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4/9/2004
02:50 PM
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Where The Money Is

The Web was supposed to kill bank branches. Instead, banks are spending billions on them as a cornerstone of customer service.

Adorned with balloons, a FleetBoston branch across from New York's Grand Central Terminal celebrated its grand opening one recent evening as commuters dashed to catch trains to Westchester and Fairfield counties.

Here in the country's media capital, Fleet intends this branch to be the latest in multimedia, ergonomics, and environmental design. Prominent signs bearing the Fleet logo will be replaced soon by ones bearing the logo of Bank of America, which merged with Fleet this year. The interior includes wall-mounted TV monitors displaying business and news headlines, an LCD stock ticker above the teller cages, and online banking and investment stations where customers check balances, transfer funds, pay bills, and even trade stocks via Fleet's Quick & Reilly brokerage unit. Weight sensors in the floor tell the machine to automatically log off customers when they step away.


Jeff Barker -- Photo by Erika Larsen/Redux

Fleet will open a number of branches in Manhattan, Fleet executive VP Barker says.

Photo of Jeff Barker by Erika Larsen/Redux Pictures
Fleet has opened five such branches in Manhattan in the past 16 months and 45 to 50 in other cities. Several hundred other branches have been given a similar design, though without the tricked-out multimedia treatment. Fleet/Bank of America plans 250 new branches this year, targeting urban areas in particular. "The amount of buildout will be substantial" in midtown Manhattan, says Jeff Barker, Fleet's executive VP and New York regional manager.

Reports of the death of bank branches, common in the late 1990s, were greatly exaggerated. At the peak of the dot-com boom, banks were setting up separate Internet-only subsidiaries and taking steps such as charging $3 fees to see a teller, trying to reap fatter profits by discouraging expensive branch operations.

Things haven't quite worked out that way. The Internet-only subsidiaries withered away, while branches blossomed as a vital part of the growth strategy of banks such as Bank of America, KeyBank, and Washington Mutual. Rather than cutting off branches, banks are nurturing them with business technology to change them from an expensive, manual way to do routine transactions into more-profitable places to close customer sales.

U.S. banks will upgrade and renovate 30,000, or 26%, of their branches by 2006 and spend $1.4 billion on branch technology in 2006, up from $800 million last year, predicts Datamonitor, a market-research firm. Most of this spending will go toward enabling branch personnel to view all of a customer's relationships with a bank, connecting the bank's multiple service channels, and boosting customer self-service capabilities.

KeyBank is adding 20 branches this year, the most it has ever built in a single year. But building branches doesn't conflict with a full embrace of the Web: It successfully encourages customers to use self-service channels such as the Web for routine transactions. Branches account for 29% of daily transactions, behind ATMs (37%) and barely ahead of the Internet (24%). The Internet in 2001 surpassed call centers--now just 9% of transactions--and it appears headed to overtake branches as the No. 2 channel within a few years.

Patrick Swanick and Bob Rickert -- Photo by Russell Lee

Getting a single view of a customer can be an expensive proposition, says KeyBank's Swanick (left), with CIO Rickert.

Photo of Patrick Swanick and Bob Rickert by Russell Lee
Banks have learned that branches are a vital distribution channel, and they can't expand into new territories without them. More than 90% of Key's retail sales take place in branches, says Patrick Swanick, president of Key Electronic Services. But making branches into highly profitable growth engines--and not just order-takers--requires giving employees information they can use to pursue sales. That's a big change from the traditional bunker mentality at banks. "The days of waiting for people to walk into branches are over," Swanick says.

Banks around the world spent $5 billion on customer-relationship-management software last year and will spend $7 billion in 2008, predicts TowerGroup, a research firm that tracks IT spending by banks.

Key uses legacy in-house software to provide relationship managers in each of its more than 900 branches with detailed views of top-tier customers whom employees call on personally. Now it's working on delivering the same views of the other 98% of its customers who are engaged through branches, over the Web, on the phone, or at ATMs. Key is implementing data-mining software from Siebel Systems Inc. to produce higher-quality sales leads by analyzing information found in customer files and gathered via marketing surveys.

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