The bank branch as we know it is in need of reinvention. Most customers now carry a bank in their pockets in the form of a smartphone, and visit an actual branch only to get cash or occasionally advice.
Globally, financial institutions now process far more transactions digitally than in branches, and the GCC is no different. Since 2015, growth in branches in the region has slowed down or even declined. In the U.A.E. the number of branches reduced by 6% year-on-year between 2015 and 2017, and a further 2% in the first half of 2018.
Despite such systemic changes, research shows that between 30% and 60% of customers prefer doing at least some of their banking in branches. In the Middle East, while customers value the speed, convenience and security provided by digital channels, they still turn to people for advice and ask for assistance when acquiring a new banking product.
Changing customer behavior and the emergence of new technologies do not spell the end of branches, but rather the dawn of smart branches, which use technology to boost sales and significantly improve customer experience. When done right, the concept can result in a 60% to 70% improvement in branch effectiveness, as measured by cost savings and increased sales.
Making branches smart is not a matter of simply installing new machines. The transformation builds on the seamless integration of branch technology, the adoption of desk-free branch formats and the use of advanced analytics to improve operating models.
A number of technology solutions can enable these goals, such as next-generation banker tablets, interactive teller machines, service terminals, video conference rooms and interactive welcome screens.
In a traditional bank branch, 70% of the floor space is devoted to tellers and other assisted sales and servicing areas, with 30% dedicated to self-service. Smart branches flip this and have a significantly smaller, simpler and more streamlined footprint. Instead of wandering around, customers are immediately approached by an employee who guides them to an intuitive piece of technology or assists them directly on their tablet.
Digital technology should not be an add-on to existing practices and processes, it should be built into interactions and day-to-day work. The goal should be to migrate more than 90% of simple customer activities to assisted or self-service formats, to have simple and unified paperless processes for sales and service, and to use next-generation analytics to deliver personalized offers for customers.
Almost all branch employees will be multiskilled sales/service bankers, and will spend 90% of their time on targeted, analytics-driven activities. Digital tools can improve the performance of branch employees and the branches themselves, from digital huddle boards defining daily goals and strategies to self-reported performance metrics from sources such as ITMs and tablets.
With the right tools and models in place, bank branches can deliver radically improved customer experiences. The bottom-line impact will also be significant considering that physical branches account for the majority of a bank’s operating expenses.
Far from rendering the bank branch obsolete, technology holds the key to the branch of the future. To reap the full value potential, a bank needs to fully commit to the smart branch model, equipping its bankers—and their branches—with the tools they need to succeed.
Sheinal Jayantilal and Georgi Konov are Partners at McKinsey & Company
Muthanna Muslet is an Associate Partner at McKinsey & Company