Brett King

How to reduce your branch footprint in an orderly manner (Ron Shevlin version)

In Branch Strategy, Future of Banking on May 4, 2012 at 17:49

I guess with a title like Branch Today, Gone Tomorrow it’s no surprise that a lot of people think I’m anti-branch. I’m not anti-branch, I just don’t drink from the branch kool-aid fountain that goes something like “if only we could find the right formula we’d reverse this trend of not visiting the branch and customers would flock back to our physical space”. I think most Bankers and Credit Union executives, instinctively feel there is a change in the importance of the ‘channel mix’, but as often as I hear questions about how quickly this is going to occur, I hear executives talking about how customers used to behave.

Why customers think they want branches
There is some valid behavioral data at work here that comes out through qualitative research supporting the role of the branch for legacy customers. That is, that there are still plenty of customers who say they want a branch – that doesn’t mean they will visit it, but they like to have them around. In Branch Today I examined the data and reasons for the recent rapid decline in branch activity, both from a visitation and transactional measure, but the question is why some customers still say they want to visit a branch?

There’s really only three things that drive a customer to a physical branch:

  1. I need a physical distribution point to deposit cash (primarily for small retail businesses)
  2. I need advice or a recommendation for a product or need I don’t fully understand, or
  3. I have a humdinger of a problem that I couldn’t solve offline, so I’m coming into the branch to get relief.

Branch bankers hang on to #2 for dear life, hoping that this will somehow keep customers coming back, helping justify those massive budget line items dedicated to real-estate; sadly it just isn’t happening that way. And yet, when you ask customers what determines their choice of ‘bank’ relationship, often the convenience or availability of a local branch, remains a stalwart factor.

Since the mid-80s, branches the world over have generally been transformed into streamlined cost/profit centres. The industry has attempted to reduce cost and improve efficiency to optimum levels and in this light customers have been forced to trade off between either big bank efficiency and utility, or the personalized service of a high street, community banker interaction without all the bells and whistles.

Despite this drive for efficiency there’s still a lingering psychology of safety in physical banking place and density, which stem from long memories over epidemic ‘runs’ on the banking system during the great depression. So what remains are two core psychologies that play to the need for physical places which reinforces the safety of a “bank” where they’re going to entrust their cash :

  1. I recognize that I visit the branch less and less for banking, but I’d like it to be there just in case I need to speak to someone face-to-face about my money or I have a problem, OR
  2. The more branches you have, the less likely you’ll go under in the case of a ‘run’ on the bank

But who is going to pay for the space?
The big problem with this, of course, is that as customers more commonly neglect the branch in favor of internet, mobile, ATM and the phone (call centre), the economics of the real estate and branch staff is no longer sustainable. So how do you have a space that still ensures the confidence of those customers that require the psychological ‘crutch’ of a space they might need to go to, but who aren’t willing to pay more for the privilege and won’t change their day-to-day banking habits back to the branch because the web and mobile are just so much more convenient?

The answer is two-fold.

The Flagship Store
If you need to instill confidence in the brand, then the best way is to build a new, large square footage space that screams new-age, tech-savvy branch banking with coffee and comfy chairs! Think the opulent Airline loyalty lounges that started to emerge in the late 80s. Think Virgin Megastores or the “Gold Class” cinemas of the 90s. Think Apple Stores today.

Brand spaces that inspire confidence. Enable a connection with your customers. Spaces that tell customers you’re all about service, advice and solving their banking problems – not about tellers and transactions.

Jeff Pilcher at FinancialBrand.com regularly covers the best of these new Flagship and Concept Stores, so head over there if you want some examples to work from. However, this is not exactly going to lower your bottom line around distribution. If anything it’s going the other way. Knowing that you’re going to have to downsize, the average FI will only be able to support a handful of Flagship stores in key, high-traffic, high-visibility location. So how do you equalize the ledger?

The Satellite Service Space
Supporting the Flagship stores at your secondary locations (i.e. anywhere that is not your best, most densely populated geography) will be very simple, cash-less brand presence stations. These will be small spaces in prime traffic locations like shopping malls, without any teller space, but the space to service the pants of a customer who needs that advice or help with a sticky problem. If they want cash, there will be an ATM. If they want to deposit notes or checks, the ATM can do that too, or you might incorporate a dedicated check deposit machine in the space too. In fact, the bank representative in the space could just use his iPad for that – although it’s better to move them to the ATM and go no transaction in the service space.

A good example of this sort of space would be the likes of smaller UPS franchise stores, or the BankShops of the TESCO variety in the UK. Small footprint of no more than 300-500 square feet, but enough space to represent your brand and tell customers they can still come and see if you if they need a solution.

UPS Franchise Stores

Spaces don’t need to be big to provide service

The ratio of flagship store to satellite spaces will probably be at least 10 to 1, if not greater. You don’t need every branch to be “big” in the new reality; to give your customers a level of comfort that you are safe enough to put your money with them. In fact, as the likes of UBank, ING Direct and Fidor show, for some customers you don’t need any spaces. But for those that still want a space ‘just-in-case’ then this strategy is a great transitional approach.

One day soon, within the next decade, we’ll need less than half the branches we have today. But as we make that transition, the need for a space to be available to provide service and support remains a key component of what we call financial SERVICES. It just doesn’t have to cost us the earth.

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  1. This is the best blog post you’ve ever written. I agree with EVERYTHING you said. And I disagree with all the things you didn’t say in this post. 🙂

  2. Glad you approve…

  3. Aside of retailers having their own captive personal finance spaces inside stores, wondering whether any banks have tied up with retailers to occupy small-shop spaces to leverage their massive network. If not why.

  4. Branches are easiest for new customer account opening and showing proof of Identity. They also advertise the brand and are its public face.

    • Jennifer: I’m with Ron on this. If you refer to the FDIC rules on CIP/KYC there’s absolutely no part of those regulations that give preference or advantage to account opening in branch or on the basis of identity verification:
      http://www.fdic.gov/news/news/financial/2005/fil3405a.html

      In fact, I would argue that current physical identity verification based on branch processes is actually far weaker than what is possible today digitally. You should refer to the work of people like Dave Birch from CHYP on this front, or check out connect.me and other new identity constructs.

      In terms of ease of use. Easiest for whom? If I’m at home on my iPad and I click on a “Apply Now” button, surely that’s far easier than driving down the branch, parking, standing in line for 15 minutes, filling out a 18 page form, signing it and then waiting for the staff to sort themselves out 🙂

  5. Jennifer: I don’t see why opening an account is any easier in a branch than online. With new ways of identity verification emerging, that part will become easier and more reliable, as well. As for being the “public face”, a bank’s website is the public face far more frequently, to far more of the customer base, than branches are.

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