People are Human & Still Crave In-Person Experiences
If bankers – and digital banking vendors – take away any lesson from the pandemic, it is this: digital and branches are intertwined. Bring them together to create new business models.
Grocery Shopping During the Pandemic
I love grocery shopping. Just me and my list. I often challenged myself to buy vegetable I never cooked before or a fish I’d never served. I enjoyed talking with the store workers. They often gave me advice about how to cook something.
Then, as it did for everyone, in March of 2020, this pleasurable excursion became a a nightmare. New protocols sucked all the joy out: Masking up, standing in line to get into the grocery store, keeping distance from both grocery workers and fellow shoppers, waiting for people to clear before I moved forward to quickly take the bag of broccoli or package of sliced cheese. Behind the masks & plastic shields no one talked. Shoppers came in alone & didn’t talk on their phones (which was kinda pleasant). I figured out when certain stores were less busy and rearranged my days to go at those times to avoid lines. I dreaded grocery shopping.
But even during the darkest days of the pandemic in the US, I kept up my routine of grocery shopping in person. I couldn’t bring myself to order my food online. The long wait times for delivery persuaded me to avoid that route. Also, I admit it: I like going to the store myself, even in 2 masks, picking the apple, the salad greens, the packet of spaghetti, bag of bagels myself. Yes, I know, not very logical & possibly deadly during a pandemic.
Digital & branch are intertwined
As some countries start to vaccinate large percentages of their population and begin the process of re-opening businesses and other in-person activities, everyone wonders whether consumers will go back to in-person activities or stick digital. People, and their employers wonder if they will return to offices. Some, like Goldman Sachs are planning for US and UK workers to return in June.
The branch closures and health concerns drove more people and businesses than ever to use more digital banking services more frequently. In 2020, McKinsey, for example, found that
By July 2020, contact center usage in the US was up by about 6 percent and mobile usage was up by about 8 percent, compared to December 2019
These pandemic-driven changes have brought the question of whether banks should invest more in digital and how many branches to the forefront again.
But is the decision of branch vs digital really the decision? I realize that even banks don’t have unlimited resources and increased use of digital channels means even fewer trips to a branch. But are these really “either-or” decisions: if we invest in digital, then we eliminate branches? A few months ago, I proposed that banks (and vendors) prepare for the new neighborhood banking. And that neighborhood banking must be digital.
I pointed out that neighborhoods could re-emerge in importance as people & communities were able to resume social activities outside their homes, with each other. Guess what! Retailers, real estate and other investors seem to agree:
Most surprisingly, some investors are actually excited about physical retail. I examined the latest evidence and found myself agreeing. As shocking as it sounds, we could be entering a much better era for small, local businesses.
But people are still human and crave in-person experiences. Even if cities never bounce back fully, major metropolises will still have enough foot traffic to support a fair amount of retail, and innovative models like pop-up shops can be brought in to help address vacancies.
As we edge into the more open world — maybe some people will just want to get out of the house, off the screen, on the street, in the neighborhood. And yes, some of them will want to go to a bank branch.
It’s tempting to predict that traditional businesses like bank branches and movie theaters are doomed to fail and disappear after the pandemic. Yet, investors like Godenrath and Roeoes of Picus Capital see potential for growth —- and even innovation & expansion of services in traditional sectors like movie theaters:
“Cinemas, many of which are key shopping center anchor tenants, were already reinventing the traditional theater experience by offering a more holistic experiential solution (e.g., reserved seating, 4DX visuals, in-theater restaurants, cafes and bars) and the pandemic has led to an expansion of these offerings (i.e., private theater rentals and events). We have the opinion that this trend will continue to expand across the entire retail real estate industry from restaurants (immersive culinary experiences) to traditional retail (integrated online and offline shopping experiences) and believe that proptech will play a defining role in helping retail real estate owners identify potential tenants and market properties as well as in helping retailers drive in-store customer engagement and gain key insights into the customer journey.”
The choice isn’t whether to go back to movies the way they were before the pandemic, but to bring digital innovations into the theater — and beyond. So, too, bankers can expand the ways to offer in-person banking services.
Retailers are Already Exploring New Models for Brands, Shopping & Purchasing
As I thought about new models of what digital & in-person banking could look like in an after-pandemic world, I came across Platform, a shopping development in Los Angeles. According to Vogue Business:
…the new quarter defies many of the terms by which we define retail. It’s neither mall nor department store, neither traditional Main Street nor high street plumbed with independent owners. It’s an appealing array of these elements, with unusual merchandise partnerships and online connectivity thrown in.
Platform pulls together stores and brands differently than legacy shopping malls or department stores have in the past. The focus isn’t on independent brands or big department stores or online shopping — but on all of it.
