How can retail banks recapture the hearts of disenchanted consumers and re-energize their costly branch networks? The answer may lie in a dramatic rebranding of traditional branches into the franchise model.
With public trust in financial services among the lowest of any industry, main street banks are pressed to win back skeptical customers. To do so, they’ll need to shake up corporate cultures and demonstrate genuine engagement and transparency.
Why might local franchising be the solution? Despite a widespread loss in institutional confidence, consumers still appear willing to trust individual advisors or bankers. They remain comfortable dealing with sincere local professionals, while they blame head office for inflexible products and policies.
This suggests that rather than repositioning or developing new banking group identities, banks may wisely consider replacing existing branch networks, in whole or part, with franchise locations. The retail sector offers many successful examples - from Jumbo and McDonald’s to Univé, the Dutch insurance cooperative - each of which is known for strong customer orientation and client appreciation.
What makes franchises successful? They know better than anyone how to win customer trust by making local staff visible and approachable while also utilizing the strong umbrella brand to support their efforts. In fact, franchisees often appear to defend their customers against insensitive head office decision-makers and they refuse to accept poor service. While the concept of branch staff as ‘defenders of their customers’ may constitute a culture shock, this shift may be the right medicine for many banking organizations.
Franchises also build steady customer relationships since they avoid the big bank practice of transferring key staff and account managers frequently between locations which inadvertently severs banker/customer connections.
The franchise model can turn the top-down corporate model upside down, since franchisees may actually become aggressive critics of how their customers are approached, with little patience for ineffective internal procedures. With their strong commercial skills and knowledge of the local market, franchisees take considerable ownership of their customers. They may even demand that corporate behavior mirrors their own local values and ethics, creating an informal bottom-up system of risk management.
Expense management is another rationale for the franchise model. Although setting up a franchise requires long-term approach with significant run-up costs, franchising can provide a means to design a more flexible cost structure and reduce fixed expenses, including branch staffing tied to collective agreements. That said, banks should not deploy a franchise model simply to shift costs to the franchisee.
Is franchising the only viable route for branch banking? Not at all, since the current branch model has survived the advent of mobile and internet banking and it continues to be a significant sales and service channel.
The question is how can banks develop new models to meet customer needs at a lower cost? Franchising may be a sound strategy to regain customer trust by harnessing local entrepreneurship and community engagement.
Banking structure may need to strategically evolve to fully contemplate factors and the overall economic and commercial...