Banking customer retention - Why consider safe deposit lockers?

Gunnebo appreciates the many challenges that the banking community face today. If you add customer-specific challenges to the many external factors determined by market forces that financial institutions are currently confronted with, it becomes clear that the current situation is not an easy one to manage.

One dilemma facing any successful bank branch business is the need to adapt, change and evolve to meet the needs of its customers. Banks know they need to offer contemporary products and services to a new era of client, but without isolating or alienating existing, loyal customers – customers who may still be looking for “classic” banking services.

Our guide reviews some of the multiplicity of challenges encountered by banks and examines how it is possible to create profitable opportunities from them.

1. Current challenges in the banking sector

Nothing is more constant than change. This saying only approximates the challenges that credit institutions face around the world.

In order to continue to operate successfully and remain close to the customer in the marketplace, branch business must be adapted, changed and further developed. This is because the needs and demands of bank customers have changed dramatically. Modern branch concepts should create attractive offers for the new generation, who are familiar with digital media, as well as for the traditional customer, who must continue to be retained.

However, this is not enough. In addition to the customer-specific challenges, many external factors weigh on the profitability and sustainability of financial institutions.

Customer loyalty is becoming increasingly difficult

In the past, clients had the same bank account throughout their entire life. Customers today are more critical and more willing to change.

Therefore, customer satisfaction plays a decisive role in economic success. Under the ever-increasing pressure to achieve positive results in an increasingly difficult environment, banks cannot afford to lose existing customers.

Winning new customers

Well-implemented customer loyalty programmes not only help retain existing clients, but also assist with the attraction of new ones. In order to tap into new target groups, the needs of individual customer segments must be precisely analysed and understood. The insights gained will help to develop and implement strategies in order to expand customer-specific solutions.

Digitalisation

Managing the cultural shift

Numerous digital technologies are already firmly anchored in our culture and are advancing unrelentingly. Digital transformation programmes are being implemented around the world, and COVID-19 has accelerated this process in many areas. “FinTech” applications provide a new, digital customer experience on smartphones and tablets and make investing in shares, for example, easier and more intuitive.

Yet it has never been more important to find and establish the right balance between maintaining a physical branch and innovative digital services. However, how can banks balance branch operating costs with profitability, while both satisfying existing customers and attracting new ones?

2. What makes automated safe deposit lockers a potential solution for today’s banking challenges?

The banking market environment is changing rapidly. Branch closures are the order of the day. How do existing customers deal with this development and what consequences does this have for banks?

People and digital

A significant proportion of all bank customers still want physical access to branch services. These customers prefer to do their banking “offline” and in person.

In November 2020 a study by Diebold Nixdorf² indicated that one-third (35%) of all banking customers want some form of access to physical in-branch banking services, and one in ten customers said they will never use online banking exclusively in the future.

A global survey³ of retail customers by banking software company Temenos found that banks must not neglect the “human touch” when developing their digital banking services.

While customers want and expect more from their digital banking, they also see physical access to a relationship manager as a priority, if needed. For example, making it easier to access a human representative was the most important point for 19% of respondents, that banks should focus on.

All findings suggest that digital delivery of banking services, combined with the possibility of “human interaction” at the place where it is needed – i.e. the branch, – is the preferred model of choice.

A realignment of the branch business must find answers to important questions of distribution policy.

What innovative solutions are there to justify the existence of physical branches?

Technological advancements have enabled pioneering robotised solutions that can be integrated into existing branch security and vault systems. Combined with other automation systems, it is possible to create an almost totally, digitised customer experience, requiring fewer or no staff. This allows the branch to operate cost- effectively and meet the needs of a demanding and diverse target group.

How can the costs of underutilised branches be reduced – and, better still, how can they be transformed into profit centres?

An illustration is used to show the typical payback period for a fully automated safe deposit locker rental system. In the course of this guide, more information is provided in the form of a calculation example for the investment profitability as well as the market growth rate.

Is it possible to develop a branch strategy that relies on fewer but more centralised locations and then offers profitable, added value to customers?

