By Bill Yeomans Jr. and Sean Branagan
“We believe that retail banking will look very different in 2020 than it does today,” a PriceWaterhouseCoopers (PwC) Retail Banking 2020 report states. “This future will require institutions to be agile and open, ready to explore different options in an uncertain world.”
Industry analysts and consultants such as Celent, McKinsey, FIS Global and Diebold all agree and detail how branch networks are undergoing transformation focused on cost reduction, more effective staffing, and new more-efficient layout and design concepts. Interestingly, the PwC report also identifies that the threat level is highest among regional and community banks, which also happens to be the place where the fewest actions have taken place to transform bank branch networks.
So, what does this have to do with bank marketing executives? The short answer: EVERYTHING!
Every bank executive knows that his/her organization faces a unique combination of what every bank faces: the reality of changing consumer preferences, technological advances, industry consolidation, the emergence of nonbanking competitors, and increased regulatory pressures. Institutions must adapt to remain competitive, profitable and relevant. From a market perspective, banks are being forced to move beyond traditional brick-and-mortar to deliver a multichannel experience for customers. In addition, banks must constantly find safe and secure ways to cut expenses to improve both efficiency and profitability.
All these factors become visible realities in the branch network—especially for regional and community banks, who are defined by their community presence. The marketing reality is that each institution has a unique relationship to its branch network, which has a unique relationship with its community.
Leading voices in the banking industry see this situation and often boil it down to a simple question: To close or not to close?
But smart bank executives know that the process is much more nuanced. A spectrum of options should be explored and understood within the context of each bank’s operating philosophy and market position. But these executives are being drowned out by headlines and statements such as: Everything is going online. The branch is dead. It’s inevitable.
But wait a minute. We have seen this movie before.
The retail industry in the late 1990s and early 2000s faced many of the same issues. At that time, experts were declaring: “All retail will be online … It’s over … It’s inevitable.” The future belonged to companies like Amazon, Ebay, and brick-and-mortar retailers were dinosaurs, ready for extinction. Remember?
But what you may not remember is that this is exactly when Apple launched its Apple Stores and other smart retailers took actions to become more nimble with their real estate strategy, creating options and flexibility in their approach to brick-and-mortar retailing. Today, the success of Apple, Target and Wal-Mart is legendary and commanding. Sure, e-commerce has become an important channel for retailing, but even15 to 20 years later, most people don’t realize that online retailing represents only only seven percent of total retail sales in the United States.
With this historical perspective, here are five steps a bank executive should consider to prepare their branch network and create options and flexibility for the exciting and uncertain future.
- Inventory your branch network.
Much like a commercial real estate professional, you should review the number of branches and for each one determine: the age, size and location of each branch. This will provide you with clarity in terms of the playing field. (Some of this sounds tedious and time-consuming. But if you own branches, like it or not, you are in the real estate business, and you need to act like it.)
- Determine the business status of each unit in your branch network.
For each branch, examine top-line sales, efficiency ratios, transactions per month, deposit levels and trends, revenue by full-time equivalent against industry standard, loan origination activity, overall profitability, and strategic considerations (negative and positive).
Is there any unnecessary expense leakage, inefficiency or redundancy? Which branches are oversized? Which branches are underperforming? How expensive is each branch? Remember to include occupancy, depreciation, taxes, insurance, property management utilities, and personnel/staff. Where is the anticipated growth or decline?
Are there branch gaps in your service area? (Remember, you can’t predict the future. But you can prepare for it.)
- Consider your customer’s relationship to your branches.
While the branch network may appear to have a grim future, branches can represent fertile ground for certain kinds of consumer preferences. Who are your customers? Are you targeting commercial customers, high net-worth depository relationships or young urban millennials?
Based on differing operating models and customer bases, the branch network will likely mean different things to different people. Did you know that mobile users go to bank branches X times per month? Did you know that digital native millennials expect and appreciate a high-touch face-to-face experience in retail? (Consider Starbucks, Chipotle and others.)
How will these and other emerging trends play out in your branch network? (This area is where a bank’s marketing executives can help lead the way through. How can your bank become “the Apple Store of the banking industry?”)
- Create a vision story of your bank’s future.
Take the information in steps 1, 2 and 3 and make it into a story. Make it real. Create a story for each of your customer profiles. A good starter is “I see the day when…” (We are humans. We love stories. They motivate us to action. Your board, your management team, your employees and your customers are all humans, right? And they want to live in the future, right? Make a vision story of the future of your branches.)
- Place this vision in strategic context.
For years, banks have tied their identity to real estate that projects strength, position and security. But, the reality has changed and the branch network typically represents both a noncore investment and a noncore management focus of a bank’s total operation. Are you considering consolidation, merger, and/or investment into new delivery channels such as mobile technology? What is the strategic direction for your bank? (This is a confidential version of the vision story, used by management to guide decision-making. Marketing executives should be a part of this strategic conversation.)
The future of retail banking is being born. Finding your place in that future is partly a market function.
An examination of an institution’s current branch operating model is important as it relates to the strategic planning and financial impact. While taking the first steps in examining your branch network may appear to be an overwhelming or unpleasant task, these few initial steps will provide some of the information and decision support necessary for taking action, rather than reacting to industry news and topical trends. It will also provide a smart marketing executive the vision and insight to contribute more to the overall strategic plan for the bank.
Bill Yeomans Jr. is president and Sean Branagan is vice president of marketing for Brookline Branch Services, Brookline, Mass., providing branch solutions and programs for regional and community banks.