Here’s How Capital One Combines Coffee with Banking to Cater to Millennials

It’s almost become a mantra: Today, bank customers (particularly millennials) are doing more of their banking online and on mobile, and the local branch is being visited less often.

We hear it so much that we’re inclined to think that it’s only a matter of time before the traditional bricks-and-mortar branch becomes a relic of the distant past. After all, branches are indeed disappearing. Since 2009, 6% of US branches have thrown down the shutters, according to figures from global outsourcing firm Intelenet. By 2020, the company says, the number of branch banks will tumble 20%.

How curious, then, that Capital One, which first launched as a digital-only bank, has since decided to move in the opposite direction – going to the expense of building branches, when most others are trying to cut costs by closing them down.

On the surface, this may seem like a radical move. However, Capital One locations are not your “traditional” bricks-and-mortar offerings by any stretch of the imagination. In fact, Capital One are building “banks” that aren’t banks (as our parents would recognize them) at all – but something else entirely.

Customers Still Want Branches

It’s easy to understand why, when we look at the larger picture, so many banks are deciding to close down branches. Closing branches means real savings for banks that are finding themselves with large and expensive networks of real estate, only becoming increasingly redundant in the digital age. According to a report from Forbes last year, setting up a new branch typically requires a spend of between $2 million and $4 million, costs between $200,000 and $400,000 a year to run, and takes about 10 years to reach full potential of earning $1 million in annual profit.

Arguably, then, banks would do well and save a lot of money if they decided to close more branches more quickly. But the problem is that customers won’t let them.

People may not be so inclined these days to walk into their local branch as often as they used to – however, when they come to a point when they need specialist financial advice (perhaps they want to start a new business, organize a loan or a mortgage, or plan for retirement), there’s simply no substitute for talking to a real person in a real bank.

Here’s how Intelenet CEO Bhupender Singh puts it: “Although there is a rise in online banking, with fewer customers opting to go to branches, banks need to be strategic in the way they accommodate customers. Not all customers want to go solely online for the handling of such sensitive information. This is where banks can look to be really distinctive in the way they harness technology to direct financial advisers to customers’ doorsteps.”

Coffee-shop Banks

Technology, of course is the staple diet of the millennial generation, into which more than 80 million people in the US have been born. And this is why it should come as no surprise that millennials are largely rejecting the traditional banking experience that previous generations have embraced for so long. Online and mobile banking comes naturally to this cohort. It’s not even considered a luxury, but a basic expectation. However, it comes at the expense of abandoning the relationship-based, retail branch experience.

Capital One’s latest venture – the Capital One Café – is an effort to bridge this disconnect, and market a relationship-based banking experience to millennials in a manner that speaks to them and their needs.

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The company is opening a string of “coffee-shop banks” in some of the nation’s largest cities. The locations are designed as cafés first and foremost – but the difference is that customers can learn about things like mortgage applications over a cup of joe and a pastry from the Capital One employees who man the “branches”.

"We had a digital bank, and we needed to connect with the communities that we serve," says Shaun Rowley, director of Capital One Cafés. "These cafés give customers a chance to come in, and experience our brand: see, touch and taste Capital One."

Providing Human Connections

Capital One Cafés offer coffee, food, free Wi-Fi, fee-free ATMs, a scattering of iPads that invite customers to click through short finance lessons (or take a quiz to test their money knowledge), and dedicated spaces where people can sit down with a financial expert (called “Café Coaches”) and a touchscreen for money coaching sessions.

“The space looks so much cooler, cleaner,” explains Antonio Wilson, Capital One’s Chicago Café Coach. “It makes you feel like you’re inside a digital website with a café, and friendly people from a community. Our goal as a company is to reimagine banking in a different way. The goal is to get people to come in for coffee or pastries. This is not a place where they feel like they are instantly going to have a banker in their face talking about our products. So initially, people use the site as a full-fledged café. Over time, though, they might bring up the conversation with our on-site bankers about our products.”

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The coffee-shop sections of Capital One Cafés are provided by Peet’s Coffee – a national coffee chain and long-standing partner of Capital One. Peet’s provides the java, Capital One provides the coaching – a setup that Mike Friedman, Market Lead at Capital One, says is all about fostering those face-to-face connections that consumers (including millennials) aren’t ready to completely relinquish when it comes to banking, even in the digital age. “It’s a lot more than just providing the community a coffee shop,” Friedman says. “It’s about allowing the café to provide those human connections.”

The Branch of the Future?

Millennials may have more digital expectations than their parents or grandparents. They may also be spending less time in “traditional” branches than previous generations. But Capital One believes that this shouldn’t sound the death knell of the branch altogether – in fact, it has morphed itself from an online-only bank into one with an increasing number of physical locations, directly in the face of mass branch closures elsewhere in the sector. The traditional branch may soon be a relic of the past, but Capital One is committed to shaping what progressive branches may look like in the future.

The last word goes to Mike Friedman. "We’ve learned that customers are really embracing digital, and they expect the digital tools to allow them to bank wherever they are. It’s basically having the bank in their pocket. They also expect to have a person to talk to when they need it. The cafés are a unique opportunity to present a physical manifestation of our brand and take this as an opportunity to connect with customers on their terms."

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