Exchange Bank's upgraded Windsor branch: The future of banking?

For years, the design of the local bank branch has had the retail friendliness of a Soviet-era shop with its rows of bulletproof windows and roped lines to usher transactions through in the most efficient manner.

If a teller wanted to have a face-to-face conversation — without glass in between — he or she would have to go through security doors akin to the opening credits of “Get Smart.” A private conversation would be like a trip to the principal’s office.

Santa Rosa-based Exchange Bank aims to change that with its branch in Windsor.

“We have been banking for so long we don’t even realize how uninviting it is,” conceded Beth Ryan, Exchange Bank’s vice president for retail banking.

The Windsor branch is more like the Apple Store than the old-fashioned Bailey Brothers’ Building and Loan Association of “It’s a Wonderful Life.”

Once you enter, you are greeted by a “universal banker” who can help you with an array of banking services from making a deposit to solving problems with your mobile banking application or opening a credit card. The goal is not to hand the customer from one employee to another for different transactions.

It also features community banking tables, a lounge area, free Wi-Fi, a touchscreen kiosk, a deposit image ATM, and a beverage brewing station with gourmet blend coffee. A kids’ table with electronic tablets is on one side, a relief to working moms. At the rear, an outside patio with wooden benches offers a comfortable and relaxing area to sit and have a conversation — not an interaction — with one of the branch’s nine employees.

Most notable is the “cash bar,” which replaces the teller window and the glass barrier. The 8-foot-long, circular standing desk gets rid of the glass, thanks to a vaulted cash recycler machine that replaces the old cash drawer. One customer recently was able to sidle up next to the banker as he filled out on the computer screen an application for a new debit card, allowing her to better understand the process.

“For the most part customers love it. They love the feeling of us being able to roam free, for them not having a barrier of the teller line. They can access their banker,” said Jamie Koop, customer service manager at the branch.

While the branch overhaul is key to maintaining good customer services, it’s also crucial for independent community banks to survive in a digital banking era where the big four retail banks — Bank of America Corp., Wells Fargo & Co., JP Morgan Chase Co. and Citigroup — have an outsized market share given their economies of scale.

Though the United States continues to support far more banks than other countries, the number of commercial banks is dropping. At the end of the second quarter, there were 5,693 banks operating in the U.S., down from 14,400 in 1994, according to research by the St. Louis Federal Reserve Bank.

At the same time, the big four banks are increasing their market share. They had approximately 39 percent of the overall nationwide deposits at the end of 2012, outperforming the rest of the industry in deposit share growth, according to a report last year from McKinsey & Co.

The fear among community banks is that the trend will be exacerbated as they meet more expensive compliance standards under the Dodd-Frank financial reform law and as bigger banks, with ample financial resources, fully develop their digital offerings to those of a millennial generation who may never set foot into a branch after he or she sets up an account.

“In 10 to 20 years, we will be more like Canada and Japan,” said Anthony Plath, an associate professor of finance at the University of North Carolina at Charlotte.

Plath applauded the move by Exchange Bank, but he noted that for most community banks such merchandising changes would “be like giving a tetanus shot to a dinosaur” because of the industry trends.

Not all agree with such dire predictions. “I think we will see consolidation. I don’t think it will be as acute as some believe,” said Steven Reider, founder of Bancography, a Birmingham, Ala., bank consultant practice that has worked with Exchange Bank.

The advantage that Exchange Bank and others may have is their strong community ties, which can be leveraged to build a tight relationship with their customers so they will turn first to their banker for financial advice. The cozier bank branch is one piece of that strategy. “The community bank excels in trying to deliver that type of personal service,” Reider said.

Founded in 1890, Exchange Bank is in good position as it has 18 branch locations in Sonoma County, according to 2103 FDIC data, the most of any retail bank in Sonoma County. Its deposits totaled $1.6 billion at the end of the second quarter, an increase of $90 million, about 6 percent, from a year ago.

It serves 48,000 households with approximately 100,000 accounts. Retail operations account for 65 percent of its business, spokesman Brad Hunter said, with the remaining 35 percent in commercial, small business and nonprofit activity.

Given its longstanding ties to the community, especially funding Doyle scholarships to Santa Rosa Junior College students, bank officials believe they have a competitive advantage that will serve them well going forward.

“We can’t service the people who are jumping off to Denver or New York,” said Rolf Nelson, senior vice president for retail banking and sales for Exchange Bank. “For a community bank, the focus is really true relationship banking.”

Other lending institutions are moving toward the “bank of the future” concept. Wells Fargo opened up its version last year in Washington. Redwood Credit Union also revamped its Sonoma branch with a similar overhaul in June, with a technology bar and children’s area. It intends to bring that formula to three of its 17 locations in the next year, said Cynthia Negri, executive vice president and chief operating officer at the Santa Rosa credit union.

“We have found there has been more technology and mobile banking. We see a lot of our members use those, but they still like the touch and feel of a branch,” Negri said. “They will come in for complex transactions, or investment services or talk about insurance needs. That’s more how we see them using our branches.”

Despite the initiative by banks and credit unions to refashion branches, the trend will result in fewer offices as consumers move toward digital banking.

According to the Raddon Financial Group, the number of U.S. bank branches peaked in 2009 at 99,544 but decreased to 96,340 in 2013. Similar trends applied to credit unions.

The decrease comes as technology continues to evolve. One new trend is a video teller where an employee communicates through a Skype-like connection to an ATM, with the bank being able to offer additional services such as how to replace a lost card. NCR Corp., which markets such devices, said it offers banks the “benefits of lower processing costs, faster transactions and increased product sales and revenue growth.”

Some banks like ING and Ally Bank have so-called “virtual banks” where transactions primarily are handled over the Internet. They are tailored to services such as savings accounts and certificates of deposit.

“There has been some success with a virtual bank,” Plath said. “But it is a limited market.”

Going forward, banks will have to manage the divide between the customers who opt for digital and those who prefer the traditional branch.

“This is a service business. We have to do it all,” said Deborah Meekins, president and CEO of First Community Bank, which has two branches located in grocery stores for better convenience of its customers.

The Windsor branch has drawn positive reviews, especially from employees, who noted that prior to the revamp, it had a dated 1980s decor with a mauve tone, including the carpeting that would go partially up the wall.

“We are trying to be relationship bankers. I want to know about your day. I want to know about your summer plans. It’s not my immediate intention to sell you a credit card or open an account, but by building that rapport and gaining that trust, you are going to think of me when you need to get that credit card,” said Koop at Exchange Bank. “You are going to think of Jamie the banker when you need something because we have those real conversations.”

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.