Speculation in the banking industry during the past decade regarding the death of the branch appears to be highly exaggerated. The number of branches and their overall foot traffic do continue to decline amid increasing adoption of digital and mobile channels, but deeper analysis shows that branches—and branch performance—still play a critical role in the success of most financial institutions. Many institutions, in fact, are opening or are planning to open branches.
A Look at the Statistics
Let’s take a closer look at branch trends in the United States. Consider the statistics below.
Brick-and-Mortar Banking is Not Dead
|Where we see declines in branch use and concentration....||Where the numbers tell a different story....|
|46% of customers use only digital channels (PWC)||86.7% of banking customers said they expected to still use physical bank branches two years in the future (BAI, February 2017)|
|The number of banks and credit unions declined by nearly 26% between 2009 and 2017 (depositaccounts.com, April 2017)||The number of branches declined by just 8% between 2009 and 2017. The number of branches per institution has increased to 9.7 from 7.8|
Consider the following additional data: The number of branches per institution has increased, with more than 1,200 banks expanding their branch network from 2012 to 2017. The majority of branch closings have occurred in the large bank segment since 2012. While nearly 50 percent of larger institutions have reduced branch counts, only 15 percent of community banks have decreased their branch count (The Wall Street Journal, June 2018). Despite the branch closings, Celent recently reported that many banks plan to expand their branch networks. The percentage of banks intending to open new branches, by bank asset size, is as follows:
- Less than $1 billion: 69 percent
- $1–$50 billion: 64 percent
- More than $50 billion: 50 percent
Focusing on Service
While branch foot traffic has declined with the continued increase in electronic and mobile channel usage, many customers continue to use and demand in-person service. Despite an increasing number of consumers who now use their personal electronic devices for simple transactions, such as verifying balances, making deposits, and transferring funds, many consumers and small business owners continue to use the branch as their primary channel. They prefer the personal interaction of the brick-and-mortar channel to open new accounts (85-90 percent of all new accounts are opened in branches [BAI, Jan. 2018]), get cash, pay bills, and obtain financial advice. Contrary to popular belief, even Millennials prefer face-to-face branch interactions when addressing account issues or performing more complex financial transactions (BankSource.net).
According to a survey performed by Raddon Research Insights, branch location and branch hours are still the two most important factors impacting the selection of a primary financial institution. Further, Jamie Morawiec, associate partner at CACI, recently stated that “with more than half of the population still likely to visit a branch in 2022, the branch still has an important role to play. Banks and credit unions must ensure that the function of the branch remains relevant, complements digital channels, and meets the specific needs of the demographics that use them.”
“The branch is evolving. The old branch model that relied on sheer numbers to win market share is being replaced by a more focused, customer-centric approach.” - US Banking Outlook 2017, Jones Lang LaSalle IP, Inc.
So if the branch is not going away, it is imperative to consider the relevance of branches to your institution, regardless of whether you plan to expand or contract your branch network. In doing so, it is vitally important to develop a branch strategy that best aligns with your customers’ (and potential customers’) needs while at the same time optimizing performance and supporting the institution’s goals. Below are some strategies regarding the structure and design of an evolving branch model.
Take a Retail Perspective
Focus on smaller-footprint branches that optimize the “front office” space. Create a layout, design, and atmosphere that is inviting, comfortable, and serves community needs while supporting a combination of sales, services, and individual/group education. As recently mentioned in a BAI article, consider leveraging the “dollar-per-square-foot” approach used by retailers as a key metric for branches. Apple has mastered this concept by renovating older stores and adding more open floor space, which increased selling room and condensed transaction space. When one considers why consumers flock to Apple stores—to learn what is new, deal with product complexities, and maybe even overcome fear—the comparison to branches is appropriate (BankNews).
Borrowing from retail stores further, branch staff should be trained and encouraged to get out from behind their counters and desks, greeting customers and directing them to the appropriate branch resources to meet their specific needs.
