This article co-incides nicely with my own observation, while wandering around Manhattan this week.  The article is contradictory – it says:

1. the best customers are using electronic channels less and less
2. the “worst” customers are using branches

The article goes on to state that banks are building boutique branches, with comfortable seats, LCD tv’s etc.  I saw those and they are still empty.

Relevance to Bankwatch:
More on the role of branches, and the link to strategy to come, in future posts.

TheStar.com – Big bang in retail banking

Banks have a problem. More and more, their most profitable customers are not coming into their branches. As a result, banks are looking to pilfer concepts from the world’s most powerful retail stores. Plasma TVs, plants and comfy chairs are popping up in branches.

One American bank has created branches with an interior design rivalling high-end Toronto restaurants and boutiques. And it has its own ice cream truck.

According to a study released yesterday, banks around the world expect “remote channels” — mostly websites — to deliver 33 per cent of their sales in 2010, up from six per cent in 2000.

“This trend holds true for all kinds of products, from simple current accounts to more complex mortgages and insurance products,” said the 2006 World Banking Report, by Capgemini, ING Group and the European Financial Management & Marketing Association.

It’s “really the biggest shift we’ve seen,” said Kathy Kalafatides, of consulting firm Capgemini Canada.

“People are not going in to cash cheques anymore.”

She notes that the Internet is catching up to automated teller machines when it comes to service. ATM use is expected to remain steady until 2010.

Meanwhile, the job of bank employees is shifting rapidly away from transactions — like stamping deposit slips — to selling.

But while bank employees now have more time to interact with customers in branches, they have fewer customers to interact with, the report said.

“Furthermore, the customers who do visit represent the wrong segment,” it added.

“Research shows that profitable clients move more rapidly to alternative channels than their less desirable brethren.”

“Some of the most profitable clients don’t even step into branches,” Kalafatides said.

So, while banks are investing in alternative sales channels like the Internet to keep up with customer demand, they also “have begun to reinvest, reposition, reshape and retool their branches to increase their value and attract more profitable clients,” the report said .

It’s all about creating a “customer experience,” said Kalafatides.

Portland, Ore.-based Umpqua Bank, for example, has won accolades for its computer cafes with free Internet access, free coffee and flat-screen TVs delivering financial news.

“Every aspect of Umpqua’s delivery system is designed to create an experience for customers, in which they are assured that their banking needs will be addressed by a proactive, capable staff in a setting that is anything but bank-like,” the bank said in a press release.

Umpqua has its own ice cream truck, part of the bank’s “handshake marketing” concept that stretches the traditional boundaries of reaching customers.

In Canada, “there are many banks that are either investigating or adopting retail concepts,” said Capgemini’s Steven Luckie.

Banks are tired of cost-cutting, Kalafatides said.

They are turning now to exceeding customer expectations in order to boost their revenue.

There are “tremendous changes under way,” the report said, and they stretch beyond branch environments to bank employees and the way that branches and the Internet play off of each other.

Researchers are looking at the language employees use — for instance, saying “we” and “I” instead of “the bank” or “they” when talking to customers — and even their body language, Kalafatides said.

The biggest challenge branches face is the shift away from transactional tellers to a focus on financial advisory services, Luckie said, adding the move requires new training, hiring and compensation programs. “The products are much more complicated now,” Kalafatides said.

“Not only do they need a lot more product knowledge, but people are asking for advice.”

And as the branch networks evolve, banks need to start building technology that gives them a clear picture of their customers, Luckie said.

That includes bringing together information the bank holds on a customer in its retail, insurance or wealth management divisions, and then using it to know when clients will be in need of a product — rather than pitching products at random times. “For instance, if I’m online looking at mortgages, is the bank alerted?” said Kalafatides. “Do I receive a phone call a week later?”

Privacy is an obvious concern, as are stipulations regarding banks’ selling insurance products at their branches.

But, “when you have a more intimate relationship with a client, the opportunity for them to opt in (to sharing and receiving information) is much higher,” Luckie said.

“Ultimately, it’s going to be the customer (who) dictates the direction the company takes.”