Canadian banks are introducing new, innovative advice-focused branch formats in the effort to keep up with evolving client expectations and remain competitive in an industry facing profound change and emerging threats from digital (a.k.a. fintech) rival platforms.
“Over the next several years, you’ll see a very significant transformation in how branches look, their footprint, where they’re located and, most important, what they do,” says Paul Battista, Canadian financial advisory services leader with Ernst & Young LLP in Toronto. The banks’ branch strategy is “the most significant retail banking question that banks face in our market today,” he says.
This past summer, Toronto-based Bank of Nova Scotia rolled out two new branch formats in pilot programs in some cities. One format, Scotiabank Express, offers clients access to digital self-service tools for everyday transactions, with the option of obtaining assistance from a branch associate. The other, Scotiabank Solutions, is geared toward advice, enabling clients to meet with advisors, engage with digital learning tools or take classes on financial topics.
Efficiency
“Customers like the efficiency of self-service transactions,” says Tracy Gomes, vice president of customer value proposition, strategy and projects, with Scotiabank in Toronto, “but still want an in-person experience if they want to solve a problem or when they are looking to have some of the most important financial conversations of their lives.”
Toronto-based Canadian Imperial Bank of Commerce (CIBC), for its part, has launched several new branch concepts over recent years, says Steve Tyers, vice president of distribution strategy and planning with CIBC. The new formats tend to be smaller than legacy branches and address two underlying trends: the shift to digital services and a growing need for advice.
“They’re more open, they have more places for clients to meet with advisors and they have digital capabilities built right in,” Tyers says.
Toronto-based Royal Bank of Canada (RBC) also launched new, open-concept, digitally enabled branches over recent years that allow it to “onboard and educate clients, deliver advice and transact anywhere in the branch,” says Kirk Dudtschak, executive vice president of personal and commercial banking with RBC.
“We want to build an advisory environment, regardless of channel, so branch employees can deal with the more complex aspects of our clients’ financial lives,” Dudtschak says, “[while] transactional activity is taken care of through digital channels.”
Each of the big Canadian banks is wrestling with how best to manage the transition of its branch network from process-focused locations to ones that are much more “client-centric,” Battista says.
Indeed, even fintech players see the value of having a physical location, although their approach may differ from that of the banks.
In August, Vancouver-based Mogo Finance Technology Inc., which offers online loans to clients, opened a physical outlet, which it calls MogoLounge, in downtown Toronto. Mogo offers clients lifestyle experiences – such as wine-tasting events at that location in conjunction with financial education in a way it says will engage its target client base of millennials. No transactions actually take place on-site.
“The big difference between [the banks’] approach and our approach is they still think it’s about advice,” says David Feller, founder, CEO and chairman of the firm, who contends that the banks are out of touch with modern clients, particularly millennials.
Simple experience
“The last thing I want to do is go in, sit down with someone, spend time telling them my story [to] get advice,” says the 48-year-old Feller. “What I want is a really simple, intuitive, [digital] user experience that puts me into the right products. Essentially, that is the advice [service] – making it easy for me to get into those right solutions so that I don’t have to go into a branch and do that.”
In contrast, the big banks are betting that although a segment of clients will prefer the full self-serve option – services that the banks offer – the majority, including millennials, will continue to want, and benefit from, personal advice.
“There’s a difference between everyday banking and signing up for your first mortgage or putting in place your retirement plan,” Tyers says. “We see that as best handled with our advisors in a relationship with a client that has a long tenure.”
Adds Gomes: “Customers also seek out a sense of shared accountability when conducting those important transactions. They want to sit side by side with an advisor when making a financial decision or completing a financial transaction that is meaningful to them.”
Despite competitive pressures and their inherent costs, the big banks appear committed to their extensive branch networks, Battista says. According to the Canadian Bankers Association, the Big Six banks plus Laurentian Bank of Canada, HSBC Canada and Canadian Western Bank had a total of 6,303 branches as of October 2015, down marginally from 6,348 the year before.
Rather than a big dropoff in the number of branches, Battista says, what’s more likely to happen in the years to come is the “fracturing” of larger full-service legacy branches into smaller, more focused branch formats tailored to specific client needs. “Is that one branch or four smaller branches?” he asks. “In terms of [total] real estate footprint, there’s been no change.”
The banks will have to balance the question of cost and function against the ability to deliver personal advice to clients and maintain visibility via a branch network.
“Every time you give up real estate,” says Battista, “you give up brand opportunity. There are myriad important strategic questions that every bank is grappling with as they think of how to transform this channel.”
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