In a small storefront sandwiched between a coffee shop and a medical
equipment supplier, the future of consumer banking is taking shape in an Orange
Financial Partners Credit Union's new "smart branch" looks nothing like a traditional bank. There are no tellers behind glass, no safety deposit boxes and no vault in the back.
The cash-free branch, often staffed by just two employees, is about the size of a Subway restaurant. When customers enter, they check in on an iPad that takes their pictures and alerts an employee to help them open an account, obtain a money order, apply for a mortgage or access a variety of other services.
"The usage of the branches is evolving," said Nader Moghaddam, the credit union's chief executive. "With all the new technology available, the transactional aspect is as not as big an issue as it was a few years ago. The way (the smart branch is) structured provides a way for members to come in and engage with us."
Traditional brick-and-mortar bank branches have fallen out of favor with customers in recent years amid the rise of online and mobile banking. Since 1992, transaction volumes in banks and credit unions have fallen 45 percent, according to a recent study by consulting firm Financial Management Solutions Inc.
But many customers still want the personal attention they can get inside a branch, and Southern California is one of the few places adding banks nationwide. Last year, the local market gained more than a dozen branches even as most major markets lost bank locations.
The branches opening these days, though, have a few new twists.
Some lenders, including Financial Partners Credit Union and Wells Fargo Bank, are introducing smaller branch concepts that do away with teller lines in favor of a more personal touch with customers. New technology is becoming ubiquitous, from touch-screen tablets to real-time video chat devices.
Other banks are going bigger to move away from the cookie-cutter branches of the past and give their spaces a unique feel. City National Bank, the Los Angeles-based institution that has eight Orange County branches, recently hired the architects behind Apple Inc.'s signature stores to give the bank's new branches a modern vibe.
"Banks and credit unions have a long history with a lot of momentum in doing things the way they've been doing things," said Bob Meara, a senior analyst with consulting firm Celent. "Now, the strategic purpose of the branch is being revisited."
Branches remain important tools for banks when it comes to developing new customer relationships and keeping existing ones. And many customers, like hospital worker Maria Carrillo, still prefer to go to a physical location.
Carrillo, a 47-year-old Anaheim resident, said she uses the Internet for simple tasks, but likes to go to a branch for complex or high-dollar transactions. A three-year member of Financial Partners Credit Union, she has used multiple branches but prefers the new smart branch in part because it's easier.
"To me, it's better," Carrillo said.
Customers at the smart branch, which is across the street from Children's Hospital of Orange County, sign in by swiping their driver's licenses or another card with a magnetic stripe and selecting the reason for the visit on a touch-screen device. That not only alerts employees to assist, but also triggers targeted messages on television screens around the office for that customer.
The technology is designed to make the experience easier for customers and help the branch run more efficiently.
Financial Partners also opted to do away with vaults in its new branches. Since many transactions now are handled electronically and customers can simply go to an ATM for cash, the credit union keeps virtually no cash in its smart branches. That allows the credit union to save money on security systems and open locations in smaller, non-traditional spaces such as strip mall storefronts.
"In the old days, the reason a bank was a bank was that it had a vault," said Moghaddam, Financial Partners' chief executive. "Nowadays you really don't have the paper flow. All of that is changing the nature of the branch structure."
He said opening a traditional branch runs about $1 million, but launching a smart branch costs one-third of that. With the success of the first smart branch, the credit union plans to open another location.
Similar to Financial Partners' new branches, Wells Fargo recently launched its "neighborhood bank" store format, which features smaller spaces -- about 1,000 square feet compared with 4,000 square feet for a traditional branch -- and an open floor plan. Employees are outfitted with tablets, and the branch offers customers free Wi-Fi access. The paperless branches include advanced ATMs with larger screens, more features and the ability to dispense bills in denominations of $1, $5, $20 or $100.
Wells Fargo opened its first neighborhood bank in Washington, D.C., in April. Spokeswoman Lisa Woolery said the bank is considering bringing the concept to the Orange County market.
Not every bank is looking to streamline and shrink its branches, though.
A number of banks have begun experimenting with adding elements such as coffee bars and lounge areas. Umpqua Bank in Portland, Ore., has gone even further, using its branches to host yoga classes, book readings and even an Oktoberfest-style event replete with pretzels and beer.
Charles Wendel, president of Financial Institutions Consulting, noted that transaction volumes in brick-and-mortar branches have been declining for years, making it more difficult for banks to turn a profit. He estimated that only about 20 percent of branches are profitable today, which has prompted a contraction in the number of offices.
"Banks are looking at these statistics. That is driving them to rethink the branch," he said. "Some banks are really creating statement branches."
Wendel pointed to City National, the Southern California bank that this year opened its first ground-floor branch in Manhattan. To give the branch an upscale feel, the bank hired Bohlin Cywinski Jackson, the architecture firm known for designing a number of Apple stores.
Harry Topping, a senior vice president of City National and the manager of corporate real estate, said the bank wanted to "do something really special." Opened last month, the 13,000-square-foot space features an open design, a French limestone wall and a cantilevered glass-and-stone staircase.
"It's very light, bright, airy," Topping said, "like an Apple store."
Beyond the aesthetics, City National also changed the way the branch operates. The bank did away with teller lines and appointed "universal bankers" -- experienced employees who can help with a wider variety of transactions.
The bankers are equipped with touch-screen tablets, which allow them to assist customers virtually anywhere, even in offices outside the branch.
Topping said the bank is considering bringing elements of its new branches back to Southern California.
Among them, the bank will likely begin doing away with teller lines in favor of universal bankers.
Erich Klein, a senior vice president for City National, said with so many customers doing their banking online or via mobile devices, branches must be able to draw in customers and give them an experience that far surpasses that of a website.
"The client experience in the office has to be exceptional and comprehensive," he said.
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