The addition of a commercial service such as the rental of automated lockers in a small number of centralised branches can provide a steady and lucrative source of revenue for banks. The space saving technology that is actually only available with automated safe deposit boxes can also maximise locker capacity.

What business opportunities might a bank miss out on if they no longer operate branches?

The following sections of the guide answer this question in more detail.

3. Why the increase in demand for automated safe deposit lockers?

For banks, modern automated safe deposit boxes are an increasingly attractive business option. This is where a huge increase in demand meets a cost-effective, proven and highly secure solution.

The conventional safe deposit box system, where a bank employee escorted a customer to a safe deposit box in a vault, has radically evolved since its early days. Nowadays, banks and their customers can benefit from completely discreet, unaccompanied and convenient barrier-free access to their safe deposit lockers. Access is no longer limited or bound to bank opening hours. Moreover, staff escorts are no longer required.

More importantly, however, there are currently several commercial factors and market conditions that make safe deposit boxes an attractive investment opportunity for banks.

Growing market

According to a recent study by market researchers at researchreportsworld.com4, the global safe deposit box market is expected to grow at a significant rate over the next five years. In 2020, the market was already growing steadily and is expected to increase further over the forecast horizon.

Economic factors, leading to a shift in investment portfolios

A key reason for the demand increase is one of the main challenges that banks face today, a challenge that has resulted in a shift in customer investment portfolios away from savings and towards precious metals or cryptocurrencies. If banks harness the potential of this shift, the challenge can be used in their favour.

The importance of precious metals

The impact of negative and low interest rates in the recent past led to an increase in the purchase of tangible assets such as precious metals, and with it an increase in demand for a safe and convenient place to store these valuables outside the home environment. What better place to do this than in a safe deposit locker in a maximum-security vault at an established financial institution?

Cryptocurrency

Another asset class has set an investment trend in the past decade. The first half of 2022 was bad for cryptocurrencies, but more than 100 million people now own crypto.

Given the technical capabilities of criminals today, it is not surprising that investors in cryptocurrencies are repeatedly advised to keep the access data of their “crypto wallet” – and in some cases the actual form of the wallet itself – in a safe place.

In some cases, investors also own physical cryptocurrency in the form of cryptocoins. As with all valuable items, it is best to protect these items from theft. Especially if there is no safe place available at home, a safe deposit locker, in a highly secure rental facility, that is accessible 24/7, is an ideal alternative.

Inner city living in compact housing

In recent years, the population in the world's largest cities has steadily increased. This population shift is putting pressure on the housing situation, as demand far exceeds supply. This also means that more and more people must share the same space, which has, in turn, led to the trend now known as micro apartments, compact living and small space homes.

The smaller the living space, the less space is available for secure storage of valuables and the greater the need for a secure, off-site storage facility for those precious items. All of this leads to an increased demand for safe deposit lockers, especially in big cities.

Diminishing availability

Especially in big cities, finding a local and available safe deposit box is proving to be a challenge. Rental locker facilities have always been scarce, but the ongoing trend of bank branch closures is exacerbating this situation.

Some commercial banks are not addressing this trend at all – or not enough – and are not actively expanding their incumbent locker capacities or are failing to modernise their existing rental locker facilities. Yet, the increasing demand for available safe deposit boxes – especially in metropolitan areas – offers the ideal conditions to invest in modern, digital and highly secure technology and subsequently an excellent opportunity to competitively differentiate the bank with its service offering.

An outdated concept that lacks modern flexibility?

Looking at the development of the supply of safe deposit boxes, it is easy to understand why conventional safe deposit box systems are losing popularity. Conventional, purely manual rental locker systems mean restricted access during bank opening hours, which are often inconveniently timed for the locker tenant. Pandemic restrictions have also made access to safe deposit boxes a challenge for both the tenant and bank.

Therefore, fully automated safe deposit lockers, where the tenant has access to his safe deposit box at any time via a secure “self-service” concept, meet with a high level of customer acceptance.