Integrate Technology into the Branch
Develop a design strategy that integrates both high quality technology and service. The goal and challenge is how to create both digital and personal experiences in the branch that are engaging and serve customers in the best and fastest way possible.
Branch technology is often being applied to shrink the back office and teller counter so institutions can put the space and time savings to better use. As customers do more of their banking through the convenience of new technologies, your branch staff should have more time to develop customer relationships and better understand the specific needs of each customer.
It is important to note, however, that customers expect the availability of both self-service and personal banking options; in fact, they expect to have access to all channels and choose what suits them best for each transaction. Multi-function scanners, cash recyclers, self-service kiosks, video ATMs, and other technologies are making it possible to reshape branch operations, drive down costs, and free up square footage and staff time for richer and more complex customer interactions (Bank News).
One final key is to provide a consistent experience across all channels. Factors such as the customer experience, user interface, and branding should be similar regardless of the delivery channel or technology (TruePoint).
Optimize the Staffing Model
With declining branch traffic, the traditional branch-staffing model must change. About 60 percent of bank branches are staffed at higher levels than required by customer traffic, with security, dual-control, and standard staffing protocols driving the number of staff. In addition to being economically unsustainable, traditional staffing models can degrade the customer experience because they rarely include the right mix of staff at the right time. (BAI, January 2018).
Getting it right requires rethinking the approach to branch staffing. Rather than a collection of individuals with specific defined roles (e.g., teller, customer service representative, personal banker), staff each branch with a team of players that can—and do—perform all branch functions. These team members will become a group of utility players, with the branch manager functioning as a coach (BAI, January 2018).
Financial institutions have experimented with this “universal” model, though they struggle to get it right. Too often, it simply involves cross-training staff to handle other functions, failing to change the cadence of how branches operate. This results in staff reverting to previous, comfortable roles (BAI, January 2018).
When technology fails, human interactions can help ensure a positive and consistent customer experience. Empower branch staff through training and guidance to deliver high-value solutions. By employing new technologies, you can also improve employee efficiency and arm staff with the knowledge to speak well and clearly to customers on the go (Bank News).
The customer is the key to developing your branch strategy. Where are customers banking, which channels do they use, and what products do they have and need? Once you understand your customers, and their behaviors and needs, then you can build a branch that is tailored to fit those needs. Everything from design to technology and available services should be based on customer needs and expectations (TruePoint).
Customers have many choices when interacting with your institution. Almost everything they can do in a branch can also be done via smartphone, a phone call, a computer, or by using advanced ATM machines. By visiting a branch, they are choosing to interact with a human. They don’t want to come into a branch only to be told, “Use our self-service terminal and do it yourself.” Instead, they want a personal experience they can’t get at home or via a mobile device, making “assisted self-service” a more appropriate strategy (BAI, January 2018).
Ultimately, the winning strategy for opening more branches centers on richer and more complex customer interactions. If the goal is not simply wallet share for loans and deposits, but expansion to a broader set of financial services (such as insurance, investments, and other financial products), then the branch is a significant asset in achieving that goal. An effective mix of space, technology, and service in the branch, all centered on current and expected customer needs, is a differentiator for financial institutions, turning branches into a competitive advantage.
Where Do We Go from Here?
Despite branch closures due to mergers and consolidations, the rumors of branch banking’s demise are overstated. Overall branch numbers and traffic are on the decline, but branches still remain the primary channel of choice for many customers. Along with new technologies and customer preferences, it is imperative to develop a branch strategy that not only make sense for your institution, but more importantly, makes sense for your customers. Despite a shift in customer preferences, technology advances, and disparate views regarding branch strategies, the branch and branch performance currently remain critical to the overall performance of most financial institutions.
In the remainder of this series, I will explore strategies for measuring and analyzing branch performance to help your institution guide and evaluate strategic decisions around branch growth and operations.