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Peak Performance Consulting Group
www.ppcgroup.com
March 13, 2014
Transforming Branches – and the
branch network
Retail banking is facing a difficult challenge…
 Consumers and businesses are changing the way they interact with financial
institutions, shifting to non-branch channels
 But customers still value branch convenience
― It is the most important factor in bank selection
― Branches are still the primary channel for customer acquisition and consultative sales for both
consumers and small business
 Significant opportunity to improve branch efficiency/reduce cost…
― Redefine the model: the right branch configuration to efficiently meet customer needs
― Enable more efficient service through improved technology
― Shift branch staffing toward more flexible, “Universal Banker” model
 …and grow revenue by refocusing away from declining transactions and toward sales
growth
 But banks must evolve their retail distribution strategies
― What kind of branches - and what kind of branch network – do we need for the future?
― Video banking, pop-up branches and other new formats: What is the “branch of the future?”
― Combining traditional, digital, and self-service – making it work on the front lines?
― Is the Universal Associate the answer to staffing retail branches?
Page 1
Our panelists…
Andy Harmening
SEVP, Regional Banking Group Head
Mark Iniguez
SVP, Director of Retail Network Strategy
Brent Tischler
SVP, Director of Channel Optimization
Page 2
“New Normal” requires change in strategy
 Primary role of the retail branch: drive customer acquisition and support consultative sales
― Drive new customer acquisition and provide sales and for existing customers
― Support business customers, who are more dependent on branch services
― Build and reinforce bank’s brand
 Customers still value branch presence:
― 64% identify branch convenience as primary reason for choosing their bank
― 61% still visit a bank branch at least once per quarter
 Channel preferences are changing
― Transactions conducted in bank branches are declining 5-6% per year due to direct deposit, debit,
electronic bill pay and other check displacement
― Transaction behavior and routine servicing shifting to other channels
 Shrinking branch traffic leaves fewer sales opportunities
― New accounts opened per branch FTE declined 23% since 1997
Page 3
20%
46%
34%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Branch dominant Multi Channel Web/phone dominant
Actual Channel Usage: Shifting Away from Branch
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Age 18-34 Age 35-54 Age 55+
Branch Preference Declining Among All Age Groups
(% listing branch as preferred banking method)
2008 2010 2012
Source: ABA Source: PNC Investor Presentation
The changing dynamic of how people bank means
the design of retail branches must evolve
 Redefine branch
operating model
 Enhance multi-channel
experience
 Migrate customers to
self service and digital
channels
 Reshape physical
distribution model
Page 4
Physical:
bank at the branch
Automated:
ATMs/self service grows
Virtual:
on-line, mobile
Personal:
omni-channel
Managing branch transformation
 Branches will be designed differently. They’ll be smaller, and fit into typical
retail footprints. There will be fewer free standing branches (less need for large
branches with drive-ups).
 Branches will be staffed differently. There will be greater utilization of
universal staff who can handle sales, service and transactions — we won’t need
as many tellers.
 Branches need different marketing support. Smaller, lower traffic branches
will be more like sales centers, and this means greater micro-market promotion
and calling efforts to improve trade area sales penetration.
 Successful financial institutions will have more robust front-line
relationship management technology to enable staff to deliver better
customer service, stronger profitable cross-sell, and achieve greater share of
wallet.
Page 5
Four new branch models emerging
 Programs actively underway at most major banks
 Early adopters are moving from pilot to rollout, with at least one “top 10” institution
planning to convert 15% of total branch network into Universal Banker model in 2014
 Driving down costs: 50-60% lower expense, 6+ months faster break even than traditional
model
Page 6
Archetype Typical
Size
Technology Staffing Utilization
Self Service 500-1,000
sq. ft.
• Full self service
• Advanced function ATM
• Video teller
• Full self service
• Not staffed, but may
have video teller link
for live support
• Urban core
Express 1,000-
2,000 sq. ft.
• Full self service or assisted
self service
• Concierge (1-2 FTE)
• No dedicated teller
• Urban core
• Rural replacement as substitute for
closing branch
Neighborhood 2,000-
3,000 sq. ft.
• Assisted self service or cash
recycler pods
• Video conferencing access
to business line partners
(business banking,
mortgage, investments, etc.)
• 3-4 Universal
Associates
• No dedicated tellers
• Urban core
• Suburban strip center and
neighborhood “life style” centers
• Rural replacement as substitute for
closing branch
Traditional 4,000+ sq.
ft.
