From the pages of In Business magazine.
Pundits have been writing eulogies for print media for a couple decades now, but you’re likely still reading this article in a glossy paper copy of In Business magazine.
Print’s not dead and neither, if local financial experts are to be believed, is the retail branch of your local bank or credit union.
That’s not to say there still aren’t naysayers about the branch model. “Retail bank branch is doomed, and banks don’t know it — 33% of millennials say they won’t need a bank in 5 years: Goldman Sachs report,” was the headline of a 2015 CNBC article on the subject. However, such bold proclamations aren’t stopping credit unions and banks in Dane County from opening new branches — they’re just being a little smarter about it.
Providing in-person and online accessibility to meet current and future consumer demands is a fine balancing act, local financial leaders say, not least of which because of how it affects staffing and employee roles.
“There is no question that technology, including artificial intelligence, improves the efficiencies of financial institutions,” notes Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association. “We’re all bombarded every day in terms of information about technology improvements and how we can take advantage of them, but people predicted years ago that branches were going to die and they are not. They are just different than what they were before. They have a smaller footprint than they used to have, and part of that comes from technology. You can interface with your financial institution in so many digital ways today and that has affected how we connect with our banks.
“Even that by itself has changed bank employment,” Oswald Poels continues. “You don’t have as many tellers today compared to what you once did because the branch traffic is different. I know there is talk about the use of artificial intelligence, for example, to help banks become more compliant in the forms they have to produce and things of that nature, but I don’t believe it’s going to result in no human interaction for various aspects of banking service. It might change the composition of employment that we have in our financial institutions, but it’s still too early to tell. Banks are in the trust business with consumers, and it’s very hard to have a trusted relationship with a computer, as opposed to a human being.”
Brett Thompson, president and CEO of the Wisconsin Credit Union League, agrees. “There is no doubt that in the years that lie ahead we, as a society, will see interesting changes in not only how we work but also the jobs that we’ll be doing,” Thompson says. “Although it’s always good to be aware of these developments and people’s sense of what the future holds, I’m not aware of credit unions that are on the verge of reducing their workforce because of artificial intelligence or other technology. Often what it does is free up individuals to do other things than what they previously had done, all of which is critical to the health of the credit union.”
Branch management
None of the local financial experts IB spoke to for this article disagrees with the notion that online and mobile banking are the future of the industry. They’re also quick to point out, however, that retail branches aren’t a relic of the past.
UW Credit Union, for example, has experienced annual asset growth of 55% over the past five years, says Brad McClain, executive vice president and CFO, and expects to see similar growth in the future. With 24 existing branch locations, UWCU plans to add one this month at Middleton High School and another one in New Berlin in May.
Almost all banking activities today can be handled entirely or in part online, particularly those that are more transactional, acknowledges McClain. Making loan payments, depositing checks, transferring funds, or making payments are increasingly done online. In fact, more than 40% of UWCU’s check deposits are now made via smartphone versus in branch.
However, “each year we are welcoming about 11,000 additional checking customers, and even if only 30% have a need to visit a branch location in a given month, we need to provide the space to help them,” McClain explains. “So when looking at new locations, the decision criteria often takes into account both existing trends, growth results, and our assumptions about the future.
“Up to this point we think a lot of the changes we’ve seen in the financial institution branch format have been about cutting costs rather than enhancing the customer experience,” McClain continues. “We are keeping abreast of industry trends, but will strongly give preference to the customer experience. Our branches are full feature, allowing members to choose how they want to interact with us, whether it be by drive-through, in-branch ATM, teller, or to see one of our financial specialists for a face-to-face consultation.”
McClain notes UWCU staffs a “Welcome Help and Assistance” desk that is prominent as guests enter branches and enables members to either seek out the best service option based on their needs or to conduct a number of common transactions right there at that location.
“The way people use branches is changing; it’s less for simple transactions like checking balances, depositing checks, or transferring funds, which can be done easily via digital channels,” adds Kim Sponem, CEO and president of Summit Credit Union. “Today, more and more of our in-branch interactions with members and prospective members are about discussing their financial needs and how we can help them plan for and achieve their goals. In many cases, our branch staff really act as financial coaches for our members, providing guidance, tools, and financial education.”
Summit has added 10 branches in the past five years via acquisition or new construction, and now operates a total of 33 branch locations, notes Sponem. Its latest new branch opened in Monona in December.
