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Banking With Baristas to Build a Better Brand

June 13, 2019
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One of the most confounding developments in retail banking is the impact of technology on the branch channel. Perhaps the latest and clearest example of the industry’s try-anything approach to branching in today’s mobile world is Capital One’s newest concept: the Capital One Café. In a series of commercials promoting the locations, Capital One pans the legacy branch and banking model before showcasing its cafés as “welcoming” places with people there to “help you, not sell you.” Incidentally, the spokesperson then points out how easy it is to open checking and savings accounts at the café (or “anywhere,” while holding up a mobile phone) in “just five minutes.” The commercials close with the tag line: “This…is banking reimagined.”

The obvious paradox here is that Capital One is inviting the public to spend time in its “branches” while simultaneously declaring that it is unnecessary to use branches to do business with the company. So what’s behind the bank’s strategy here?

Two things: deposits and brand.

Greater competition for deposits has put relationships back in play for the first time in a decade, and branches, in case anyone forgot, play a vital role in gathering deposits. Despite the rise of technology since the Great Recession, consumers continue to value branch accessibility when selecting their checking provider (Figure 1). At the same time, households are likely to keep more of their deposits with an institution that has conveniently located branches than with one that does not (Figure 2).

For Capital One – traditionally recognized as a credit card issuer and online bank – the emphasis on its physical locations helps build a reality and perception that it’s part of the communities it serves. In the process, the company increases its appeal to new checking households and depositors. And just as the idea of a branch in grocery stores was conceived decades ago to give banks a presence in areas customers commonly frequent, the coffee shop concept seems like a logical fit for today. However, opening cafés is also a bold move that could create unique challenges for Capital One if it fails to build brand equity, if it doesn’t drive foot (or app) traffic, or if the coffee just isn’t good enough.

Time will tell whether this particular branch concept proves successful. But along the way, retail banking institutions will almost certainly keep imagining new ones.