• Cash recyclers to
supplement or replace
traditional teller lines
• Assisted self service in high
volume locations
• 6-8 FTE
• UA as component part
of total branch staffing
• Hub branch
• Center of expertise, staffed with
business line partners
Migrating transactions away from the teller line
JP Morgan Chase
 Deposits decreased 11% CAGR through
targeted efforts to increase self service
usage
 Branch staff decreased 20% (same store)
 Reinvested savings in new locations,
improved sales process to fuel growth
Large Regional Bank (>1,000 branches):
 Pilot to improve self service acceptance
resulted in 50% increase in deposits
through ATMs in test market
 Opportunity: 70% of all teller transactions
could have been done through self service
 Potentially shift 1/3 of branches to self-
service format
Page 7
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
% Consumer Deposit Transactions
through Tellers: Chase Bank
CAGR (11%)
90%
51%
Micro and mini branches provide very low cost, fill-
in opportunities
Page 8
1,250 sq. ft. Wells Fargo branch in Washington DC has
enhanced self service, walls that seal off consultation
rooms for 24 hr. access
Fifth Third 2,000 sq. ft. teller-less branch in downtown
Cincinnati
BofA branches with Video Teller Assist in Atlanta, Boston,
Charlotte, Dallas, Houston, New York
Temporary branches: go where the customers are
Page 9
PNC “Pop Up” Branch Frost Bank mobile branch
Create attraction: re-establish branch as a
destination, not an infrequent errand
Page 10
Branches don’t create their own gravity – they need intrusive programs to
drive traffic, providing opportunities for conversion
 Fewer customers visiting branches = fewer natural sales opportunities
 Smaller branches lose “billboard” impact
 PNC: Utilizing mobile stores, street teams and educational events to drive branch
traffic and acquire accounts at lower cost
 Umpqua Bank: hyper-local, branch based and community events drive traffic, create
engagement and sales conversion
Re-thinking staff efficiency and service delivery
 Issue is not whether teller staffing can be reduced or eliminated, it is how to
manage transformation
― Decreased need for specialized teller role
― Changes in branch mix requires staffing flexibility, not role rigidity
— Establishing the optimal configuration based on trade area potential and transaction
activity
— Defining the baseline for technology: how much (or how little) is needed to eliminate
barriers to change and prevent reversion to traditional roles
 Sales improve, when combined with the right marketing paradigm and
disciplined sales/service process
 Universal Associate model is not just a training program but a major shift in
focus, staff roles, and customer experience
— Branch design and technology
— Marketing
— Measurements, rewards and recognition
Page 11
Moving forward…
Managing the network mix
 What technology do we need?
 How do we manage the overall mix of branch types (large, small, mini, etc.)
 Balancing lease vs. own, CRA and other requirements
Managing the customer transition
 Many customer use branches because they like personal interaction, or at least
the opportunity to interact
 Too much change can be disruptive: Banks have tried new designs before, and
results have often been disappointing
— WAMU’s converted over 1,000 branches to its’ patented Occasio design, but many
customers found it too “different” and confusing
Managing the staff transition
 New roles require new skills and new career paths
 Not everyone will be happy: “Bank of America Tellers Picket ATM Machines”
(ABC News, November 23, 2013)
Page 12
Thank you ….
Page 13
Peak Performance Consulting Group
David Kerstein, President
512-607-6332
dkerstein@ppcgroup.com
www.ppcgroup.com

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Tranforming Branches and the Branch Network

  • 1. Peak Performance Consulting Group www.ppcgroup.com March 13, 2014 Transforming Branches – and the branch network
  • 2. Retail banking is facing a difficult challenge…  Consumers and businesses are changing the way they interact with financial institutions, shifting to non-branch channels  But customers still value branch convenience ― It is the most important factor in bank selection ― Branches are still the primary channel for customer acquisition and consultative sales for both consumers and small business  Significant opportunity to improve branch efficiency/reduce cost… ― Redefine the model: the right branch configuration to efficiently meet customer needs ― Enable more efficient service through improved technology ― Shift branch staffing toward more flexible, “Universal Banker” model  …and grow revenue by refocusing away from declining transactions and toward sales growth  But banks must evolve their retail distribution strategies ― What kind of branches - and what kind of branch network – do we need for the future? ― Video banking, pop-up branches and other new formats: What is the “branch of the future?” ― Combining traditional, digital, and self-service – making it work on the front lines? ― Is the Universal Associate the answer to staffing retail branches? Page 1
  • 3. Our panelists… Andy Harmening SEVP, Regional Banking Group Head Mark Iniguez SVP, Director of Retail Network Strategy Brent Tischler SVP, Director of Channel Optimization Page 2
  • 4. “New Normal” requires change in strategy  Primary role of the retail branch: drive customer acquisition and support consultative sales ― Drive new customer acquisition and provide sales and for existing customers ― Support business customers, who are more dependent on branch services ― Build and reinforce bank’s brand  Customers still value branch presence: ― 64% identify branch convenience as primary reason for choosing their bank ― 61% still visit a bank branch at least once per quarter  Channel preferences are changing ― Transactions conducted in bank branches are declining 5-6% per year due to direct deposit, debit, electronic bill pay and other check displacement ― Transaction behavior and routine servicing shifting to other channels  Shrinking branch traffic leaves fewer sales opportunities ― New accounts opened per branch FTE declined 23% since 1997 Page 3 20% 46% 34% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Branch dominant Multi Channel Web/phone dominant Actual Channel Usage: Shifting Away from Branch 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Age 18-34 Age 35-54 Age 55+ Branch Preference Declining Among All Age Groups (% listing branch as preferred banking method) 2008 2010 2012 Source: ABA Source: PNC Investor Presentation
