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Money Matters News
September 10,2018

Banks turn to espressos

Rishika Dugyala *** Anna Irrera

Free Wi-Fi, discounted cappuccinos, artwork, and a dancing robot are among the features banks across the United States are touting to convince customers that even in an era of smartphones it is still worth it to visit a bank branch.

Banks are in a bind - branches are costly and keep losing traffic as phone apps take over day-to-day banking, but they need them because that is where customers still get advice, resolve tricky account issues or deal with cash and checks.

To square that circle banks have been trying to drum up more branch business with location upgrades and eye-catching features.

JPMorgan Chase & Co branches, for example, feature local art, Bank of America Corp highlights new technologies at its “technology bars,” and at HSBC Holdings PLC´s Fifth Avenue flagship New York branch a humanoid robot Pepper greets visitors with a wave and a wiggle.

However, wooing more customers with self-service kiosks, touch screens, consulting zones and modern decor is just the start, consultants and designers say.

The challenge is how to turn that into more sales and brand loyalty.

“Innovative designs have proven to be successful in driving additional traffic,” said Brandon Larson, a managing director at financial consultancy Novantas.

“The thing people struggle with is, how do they convert that traffic into new deep relationships with the institution?” In other words, can a cappuccino sell a mortgage? Reuters interviews with eight patrons at Capital One Financial Corp’s hybrid flagship bank-café in New York suggested it may be hard.

Six said they were there to charge phones or enjoy an iced coffee, not to carry out any transactions or become bank customers.

“To me, the café is more of a public co-working space,” said Chai Lee, 45, who regularly relaxes there. “I really come in for the free Wi-fi.” Lee, a Chase customer, said he had no plans to switch banks, and that his main consideration when opening an account was getting the best interest rate.

And Pepper, for instance, can offer the weather forecast and help direct customers, but it is not set up to open a new bank account or answer complicated financial questions. Yet bankers say the eye-catching features are more than just marketing stunts.

Jeremy Balkin, HSBC’s head of innovation for the US market said the Fifth Avenue branch opened 20 percent more accounts in July, the first full month of Pepper´s assignment there, compared to a year earlier.

“Clearly Pepper has been a seismic historic intervention,” Balkin said. “We don’t see it as marketing. Pepper is part of our family in the branch.”

Capital One considers its cafe model so successful that it is adding new locations in Washington DC and San Diego to the existing network of 33 cafes run in cooperation with coffee chain Peet’s Coffee.

Lia Dean, Capital One’s head of bank marketing and retail, told Reuters that half of those frequenting its cafes were not customers, which was good because more people get familiar with the brand.

Dean would not discuss the effects on profits or new account openings, but said: “We would not be expanding them if we weren’t pleased.”

If done right, branch redesigns can boost sales and reduce costs by 60 to 70 percent thanks in part to lower staffing and space needs, according to a July study by McKinsey management consulting firm.

But doing it right means spending heavily on back-end technology to bring information now scattered across various businesses in one place and investing in training so a single employee can help a customer with a range of questions.

Bank executives say integrating technology across apps, web portals, ATMs and physical locations is a complex, time-consuming operation, but they are moving in that direction. “We recognize that our best customers and most engaged are ones using both branches as well as digital,” said Sol Gindi, chief administrative officer for Chase.

Around 75 percent of Chase´s customers use both the bank’s mobile app and its branches, he said. In response, Chase launched Finn, a digital-only bank that targets younger customers, but also plans to add 400 new branches to its nationwide network of around 5,100 branches over the next five years.

Similarly, Bank of America is adding another 500 locations and redesigning 1,500 over the next four years. As of February, it has opened more than 160 new centers and renovated 620 after

closing some 1,500 branches in the wake of the crisis.

“Is it worth the investment? It’s a question we’ve grappled with,” Jon Wolf, Bank of America’s senior vice president of Consumer Business Transformation, told Reuters. “However, I think we´re done grappling: branches are a critical part of what our customers want.”

HSBC, which mainly targets international customers in the United States, recently made “a sizable investment” to replace its main US technology platform, according to its spokesman Matt Klein.

Building on its technology investments the bank plans to launch early next year a new mobile app and new online banking capabilities, Klein said. Now, HSBC’s app is rated 1.4 out of 5 in Apple Inc’s US App Store, well below its peers.

The question becomes, though, how much to commit to branches that are important now, but may end up like video rental stores - upended by technology and changing consumer habits. It is a global dilemma, but for banks in the United States the challenge is especially daunting.

While rivals in parts of Europe and Asia are further ahead with their digital products and branch redesigns and their customers more comfortable shifting online, US banks find it hard to compete without a strong branch network.

Those that shuttered thousands of branches to slash costs in the aftermath of the 2007-2009 financial crisis ended up losing customers or deposits. Yet with branch networks estimated to account for 10 to 30 percent of total costs, investors have been pushing executives to make branches work harder.

Rising interest rates and growing importance of deposits as a low-cost financing source have only added urgency to banks’ search for the best branch strategy.

Some analysts, however scoff at branch redesigns, saying they may create some buzz, but banks should rather spend the money to improve their digital products.

They say US customers visit branches so often not necessarily because they want to, but because they get frustrated with the technology.

“Who do you know who actually wants to go to a bank for a simple transaction?” said Sam Maule, a managing partner for North America at financial services consultancy 11:FS. “You’re forced to go for things like account opening and, in my opinion, it´s because the digital offering sucks.”

Writers are Reuters journalists

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