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BirdsEye View

 Thanks to the many of you who wrote after my article about distribution was published. It is obviously an issue that so many are struggling with in today's volatile environment. Technology is upon us, but it moves so fast that it's difficult to read which apps will be the winners. Here are the basic facts:  

• 90% of daily transactions are executed electronically (even if written as checks)
• Countless services and products are now available in a "self-service" mode that weren't so a mere decade ago. Examples: Airline tickets, music, books, movie tickets, hotel and restaurant reservations, personal loans, jobs, photo printing services etc.
• The pace of technology adoption is accelerating rapidly. It took the airplane 68 years to reach mass adoption (defined as 50 million users). It took television 22 years, the iPod 3 years, and Facebook only 2 years to do the same.
• 93% of US population owns a mobile phone; 99% of mobile users view their bank balances on the phone, and 90% view transaction details weekly
• >50% of iPhone users have used mobile banking in the last 30 days
• Approval speeds for bank products have kept pace with the technology. For example, a credit card application typically took 14 days in 1980 to process; today approval is instant
• 70 million households use online banking, and 64 million pay at least one electronic bill

Part of these amazing statistics is attributable to the movement toward self-service, which many customers consider a value-add.  Self-service means to most people a sense of control and power.  Today's technology allows customers to be better informed and get better deals by self-service, thereby save money and find solutions that suit them best, which ultimately contributes to their well-being.

Unfortunately, banks have rarely organized around customer needs or wishes, and therefore are silo-ed both by product and by distribution channel.  The current organization structure and traditional thinking further frustrate change.  This, coupled with technology uncertainty, makes us laggards in retail distribution, as compared to other retailers.

Larger banks and high-tech companies such as Google can afford to dedicate resources to innovative thinking.  Most bank executives feel their institutions are too small to be able to carve out resources toward that end. Regardless to your decision on whether to allocate your associates' mindshare to innovation and improving the business, the rapidly evolving distribution paradigm cannot be ignored, especially given the costs involved in maintaining all channels at the current levels.

What can SuperCommunity banks do to capitalize upon this rapid shift in customer behavior and preferences?  The opportunities are significant for banks of all sizes.

1. Appoint a customer champion to manage all channels.  I have advocated appointing a Payments champion to ensure that the bank's various payments income streams are effectively managed and optimized.  I recommend a similar action here.  There are many channel biases among bank executives.  Putting a person at the helm whose job is not to optimize one channel or another but bring the entire bank to bear across channels and in consideration of customer preferences is a good starting point to channel optimization.

2. Accept that the role of the branch must change.  The branch cannot continue its current functionality, which has limited value-add, lest it becomes a transaction mortuary.  Instead, the branch needs to become a storefront to the bank, a brand banner and an effective sales outlet to a broad range of bank services in a value-add mode.

3. Consider out-of-the-box branch formats. There is much to learn from retailers here.  One example is the Andaz hotels, which eliminated reception desks altogether.  Instead, several young associates roam about the lobby with hand-held devices that are used to check the guest in and produce a key.  Banks don't necessarily have to duplicate the technology, but they surely can take the idea of eliminating boundaries and changing the atmosphere in the lobby and adapt it to the banking environment. A good example of an accepted different format is college branches, which are quite different from regular branches yet are widely accepted.  Why not consider other different formats for other unique locations - hospitals, large office buildings, retirement homes, boat shows etc.  This is not a new idea; it just requires more focused thought and execution. Much like Best Buy realized it can't have huge stores everywhere, banks need to rethink their network as a combination of formats, ranging from an airport kiosk and a booth at an auto show to a large hub with several cohabitating sales forces.

4.   Physical distribution is about real estate.  Ray Kroc, McDonald's founder, used to say that he is in the real estate business, not in the burger business.  Vernon Hill had the same idea when he built Commerce Bank, and the proof of the pudding was the success of his franchise despite the huge real estate costs.  Kroc said his stores were positioned to maximize visibility, flow of business and future capital gains from the real estate. This is quite different from the traditional branch placement decisions many banks made.  Keep his paradigm in mind as you rationalize your branch network, and add ideas to it such as the hub and spokes (a-la Virgin Megastore)

5.   Rethink the branch customer flow and customer experience.  There is a delicate balance between innovation and functionality.  Remember the Occasio branch?  Great idea but customers were too confused to find their way to the teller line.   Unorthodox co-branding such as Starbucks and banking met with limited success.  Others that remained true to their brand, such as Frost Bank in Texas with its Frost Room, which feels like a living room and offers both technology and tranquility[LB1]  , found ways to successfully innovate within the brand framework.  Deutsche Bank developed an interesting concept called Q110 which combines the mobile technology of Andaz with active bank product marketing through a TestBar (computers with on-screen product tutorials) and other interesting features.  The key is not to reduce branch traffic, but to make the most out of customers who do come in by creating value add for them and for the shareholders through effective needs-identification and sales.  This concept isn't new, but has met with execution difficulties across the industry.  It is time to resurrect it as you reconsider the number, footprint and flow of your current branches.