“As you would expect, older members tend to use our branches a bit more and younger members tend to use online and mobile banking more, but we see members of all types, of all ages, and with all sorts of needs interacting with us in an ‘omni-channel’ fashion — that is, across multiple channels,” says Sponem. “The same member may do lots of day-to-day transactions on their phone, but come in when they want to discuss a new home purchase, planning for college or retirement, or buying a vehicle, for example.”
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Part of the way banks and credit unions stay relevant with their brick-and-mortar locations is by building new and renovating existing branches in deference to the types of services that are relevant to modern customers.
“If you were to come into either of our branches you would immediately see that our branches are not like a legacy bank,” explains David Fink, founder and president of Settlers bank. “We have universal banking stations — think teller and retail banker combined into one position in the bank. These individuals are situated in a relatively private, yet visible position in the bank in a comfortable, sit-down environment.
“We also designed our branches to be ‘recyclable,’” Fink continues. “This means if we were to choose to pick up and leave, it would be likely that another professional type of business could easily move right into our building with very little disruption. Our facilities are comfortable yet very conducive for business. We use technology to its fullest, which is what the financial consumer is looking for.”
“As Dave points out, legacy branches were built for high-volume, low-value transactions,” notes Tom Spitz, Settlers bank’s founder and CEO. “Our locations are designed around private and professional interaction that customers are looking for when they take the time to actually come to the bank. We do not have teller lines where privacy is a challenge and customers need to stand in line. Each in-person interaction occurs in partitioned offices or meeting rooms to optimize comfort and privacy.”
Settlers bank is unique in the Greater Madison marketplace because it’s still a young financial institution. Opened a decade ago at the height of the Great Recession, Finks says Settlers’ initial goal was just to get the bank to profitability.
“For a brand new bank that had just raised $10 million in capital, the way to do that was by putting together a strong commercial loan portfolio,” Fink explains. “In the beginning, it was just Tom and I doing the lending. As we were able to grow our loan business, we had to increase our lenders, which eventually allowed us to add an additional team focused on retail banking.”
Settlers bank, he adds, built itself around the changing landscape of banking where customers want powerful technology to remotely access their accounts, and bank lobbies staffed with experienced bankers when they choose to stop in. “This model requires fewer branches and allows for us, as our staff continues to grow, to house them in locations that expand our geographic reach for our client base.”
“When we choose to open a new location, it will be driven by need,” notes Fink. “In our most recent expansion on Old Sauk and the Beltline, we needed more physical space to accommodate the number of people working for us. We used that as an opportunity to create a location closer to a cluster of existing clients and other professionals that we do business with. Most of our staff can work anywhere. We are not set in the traditional mold that says everyone in one department must work at whatever address. We want the best people working with us so if that can be from their home in Marquette, Mich., then that is fine with us.”
“Branches are not inexpensive to build and run, but they are fundamental to Associated Bank and the industry as a whole,” notes David L. Stein, executive vice president, head of consumer and business banking for Associated Bank. “Overall, the count of bank branches nationwide has started to decline in the past few years after growing for decades. We’ve been a bit ahead of that curve, but feel pretty good about the size of our current network relative to customer needs and other factors.”
For a number of years, branch expansion seemed to go largely unchecked, both nationally and closer to home in the Badger State. Advances in technology and the Great Recession put a halt to that, however. Now, notes Stein, financial institutions are seeking ways to integrate technology with the in-person experience that some transactions still thrive on.
“While customers expect the latest technology in digital banking, our customers continue to use our branches,” Stein says. “While the volume and frequency of branch visits may be declining on a modest basis year over year, our customers are still using the branch channel. Yes, even millennials. Eighty-nine percent of our millennial customers will visit a bank branch sometime in the next year, with over 42% visiting more than six times a year. Branch visits are becoming more meaningful as customers move away from simple transactions and toward seeking personal service and expert advice.”
In addition to updating its branches, Associated continues to invest in technology, Stein says. “All of our Madison branches are equipped with image-enabled deposit automation ATMs. We are also currently testing Interactive Teller Machines — essentially video tellers with cash handling capabilities more advanced than typical ATMs.”
These ITMs are being tested in 10 locations, with four in the Madison area. In each of the Associated Bank branches with ITMs, a live teller is available on-site during normal business hours if that’s what the customer chooses. One of the main value propositions for ITMs is their after-hours availability, as they are staffed from 6 a.m. to 8 p.m. Monday through Saturday. “Over 33% of our ITM transactions are conducted after hours, which we feel is a real value to our busy customers,” Stein says. “Privacy is one of our main concerns whether our customers are talking to a live teller through an ITM or face-to-face. We provide privacy screens and handsets to help ensure privacy.”
