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By: Will WeidmanSenior Vice President at APT, leads APT’s financial services practice.

2016 is looking to be one of the most transformative years in financial services in decades. Disruptive competitors are growing, digital and mobile continues to evolve, branches look more and more like Apple stores, and rates may even start rising at last.  Banks will need to embrace smart innovation not only to keep up, but to truly differentiate themselves in a cost effective manner. Here is our take on the top trends in banking for 2016:

Take the branch where it hasn’t gone before: The branch continues to play a vital role in customer engagement and account acquisition, and the bottom line is that customers still want to have a branch for help with their more complex financial needs. Banks now have the opportunity to not only make their branches more efficient, but also more financially successful.

Many banks are looking to add new technology to the branch to supplement customer needs in a cost effective way. Several basic transactions have already moved out of the branch, and when a customer does walk into the branch, simple transactions are increasingly done through technology (e.g. smart ATMs). To that end, many banks have created universal banker roles to better address the customer needs that can’t be automated. Enhancing the way the physical branch works with other channels has also helped some banks increase their convenience, for example by allowing appointment bookings through a mobile app.

Think outside the box to optimise your network: Banks need to think more creatively when it comes to the branch footprint. The model of only having the traditional three to five thousand square foot branches across the network no longer makes sense. Banks will still need full service branches, but these branches need to be made more appealing to draw in customers.

An example of providing an inviting, social atmosphere can be seen with Capital One, which is testing new café style branches. They offer a space for customers to socialize, work collaboratively, and discuss their banking needs with staff.

Some financial organisations are looking to open more smaller, low-cost, lightly staffed branches. These branches will focus on convenience and giving customers more locations to choose from. The key for banks will be to understand where to put each type of distribution point to balance customer needs with cost and efficiency.

An omnichannel approach to branch closures: Since the number of branches in the UK peaked a few years ago, banks have been strategising how to streamline their networks in order to decrease costs and improve profit margins. This may mean reducing the amount of branches they have open, however it is crucial for banks to hone in on the right balance between cost savings and business retention when selecting how many branches should be closed. Branches remain relevant to many customers, and shuttering a branch can be very risky if one considers the costs of customer attrition and lost revenue.

In 2016, banks will need to take a calculated approach to branch closures, incorporating the omnichannel impact of closures into their evaluations. For instance, a low performing branch may not have any nearby branches, making it seem a bad candidate for closure. However, there may be a high level of online and mobile engagement for customers of that branch and therefore, minimal negative reaction if the location closes. To achieve that, banks should analyse previous branch closures to better predict how sales and existing relationships will move to nearby branches or other channels in the future.

Harness the potential of the mobile app: Having a user-friendly mobile app used to be a differentiator – now it’s table stakes. Millennials check their phones 45 times a day on average, giving banks an unprecedented opportunity to engage with their customers.

Banks are increasingly beginning to capitalise on this trend by mobile communications with customers through push notifications, and 2016 will see an expansion of this strategy. Push notifications are cheap, interactive, and can be easily targeted, giving banks the ability to contact the right customer with the right message at the right time.

Further, they lend themselves well to experimentation: banks can compare the behavior of customers that receive certain notifications to those that do not. For example, a push notification could be sent to a subset of customers nearing their credit limit, and direct them towards another card offer or a limit increase if they are qualified. Banks can then examine the test vs. control impact of the messaging to determine how to roll it out broadly.

Defend your territory: Emphasise personal service: Banks will need to continue to innovate on a number of fronts to keep pace with FinTech startups. Many analysts have predicted a dismal future for the traditional retail bank in the face of these competitive challenges, but they overlook the power of banks’ biggest strength: personalized service.

Banks will need to continue to innovate on a number of fronts to keep pace with FinTech startups. But rather than scrambling to mimic every capability of these new players, banks should double down on their edge in personalised customer interaction.

By developing a truly customer-centric focus beyond mere lip-service, traditional retail banks can maintain prominent positions in the market. Optimising incentive structures to prioritise customer service, investing in employee training programs, and highlighting service advantages in marketing campaigns are just a few ways banks can defend their territory.

The millennial question: Millennials are a favorite topic of discussion in the banking world.  This segment presents unique challenges, especially in the credit area: millennials are wary of holding large credit balances, and are more likely than other age groups to use debit or pre-paid services. To make the most of these opportunities, banks need to try strategies to cross-sell more profitable products to these customers.

Millennials also tend to be less loyal to their primary bank, and are almost twice as likely to switch to a competitor as other customers. Millennials have access to a wealth of information and shop around.  However, these same traits present a good opportunity to consolidate a relationship with a millennial.  Banks should focus on communicating with customers about the benefits of consolidation, and should also try adding incentives to encourage this behavior with the most profitable customers.  This information should be readily accessible through digital channels given millennials’ tendency to research products online.

Improved technology has also made customer engagement better and easier. For instance, sophisticated predictive analytics technology can help banks test the potential impact of marketing initiatives and product launches to improve the outcomes of business initiatives. Indeed, the volume of tests is even more amplified when considering the rapid, iterative testing that is possible with customer-level experimentation. Sophisticated banks are conducting upwards of 1,000 tests per year and rapidly changing their strategies based on the results. As the financial services ecosystem continues to quickly evolve in 2016, it will be important for banks to avoid risky decisions and maximize the impact of good ideas by adopting a rigorous testing culture.