Several of the two dozen stores at Platform are pop-ups with short-term leases. Others are owned, branded and merchandised by the developers, using unconventional partnership contracts with brands. Much of the merchandise — and restaurant fare — can be purchased online and picked up at a drive-through that the proactive pair created when faced with pandemic restrictions last year.
Platform is not all indie and emerging brands and shops.
Familiar stores are sprinkled among Platform’s own shops, including the Optimist, Teller women’s fashions and a beachwear shop called Optimist Beach. The entire development is targeted to appeal to the trendy upscale local neighbourhood, which is heavily populated by film, television and tech employees who are keenly interested in all things style from food to fashion.
Further, Platform is focused on the neighborhood – which means the developer and the shops and brands that want to operate there must understand not only the fashion and retail trends, but also the needs of the people who live in the neighborhood.
What is even more interesting is how Platform combines the services retailers created or amped up during the pandemic – like order online & pick up - with more traditional in-person shopping.
Signs pointed to Platform’s drive-through lane, where it’s possible to pick up a $525 Maison Kitsuné oversized cardigan or a Thakoon ribbed turtleneck 35 minutes after ordering it along with wood-fired pizza from Roberta’s.
Think about the innovative ways your bank came up with to provide in-person services when the branch was closed. How can you continue to offer them as restrictions lift? How can you improve them? What digital capabilities will make these services even better?
Or will you force customers to use digital banking or the in-person services offered before the pandemic? If they were successful innovations, why get rid of them just because the pandemic isn’t driving that change?
Going small to go big
So often bankers believe they have to reach millions of customers with a single “big” product or be the next Uber or Amazon. Some of the new retail models demonstrate the opportunity to attract smaller brands, to work more locally.
For example, Platform also created a new model for leasing and merchandising.
“We felt the entire wholesale market was broken,” says Fishbein. “The brand really needs to share the risk with the store.” But rather than claw at risk-sharing with charge-backs, fees and other contractual clauses that can leave fashion labels eating their own profits late in the season, Platform’s approach splits sales 50-50.
After 120 days, decisions about what to do with unsold merchandise are left up to the brand, which might send it to another store, take it back or set a lower sale price. The idea is to avoid traditional arrangements that have bankrupted labels after large store orders sold weakly or have created tense relationships when brands feel store buyers are making poor purchasing decisions
Is this the only model for retail? No, Vogue Business cites a FastAF as another model. Interestingly, it too is based on local and small rather than centralized and big.
San Francisco-based startup FastAF is using what it calls “dark stores” to create micro-fulfilment centres — mini warehouses — that will allow it to deliver goods more rapidly than Amazon or Instacart. With dark stores open or soon coming online in San Francisco, Los Angeles, Miami, the Hamptons, Chicago and Austin, FastAF promises delivery of an array of products from smart jump ropes to snacks within one hour. The company anticipates eventually delivering within 10 minutes in its regions, using autonomous vehicles, says chief executive Lee Hnetinka.
Similarly, banks can reimagine in-person services - beyond the branch in a cafe or supermarket. But you reconsider the future of their in-person service models and digital initiatives, you must ask yourselves:
Is the bank finally ready to embrace constant change?
To embrace digital in a way that allows them to create “pop-up” services where they are identify a need?
With a different footprint than the bank is used to?
Imagine digital everywhere. Your digital banking strategy is also your branch strategy. Remove the “digital vs branch” distinction.
Combine traditional in-person services with those that you created to meet customer needs during the worst of the pandemic. Invest in digital technologies to improve customer experiences of both.
Evaluate the needs of local communities before planning new in-person services. Doing so will require identifying the hidden tribes within those communities & their needs. Is there a new footprint or operating model you can use to reach customers more effectively?
Create a strategic view of the bank to operate as one organization. This action is about cultural and organizational change – figuring out how to not operate as siloes of products and channels – but viewing the bank as a single operation. This, obviously not an easy task, especially for large banks. Well, let’s face it. It’s probably not an easy task for any bank or credit union that’s been around for longer than 5 minutes. But this change could lead to a more holistic view of bank services and less of a siloed view of digital vs branch (or IVR).
Extend your digital banking platform functionality to in-person services.
I do believe the pandemic & increased usage of digital services means that bank will close branches – but it also means that banks can re-imagine in-person services with digital.
If bankers – and digital banking vendors – take away any lesson from the pandemic, is this: digital and branches (or in-person banking) are intertwined. That both digital and in-person services must be re-imagined and used creatively together.
Who publishes this newsletter?
I’m an independent analyst & consultant & former Gartner analyst. I’ve worked in and covered the banking industry for over 2 decades. I think & write here about digital banking — but also indulge any other interests.
I write this newsletter for people and companies who are trying to differentiate their banking software in an increasingly competitive market. That could be people who work at software companies currently developing banking software or people at vendors that want to move vertically into the banking market. It’s also for bankers and investors who want to know more about digital banking transformation strategies & the technologies that power them.
For now, this newsletter is free.