems — will start transitioning their branch banking strategies. The transactional model just doesn’t work anymore. The faster banks realize this, the better.
Face-to-face with a “prospect” for a product gives a well trained sales person the best opportunity to identify the prospects true needs, concerns, and potential objections. It is that conversation that can also project the sales person’s enthusiasm for the product. And it can protect the sale from buyer’s remorse as can happen with annuities when the purchasers family finds out that they might not receive as much of an inheritance as they believe that they deserve and try to talk the annuitant out of the product.
With regard to credit underwriting, it can be part of the process only if the interviewer is a qualified underwriter. Of course, you might remember that the banking industry pressured Congress to keep the “bank mortgage loan” staff, from being licensed and externally qualified – so why would the public want to listen to them? However, to answer your question – in the event that a bank sales person with some underwriting skills was involved with a prospect, at least the salesperson could try to sell their bank mortgage loan product and explain their pricing. If the salesperson was also trained a little more in mortgage underwriting, the salesperson could help the prospect with a Q&A, provide a checklist of helpful info for the prospect to provide and add items to the list that are generated from their unique conversation. This is very true for self-employed applicants or people that have changed jobs because they have a unique skill and are in high demand for employment.
While the same is true for other consumer credit sales, any underwriting skills could help the bank source credit especially in persuading a customer to transfer a loan from another bank or finance company. Example, If the customer has a car loan with a car finance company, most likely the interest rate is higher than it need be and swiching the loan could be easy. But it is hard to have the look of confidence in saying that when you are not familiar with the current underwriting criteria.
While the big banks have removed most underwriting out of their branches, they are missing a very subtle organizational development opportunity. On Maslow’s Heirarchy of Need, self-esteem (recognition) is the 4th level. In banking, the loan officers are part of the inner circle clique – especially for men. Credit is their testosterone. When recruiting for top level employees for branches, the salary cost to persuade a branch employee at a bank where they make loans to go to a bank where they do not make loans and will give up that skill, will be extremely high.
A branch manager with credit and sales skills will develop a very profitable branch quickly. And they can help their community by providing credit when the algorithm at credit central does not factor in criteria that was not on the input sheet because the prospect was not interviewed.
I am not lobbying for placing underwriters in the branches because few branch administrators today would know how to use them – stealth power is only for the first class organizations that want organic growth.