4. The opportunity

Fast and attractive return on investment

A calculation example later in the document, demonstrates that, even though the primary investment might initially appear high, the ROI of an investment in a fully automated, rentable safe deposit locker system, is both extraordinarily promising and achievable in a remarkably short time frame.

A solid business case

In the previous sections of this guide, the rationale and economic benefits of such an investment have been explained in detail and supported with facts and statistics. The commercial justification for a bank to invest in fully automated rental lockers is therefore based on solid research, experience and market knowledge.

High potential for competitor differentiation

A business idea that enables a bank to present itself in an innovative and customer-oriented way in an established market, offers a high potential to clearly differentiate itself from the competitive environment.

A familiar service, such as the rental of safe deposit lockers, that offers great market potential, is currently experiencing an upsurge in demand and is provided in a completely new “digital”, way is undoubtedly a promising commercial project.

Business readiness

The “Self-service” concept has become implicit for numerous services in different industries.

The aspect of the security is critical when providing safe deposit lockers for the storage of valuables, and the subsequent trust in the service provider and their reputation are decisive for the customer. All these aspects are prerequisites that banks have always fulfilled. Banks have been keeping their customers' cash and valuables safe for centuries.

When competitors from outside of the industry, such as private service providers, enter the automated safe deposit locker market, it is a good indicator of the growth potential of such services. Private investors have recognised this opportunity and are setting up companies, as is the case in Germany, the Czech Republic and the UK, for example.

In the absence of an existing branch network, the overhead costs of a private operator are usually higher and so are the locker rental costs. Financial institutions have an advantage here, as they have long been known for keeping their customers' valuables safe. A private provider must first earn this reputation.

An innovative business model

It is not only in the banking sector that it is important to be seen to be innovative. Foresight and competence are hallmarks of pioneering companies, and this, in turn, provides competitive advantage in a highly contested marketplace. An innovative perception can also help to attract new clients, as well as being a differentiating factor from other financial service providers.

6. What to consider when choosing a partner for automated safe deposit lockers?

The provider of a modern rental locker system with fully automated safe deposit boxes must prove their ability to plan, project manage and implement a corresponding installation to the complete satisfaction of the customer. The following factors play a decisive role here:

Credibility

Fundamental factors in the selection of a solution provider for automated safe deposit locker systems are certainly a high level of reliability, a long-standing, international reputation and many years of expertise with corresponding installations. Only a partner who has decades of experience, can subsequently point out potential difficulties in the preliminary planning stage and offer appropriate solutions, is a trustworthy partner.

Exceptional experience and industry expertise

When choosing a partner, it is not only important that they can offer superior quality and professional results. Has the supplier proven that they can maintain state-of-the-art systems over the installation's entire lifetime and decades beyond? How has the solution provider solved project- related, complex challenges? Was the project implemented and completed on time and within budget? How satisfied was the customer with the finished installation?

Ideally, your chosen partner should be able to supply a full turnkey solution, comprising all of the elements that constitute an end-to end service, including hardware and software.

Vision and innovative strength

Providers of fully automated, modern safe deposit locker systems should also have “vision” and innovative thought leadership qualities. A company that is interested in the long-term success of its customers, enriches a mutually beneficial customer relationship with creative improvement suggestions. Demonstrating an entrepreneurial attitude towards technology, as well as actively investing in research and development, will continually add value to a business association. It is key to anticipate future developments and anchor them in the concept of the system.

Marketing support

Investment-intensive projects, such as that of a modern facility with automated safe deposit lockers can only be successful, and pay for themselves in the desired time, if they are advertised and marketed in the right way. An ideal project partner should therefore also have proven experience in marketing and sales and be able to offer its clients appropriate, professional marketing support.

7. Will the investment payoff?

The following example for the installation and operation of a safe deposit box rental system with fully automated safe deposit lockers is derived from a real European scenario.

Preliminary remarks

Investment: Based on the design, engineering and installation of a Gunnebo SafeStore Auto solution. This includes the installation of a highly secure and certified vault system with fully robotised locker technology and capacity for up to 2,000 safe deposit boxes.

