By W.B. King
Exploring the latest innovations transforming credit union and bank branches, The Annual Future Branches Emerging Technologies Report: How the Latest Technologies are Transforming Banks and Their Branches noted, among other findings, that 85% of respondents believe “personal digital engagement platforms differentiate or would differentiate their institutions somewhat” from other financial institutions (FIs).
“Technology has rapidly transformed the banking industry into a more digital and data-driven environment and has changed how financial institutions interact with their customers or members,” said Slaven Bilac, CEO and co-founder of the San Francisco, Calif.-based Agent IQ.
To produce the report published in May 2023, Agent IQ, a provider of digital customer engagement solutions specializing in making financial services more personal again, teamed with WBR Insights, the custom research division of Worldwide Business Research (WBR), a provider of industry-driven thought-leadership conferences. WBR Insights surveyed 200 leaders from banks and credit unions across the U.S. and Canada.
“The respondents are almost evenly split into the types of financial institutions they represent,” noted WBR Insights Research Manager Chris Rand and report writer, Mike Rand of rand&rand, a research and content development firm. “In each case, one-fifth of the respondents represent global banks, national banks, and regional banks, while 19% represent community banks and 21% represent credit unions.”
The report found that 64% of respondents rate the technology currently used in their FIs as only somewhat sophisticated (at parity with their competitors). Additionally, 96% of respondents noted better customer experiences and stronger relationships with customers are the most important outcomes of new technologies, followed by improved staff efficiency (84%).
“One question that has remained constant is what these new technologies mean for the physical branches of banks and credit unions,” the report stated. “Although banking has become increasingly remote, banks have taken steps to transform their branches, both through technology and through new models of service.”
Understanding Where the Physical Branch Stands
Sixty-nine percent of the respondents work at FIs with 51 to 500 branch locations. Positions held at these FIs include branch operations (15%), executive management (15%), information technology (15%), and retail delivery (14%). Those polled include C-suite executives (21%), vice presidents (39%), department heads (16%) and directors (24%).
Despite evolving banking technologies, respondents believe their customers are more likely to visit a physical branch than bank online to receive personal financial advice (93%) and deposit checks (88%). Those polled, however, also believe customers and members would execute the following banking tasks online: pay bills (87%), apply for a credit card (77%), explore new products or services (63%) and apply for a loan or mortgage (63%).
“These types of interactions are generally routine; or customers prefer to do them on their own time,” the report stated. “For example, applying for a loan or mortgage is an important life step, but the results of the study indicate many consumers would prefer to conduct research and weigh their options at home instead of visiting a bank branch.”
When considering the profitability of physical branch locations, respondents cited relative profitability based on asset size 61%, product profitability (based on specific product sales) 17%, customer or member profitability (based on profit per customer or member) 10%, products per customer/member (to determine retention of current customers) 8%, and recent profitability (based on recent production or activity) 4%.
“Consumers’ adoption of digital banking activities has presented both opportunities and challenges for physical branches,” the report stated. “Because fewer customers are visiting the branch for routine services, branches themselves have had to reinvent themselves to remain relevant and profitable and to contribute to the company’s bottom line.”
How Tech is Changing Branch Operations
The report found that FIs are leveraging technology to create “innovative physical spaces” that offer more than just “transaction services.” To the end, many banks and credit unions are equipping branches with interactive tools, such as video conferencing, virtual reality experiences, and artificial intelligence (AI) driven financial advice functions.
“Additionally, some banks are providing customers with contactless payment options and automated checkout kiosks, which provide a streamlined experience even for customers who need to make more complicated transactions,” the report continued. “Some banks have embraced these technology updates more than others, however. As we will learn, some banks are also choosing to forgo or phase out some technologies in favor of others because they can offer them more significant benefits.”
When asked to rate the “sophistication” of the technology currently used at their FI, only 20% cited “very” sophisticated, with 64% noting “somewhat” sophisticated.
The top five emerging technologies respondents will consider adopting in the next 12 months are AI-powered chatbots (96%), personal digital engagement platforms (to connect remote customers with agents/bankers) (40%), predictive analytics (34%) and biometric sensors (for security and identification) (31%) and digital signage or other audio/video (AV) solutions (31%).
Building the Physical and Digital Branch Bridge
While there was an understandable uptick in virtual banking during the pandemic, 66% of those polled said they do not currently operate a virtual branch (e.g., transactions and services originated outside a geographic location), but plan to do so in the future. Twenty-two percent said that they do not operate a virtual branch nor intend to in the future. Only 12% currently operate a virtual branch.
For respondents that plan to pursue a virtual branch, 82% will focus on a “separate digital strategy—a purely digital branch strategy with separate profit and loss statements (P&Ls) and Key performance indicators (KPIs).” The remaining 18% will focus on a hybrid strategy that integrates customer/member experience across physical and digital branches.
“There are pros and cons to each approach. The primary benefit of dividing the strategies is that it allows banks to focus more on digital innovations and develop the technology necessary for a successful digital banking strategy,” the report continued. “This can result in improved user experience, faster transactions, and greater operational efficiency. It also enables the bank to measure the virtual branch strategy separately and address specific issues arising from those channels.”
Agent IQ’s Slaven explained that the overall research findings support establishing strong customer/member relationships as a top priority for FIs in 2023 and beyond.
“This further supports our mission of helping FIs foster customer relationships and meet the digital demands of today’s customers and FIs with our AI-driven technology and personalized customer engagements,” he continued. “This also strengthens the need for our digital engagement platform that allows customers or members to engage with their desired personal banker for all their financial needs, across any digital channel, leading to happier, more loyal and profitable relationships.”