Summit is also experimenting with personal video tellers to see how they fit into the credit union’s future branch plans, notes Sponem, though both Settlers and UWCU have so far resisted the temptation to add the latest branch tech.
“Customers who come to one of our locations are looking for a personal interaction,” says Settlers’ Spitz, “so while we’ve explored the possibility, we do not want to diminish that goal with the use of video.”
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Online appeal
The rise of online-only banks has added a new competition wrinkle to the financial equation, but only to a point, says our panel of local financial experts.
“We closely monitor our competition, including online-only financial institutions,” says McClain. “The challenge for online-only institutions is for them to offer anything unique. So far we’ve been able to keep up with the online features and functionality, and in addition offer physical locations and help over the phone. Online-only providers seem to appeal to a niche group of consumers. Very few of them offer a full range of services so their appeal is their convenience and focus on a more limited array of products and services.”
According to McClain, what really drives consumers today is demonstrating that you know them by anticipating their needs and preferences, and often that involves systems and technology. Being courteous is still important, even though many members infrequently interact with a UW Credit Union employee. However, when the need arises, UWCU wants to make sure its staff has the technology to understand a member’s relationship with the credit union and quickly meet their needs.
The digital channel evolution is primarily driven by how consumers want to conduct financial business, notes Sponem. “We look at where our digital presence can add value to consumers either with transaction ease-ability, financial education and budgeting, or managing money overall.”
Summit recently added a new, robust personal financial management tool, available on both desktop and mobile banking platforms, called MoneyMinder. This tool allows members to set up goals, track progress, and organize their financial accounts from any institution under one umbrella.
“We also launched a new app for home buyers, Summit CURB, which allows people to shop for available homes, check mortgage rates, connect with Summit, and track the progress of their mortgage loan application,” Sponem says. “Most of our members prefer to know there is a local branch even if they don’t use it often. Many of our members prefer face-to-face interactions for more complex transactions like applying for a home loan. As a result, competition of online-only financial institutions hasn’t been an issue for us.
“We find that most of our members use a lot of the digital channels really frequently in conjunction with visiting our branches or accessing our contact center.”
The financial industry’s mobile platforms started with balance inquires only and have now grown to include deposits, transfers, and loan applications, notes Spitz. Settlers bank started with a comprehensive platform plus commercial remote deposit capture and then added mobile deposit as soon as it became available. “Banks do have a regulatory obligation to positively identify each customer but once that is done loans can be finished online also. There is seemingly no end to what can be done electronically as the technology evolves. While there are a variety of payment platforms available today, the biggest push right now is to develop a simple and secure person-to-person payment platform that gains universal acceptance and use.”
Online-only service once competed on rate alone, occupying a niche within the industry, continues Spitz. “Our app-driven world may allow this model to expand, but apps are only as good as the questions and interactions that were imagined in their creation. People’s lives do not always work that way, so Settlers bank will always have a market. We do not take competing threats lightly though, as we, too, were disruptive when we entered the market 10 years ago and forced a number of competitors to step up their games. It’s exciting to think where this sense of online competition may take Settlers bank in the future. Frankly, we like the challenge.”
Online-only banks are growing, but they still command a very small percentage of overall market share, notes Associated’s Stein. “We have customers who come to us from online-only banks. Often it’s because they aren’t receiving the personal service they need, and that online-only banks can’t offer. Add a layer of complexity like mortgage or wealth management and good luck.”
Stein says Associated is staying ahead of the curve with its own online offerings, too. “We have some very exciting changes coming in 2018 for our online and mobile channels. Touch-screen control, biometric authentication, photo bill pay, and personal financial management are just some of the features we will be rolling out in Q1.
“We pay very close attention to generational differences and demographics,” adds Stein. “Boomers use the branch the most often and millennials are the biggest adopters of mobile, but the differences are really not that stark. Boomers are the fastest-growing adopters of mobile technology, and we know that our younger customers continue to use the branch. Our younger customers may open a checking account online and rarely visit the branch, but then life changes. Marriage, family, a new home, and retirement planning are all reasons to visit a branch to get that expert advice that brings peace of mind.”
“At Summit, we don’t believe that ‘the branch is dead,’” adds Sponem, “as we see our branches as an important way to connect with people. We see branches as a way to help more people save and plan for their future. Any business needs to adjust as consumer preferences change and evolve. Banking is much different today with all the online capabilities. It will be even more different in five years and 10 years. We will change as our member needs change.”
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