Annual rent: The calculation example is based on the smallest locker (20 Euro) offered by new suppliers. Monthly prices for lockers can range between 20 and 55 Euros, depending on the capacity, so the annual rent can be significantly higher depending on the locker size and occupancy rate. A study by Stiftung Warentest5 in Germany showed that there are considerable differences in the services offered from bank to bank.

Occupancy: In calculating the annual income, we have conservatively assumed an occupancy rate of 75%. The current demand allows for higher values.

Average annual revenue: In this example, revenue is based on the rental of lockers to customers (number of lockers × average rental fee × occupancy rate). There is potential for other revenue streams from additional insurance premiums for high value items and other options not considered in this example.

"An automated system does not require staff"

Running costs

Rent, room costs, operating costs: The rental costs are based on the space required for a facility with a capacity of 2,000 lockers and derived from average rental prices of a central location in a major city. If the site is owned by the operator or is already fully depreciated, so the space does not need to be rented, the rental costs can accordingly be attributed in the example calculation.

Maintenance costs: A robotised system, the necessary technology and software, all of which allow 24/7 customer access to the rental locker, must be properly maintained, on a regular basis.

Labour costs: Like an ATM machine, an automated system does not require staff, as all transactions are self-service.Personnel costs are therefore only incurred for the rental of the compartments and to maintain the customer relationship.

Marketing costs: When an installation is first commissioned, there will be higher introductory marketing costs to promote it.

Average running costs per year: Premises and operating costs + maintenance, personnel and marketing costs.

Payback period and break-even point

Annual net profit: Annual income minus total annual running costs.

Amortisation period: Investment costs divided by annual surplus. A higher occupancy rate and the possibility of achieving a higher rental price in prime locations or with larger lockers leads to an even faster amortisation of the investment.

Break-even point: At what occupancy rate does the profit zone begin? Total annual costs (depreciation + running costs) divided by the average annual rent per locker.

8. How does this solution address the current challenges in the banking sector

Economic advantages

The example calculation above shows both the return on investment and the short payback period. This guide provides a wealth of evidence on how banks can retain, potentially win back and, in addition, attract new customers by offering a fully automated safe deposit locker rental system.

Modern facilities with automated safe deposit boxes are an innovative and viable solution to provide customers with a service they want and need. At the same time, a bank can position itself as an innovative company, differentiate itself from the competition and ultimately also secure a share of a growing market.

A way to digitally transform bank branches

By providing access to their secured valuables outside of business hours, banks can adapt to customer expectations and break new ground. For decades, banks have made customers’ cash available through ATMs – whenever they want. By modernising and enhancing the banking customer experience, i.e. reinventing access to safe deposit lockers, bank customers are offered the same access to their valuables – in a digital and fully automated way. The installation of a system for automated safe deposit boxes supports the digital transformation of bank branches.

Security measures in times of a pandemic and beyond

No matter how many variants of the virus there are, the demands on infection protection will remain permanently high for many people. State-of-the-art, software-controlled disinfection technology now exists for self-service areas in automated rental locker facilities that sterilises the air and surfaces of the dispensing unit in the private lobby area before the next customer is allowed access to the room.

9. Conclusion

Modern rental locker systems with automated lockers can be an important building block in the transformation of the banking sector. They help to “rethink” the branch by keeping it appealing in order to attract and retain customers, offering an inviting return on investment and short payback period if the lockers are priced appropriately.

The increasing customer need for safe deposit box solutions ensures an ever-evolving demand. There is no sign of a fundamental change in the factors driving this demand in the medium term. Automated, digital customer safe deposit boxes not only offer a competitive advantage over other banks, they also have a positive impact on brand image and support branches in their digital transformation process.

Ultimately, choosing the right partner for planning, projecting, implementing and monitoring the solution is a crucial success factor. Gunnebo Safe Storage has many years of experience and can evidence over 1,600 profitable installations of its fully automated SafeStore Auto (SSA) locker solution in more than 30 countries worldwide.

If you are interested in learning more about Gunnebo’s fully automated, modern safe deposit locker rental systems, we would be happy to provide you with a free consultation at any time.