Branch transformation by design, part 1: 'Why?' 'How?' 'Who?'

In the first decades of the 20th century, American architect Louis Sullivan designed nearly a dozen banks in the upper Midwest, adhering to his famous philosophy that "form follows function."

If Sullivan were designing those banks in 2017, they would look altogether different.

Today, bankers are being challenged to rethink both function and form as they undertake branch transformation. The topic headlined a keynote session, Branch design: Built environments for a new era in banking, sponsored by Nautilus Hyosung America, at last month's Bank Customer Experience Summit in Chicago.

In a three-part series, we'll look at three perspectives from that session, starting with a presentation by Cathy dePasquale, senior vice president of Flushing Bank in New York.

Adapting to the speed of change

Several years ago, Flushing Bank executives realized that technological change was occurring at a speed the industry had never before experienced — and that the pace was only accelerating.

"It took — what? — 30 years for the ATM to become a mainstream channel," dePasquale said. "It took about three minutes for mobile banking to become a preferred channel of banking. I exaggerate, but you get my point."

Additionally, she said, real estate costs in the greater New York City area were "ridiculous" — and then there were the costs of construction and human capital.

"So, where do you start?" she said. "There are so many questions that you could ask … In our case, it really came down to the why?, the how? and the who?"

The 'why'

This one didn't take Flushing Bank long to figure out: The 88-year-old institution needed to achieve cost efficiency while maintaining the customer service expected of a community bank.

"For us it was about designing a customer interaction model that helped us reduce that excess [staffing] capacity, reduce [staff] downtime and cost, but simultaneously would not only improve our ROI, but improve that customer experience for the community-focused customers that we have in our branch channel."

The 'how?'

This one can be a hang-up for banks seeking branch transformation. More than a few FIs have installed an interactive teller machine in the ATM lobby and called the job done. "And that may or may not be the case," dePasquale said.

At Flushing Bank, ITMs were only part of the answer. Or, more accurately, answers.

The bank currently uses two different models — one for newly built branches and another for converted branches. At new branches, customers engage from the get-go with ITMs, which handle 98 percent of teller transactions.

At these new, significantly smaller branches, universal bankers offer "hip-to-hip service," assisting customers as needed with transactions at the ITMs. New customers receive instantly issued cards and are signed up for online banking and other digital channels at the end of the account-opening process, dePasquale said.

While this model works quite well for new branches, Flushing Bank knew it wouldn't fly at converted branches.

Customers using these locations are generally older, with some relationships going back to the bank's founding in 1929. These customers are also used to highly personalized service.

At these branches, transformation would involve behavioral and cultural change for both employees as well as for our customers. And it was critical that this change was positioned and perceived as a benefit to the customer.

For older customers, converting behavior "without forcing the issue" became extremely important, dePasquale said. This process began a year-and-a-half before the introduction of any new consumer-facing technologies.

"We converted to universal banker without any added technology in any of our locations, but a stronger approach in a few of them … customers would say, 'Well, I want to make this teller transaction,' and the banker would say, 'That's great, come on over, have a seat with me and we'll take care of that for you.'

"And there were certain things that we made them capable of doing right there at their desk, and there were other things that were sort of like The Wizard of Oz and we took the transaction behind the curtain and made it look like it was being done fancy, but really it was just being done the old-fashioned way."

The 'who?'

This one came down to defining the role of universal bankers, dePasquale said.

For Flushing bank, it meant highly skilled and engaging bankers, who previously might have been high-performing tellers who had great cross-sell ratio and a readiness to embrace customer interaction.

"We decided to give them a growth opportunity and convert them into the new role of the universal banker, which was also a great thing for our customers to see that growth within the organization," dePasquale said.

Finally, Flushing Bank launched video banking on its Nautilus Hyosung MX 8800 machines. But not until the FI felt that employees were fully trained to provide assisted service — and had helped customers to see its benefits.

Implementing the ITMs enabled Flushing Bank to achieve two objectives: Firstly, the capability extended live banking hours within the branch, with additional service hours from 7–9 a.m. and 4–11 p.m.

"So when a customer comes in to the ATM at 9:00 p.m. … and they want to withdraw over their debit card limit or over their ATM card limit, there's a banker there who can help them, who could identify them, who could open up that limit; let them withdraw $5,000 and then drop the limit down again if need be," Pasquale said.

Secondly, the ITMs also allowed Flushing Bank to extend its call center hours, with video tellers doing double-duty as call center staff. The service — previously available only during business hours Monday through Friday — could now be made available from 7 a.m. to 11 p.m. weekdays, and on weekends, as well.

The payoff

Downsizing the branch and reducing teller count through attrition while turning existing tellers into more highly skilled employees, paid off handsomely for Flushing bank.

"As a result we saw a 28 percent reduction in FTE, and a 20 percent reduction in overall branch operating costs," dePasquale said.

Even more importantly, it moved Flushing Bank toward its strategic goal of enhancing the core earnings power of the franchise and improving efficiency and scalability, dePasquale said.

"When you're a bank our size, it really always comes down to ROI, and how are you going to prove that ROI in order to get your budget approved in order to do any of the work that you want to do?"