Is that a Starbucks, or a new bank branch?

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There was a time when the local bank branch was the nexus of every Canadian's financial life. That's where people headed on payday, waiting in a long line for a turn with a bank teller. If you wanted to cash a cheque, deposit money, update your passbook, all of that was done by walking into a branch.

As people turn to ATMs, online and mobile banking for their day-to-day financial needs, the role of the bank branch is changing. They're getting a new look, too, especially in urban cores as smaller branches with more flexible footprints pop up in places where space is hard to come by.

"I would say that financial institutions are trying to be a little bit more like retailers," says Paul Dilda, head of branch channel for North America, at Bank of Montreal. "How do we make customers aware of the full range of products that we have? How do you entice them to have a conversation about that?"

Taking cues from successful retailers, banks are creating more interactive and technology-friendly spaces, giving more access to specialists and advice-givers.

"The way that branches were designed before, you had the high counters, the offices, it was kind of an intimidating place to go in," says Lawrence Spicer, vice-president channel strategy, Canadian banking, at Royal Bank of Canada. "And the innovation in banking in terms of layout has only come in the last couple years as people start to explore how customers buy."

RBC has created a new look for its branches, with about 50 updated stores in place and adding "probably another 30 or 40 in the coming year," between renovations and new branches, Mr. Spicer says. When people enter the branch, they encounter a "discovery zone," where they can interact with a touch-screen computer to explore buying a home or investing for a child's education, with or without the help of an employee.

"Even the exterior design of our branches has changed, there's a lot more glazing, lots of glass, lots of open light, an airy feeling, higher ceilings. You want consumers walking down the street or driving by to think, 'Oh man that looks like a welcoming place to go,'" Mr. Spicer says.

"The thing about Starbucks, the reason they are so popular is because they feel like you've just stepped into somebody's living room."

BMO's new "neighbourhood" branches similarly emphasize an open-concept layout, with sit-down wickets for customers and lots of glass. "We're trying to get our bankers out from behind closed doors, so if you go to Queen and Portland branch [in Toronto], you'll see the bankers work in the open so they're very accessible," Mr. Dilda says.

(As for security, Mr. Dilda says that despite the open-concept design, "areas dedicated to cash transactions are still constructed in ways which limit customer access to support safe operations.")

BMO has rolled out 17 small format branches to date, with plans to open and convert an additional 17 during the remainder of 2013 and 2014.

But if people need branches less for day-to-day banking, why are banks so eager to get them through the doors?

"I think it was 1987 when the legislation was changed and banks were able to offer investment services," says Mary Mowbray, manager of the retail group at Colliers International. "You may have a chequing account and you may have a mortgage with [a bank], but ultimately they want to capture all your financial needs, right? And a lot of that can be relationship driven."

"So to move into that investment services piece, I think it requires a bigger relationship with customers, so there's been a real attempt from the banks to develop that and that's a lot easier to do with actual branches and people that can interact."

RBC branches are evolving into "a convergence point for experts now," said Mr. Spicer, be they small business experts, investment planners, retirement planners or mortgage specialists.

"[People] may do more of their transactional banking on their mobile apps, because it's quick and convenient and it's pretty slick. But when they want to sit down and talk about RRSP and get some more detailed advice, they want to know there's a place in the community that they can go."

Chris Brown, principal, office leasing group for Avison Young, points to the main National Bank of Canada branch at the corner of King and York streets in Toronto.

"You'd think you were in the lobby of a completely different business or a hotel or a restaurant or some other service operation," he says. "It's how to bring people in and keeping them there long enough to develop a relationship."

Like all retailers, banks are having to get "smaller and tighter" in places like Toronto's downtown core, because of a lack of available space, says John Crombie, senior managing director at Cushman & Wakefield.

Mr. Brown points to a downtown Toronto corner whose buildings didn't even exist four or five years ago. With four new office towers completed or under construction "that's anywhere from 16,000 to 20,000 people that are going to [work] at the intersection of York and Bremner. Then you add the condominiums that are being built or occupied, and that's 2,000 new homes, all within shouting distance of each other. … It's probably greater than the majority of towns in all of Canada. Yet all we've got at the moment is two banks, with the possibility of a third going into Cadillac Fairview's building."

It's that kind of density that is making banks willing to modify their footprint, Mr. Brown says. When National Bank approached Avison Young about getting a presence in the south core, he says, "It didn't really matter to the bank what size it was, provided they were able to get the visibility and the access. And it's small, much smaller than the typical branch."

Lesly Tayles, vice-president personal banking for National Bank, says the company is "constantly tracking" where the population is growing, and know that "we need to be a part of that. Sometimes that footprint doesn't allow us to have some of the bigger branches."

BMO's research shows that customers still like to know there's a physical place where they can go, Mr. Dilda says.

"What we call a neighbourhood branch is in that 2,500-3,000-square-foot range," says Mr. Dilda, as opposed to the traditional 5,000-square-foot branch. Plus, smaller branches and lower costs means the ability to expand.

"You want to be where they work and where they live. And when you look at where the majority of development is happening in Toronto and Vancouver, it is in these condo developments."

"What I like to say is, Starbucks doesn't build bigger and bigger Starbucks, they just build more of them."