  • 5. The changing dynamic of how people bank means the design of retail branches must evolve  Redefine branch operating model  Enhance multi-channel experience  Migrate customers to self service and digital channels  Reshape physical distribution model Page 4 Physical: bank at the branch Automated: ATMs/self service grows Virtual: on-line, mobile Personal: omni-channel
  • 6. Managing branch transformation  Branches will be designed differently. They’ll be smaller, and fit into typical retail footprints. There will be fewer free standing branches (less need for large branches with drive-ups).  Branches will be staffed differently. There will be greater utilization of universal staff who can handle sales, service and transactions — we won’t need as many tellers.  Branches need different marketing support. Smaller, lower traffic branches will be more like sales centers, and this means greater micro-market promotion and calling efforts to improve trade area sales penetration.  Successful financial institutions will have more robust front-line relationship management technology to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet. Page 5
  • 7. Four new branch models emerging  Programs actively underway at most major banks  Early adopters are moving from pilot to rollout, with at least one “top 10” institution planning to convert 15% of total branch network into Universal Banker model in 2014  Driving down costs: 50-60% lower expense, 6+ months faster break even than traditional model Page 6 Archetype Typical Size Technology Staffing Utilization Self Service 500-1,000 sq. ft. • Full self service • Advanced function ATM • Video teller • Full self service • Not staffed, but may have video teller link for live support • Urban core Express 1,000- 2,000 sq. ft. • Full self service or assisted self service • Concierge (1-2 FTE) • No dedicated teller • Urban core • Rural replacement as substitute for closing branch Neighborhood 2,000- 3,000 sq. ft. • Assisted self service or cash recycler pods • Video conferencing access to business line partners (business banking, mortgage, investments, etc.) • 3-4 Universal Associates • No dedicated tellers • Urban core • Suburban strip center and neighborhood “life style” centers • Rural replacement as substitute for closing branch Traditional 4,000+ sq. ft. • Cash recyclers to supplement or replace traditional teller lines • Assisted self service in high volume locations • 6-8 FTE • UA as component part of total branch staffing • Hub branch • Center of expertise, staffed with business line partners
  • 8. Migrating transactions away from the teller line JP Morgan Chase  Deposits decreased 11% CAGR through targeted efforts to increase self service usage  Branch staff decreased 20% (same store)  Reinvested savings in new locations, improved sales process to fuel growth Large Regional Bank (>1,000 branches):  Pilot to improve self service acceptance resulted in 50% increase in deposits through ATMs in test market  Opportunity: 70% of all teller transactions could have been done through self service  Potentially shift 1/3 of branches to self- service format Page 7 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 % Consumer Deposit Transactions through Tellers: Chase Bank CAGR (11%) 90% 51%
  • 9. Micro and mini branches provide very low cost, fill- in opportunities Page 8 1,250 sq. ft. Wells Fargo branch in Washington DC has enhanced self service, walls that seal off consultation rooms for 24 hr. access Fifth Third 2,000 sq. ft. teller-less branch in downtown Cincinnati BofA branches with Video Teller Assist in Atlanta, Boston, Charlotte, Dallas, Houston, New York
  • 10. Temporary branches: go where the customers are Page 9 PNC “Pop Up” Branch Frost Bank mobile branch
  • 11. Create attraction: re-establish branch as a destination, not an infrequent errand Page 10 Branches don’t create their own gravity – they need intrusive programs to drive traffic, providing opportunities for conversion  Fewer customers visiting branches = fewer natural sales opportunities  Smaller branches lose “billboard” impact  PNC: Utilizing mobile stores, street teams and educational events to drive branch traffic and acquire accounts at lower cost  Umpqua Bank: hyper-local, branch based and community events drive traffic, create engagement and sales conversion
  • 12. Re-thinking staff efficiency and service delivery  Issue is not whether teller staffing can be reduced or eliminated, it is how to manage transformation ― Decreased need for specialized teller role ― Changes in branch mix requires staffing flexibility, not role rigidity — Establishing the optimal configuration based on trade area potential and transaction activity — Defining the baseline for technology: how much (or how little) is needed to eliminate barriers to change and prevent reversion to traditional roles  Sales improve, when combined with the right marketing paradigm and disciplined sales/service process  Universal Associate model is not just a training program but a major shift in focus, staff roles, and customer experience — Branch design and technology — Marketing — Measurements, rewards and recognition Page 11
  • 13. Moving forward… Managing the network mix  What technology do we need?  How do we manage the overall mix of branch types (large, small, mini, etc.)  Balancing lease vs. own, CRA and other requirements Managing the customer transition  Many customer use branches because they like personal interaction, or at least the opportunity to interact  Too much change can be disruptive: Banks have tried new designs before, and results have often been disappointing — WAMU’s converted over 1,000 branches to its’ patented Occasio design, but many customers found it too “different” and confusing Managing the staff transition  New roles require new skills and new career paths  Not everyone will be happy: “Bank of America Tellers Picket ATM Machines” (ABC News, November 23, 2013) Page 12
  • 14. Thank you …. Page 13 Peak Performance Consulting Group David Kerstein, President 512-607-6332 dkerstein@ppcgroup.com www.ppcgroup.com