A Toolkit for Entering New Markets

By Deb Stewart

Who is opening new branches and entering new markets? Here is what the headlines say:

But those headlines tell only part of the story. A recent Wall Street Journal article pointed out that “more than 1,200 banks expanded their number of branches from 2012 to last year, according to data from the Federal Deposit Insurance Corp. Many of those are tiny—their assets averaging $1.65 billion, or less than 0.1% the size of the nation’s largest bank, JPMorgan Chase & Co. Still, the number of small banks adding to branch counts is meaningful, exceeding institutions closing locations over the same period by more than 200, according to the FDIC data.”

Why are digitally enabled banks still buying buildings and opening branches? A Novantas 2018 study provides some insight. The survey found that 60% of consumers still want to use the branch to open a new checking account. In other words, a branch presence is still a desirable element in a new market entry. And nearly every bank today finds itself in a position of either entering new markets or having other banks—big or small—enter their markets.

When you enter a new market

If you’re entering a new market, it’s either through an acquisition or de novo. And there are advantages for both. “Community banks need some presence in reasonably good adjacent markets,” says David Kerstein, president of Peak Performance Consulting Group. “A de novo strategy is highly controllable by you. What are the markets that are growing? Where is our target audience? Is there the right real estate? De novo doesn’t preclude you from doing the right acquisition, but it allows you to decide where you really want to be. The ultimate goal is focused expansion through de novo, acquisition or both.”

Ensuring a smooth acquisition process

Equity Bank, based in Wichita, Kan. has focused on expansion through acquisition in recent years. “When we merge with a bank, a key part of our messaging is to pay tribute to the bank we’ve chosen,” says John Hanley, SVP and Senior Director of Marketing. “What did that bank do successfully in the past? What is their history? Customers have chosen that bank. We want them to know that we recognize the value of that institution and its employees. We are there to build on that success.”

Here are some of the key tactics that Equity Bank has used to drive acquisition success:

  • Listen to new team members and the market. Always take the opportunity to have a conversation.
  • Identify a single point person for each branch. Have one person lead the branch through the whole process from announcement to conversion. Continuity and simplicity is key to building trust.
  • Show goodwill in new communities before conversion. Sponsor simple events like chili cook-offs to introduce your bank in a soft and friendly way.
  • Use social media. Begin social posts on Instagram, Facebook and LinkedIn six weeks before conversion. Encourage conversations through these media. Use email broadcasts to highlight your strengths.
  • Have a well-choreographed customer communication plan. Provide a playbook to each customer outlining the conversion process and new opportunities. Have plans for calling commercial clients as well as top retail customers.
  • Know your unique strengths. Equity Bank doesn’t charge ATM fees anywhere. Customized debit cards allow customers to put their pet’s photo or school logo or image of their choice on their card. An auto-save feature on checking does “round-ups” on purchases to build savings.

“You will have different messaging and different creative in each merger,” Hanley adds. It’s important for the messaging to reflect “differences in markets, but also differences in the banks you’ve merged with.”

Blazing the de novo trail

Century Bank, based in the very busy Boston banking market, typically goes into one new market each year with a de novo branch. “We’re opportunistic,” says Linda Sloane Kay, the bank’s EVP. “We are always looking for the right location in the right town.” Once they find that combination they use some specific tactics to enter.

  • Century is consistently in the Boston media market with television ads. “Bostonians know who we are,” Kay explains. “Our value proposition is unique for the market. We are a family-run bank and make it clear that the family is available to our customers. We are competitive on rates and digital access but our uniqueness is a sincere interest in customer’s lives and improving them—like family.”
  • Community involvement is essential to successfully entering new markets (and succeeding in old ones). This is a key accountability for branch managers, and Century’s work with nonprofits—including those in healthcare and education—is regularly honored in the broader Boston community.
  • The customer acquisition approach is based on the new market’s best opportunities. “When we opened in the Back Bay,” for example, “the opportunity for business banking was key. Hitting the streets with a clear message of commitment to those businesses, even before the branch opened, was a major factor in our success,” Kay says.
  • Although wealth management is not necessarily associated with many smaller banks, Century’s long history with tax-exempt bonds for healthcare and education clients provides an opportunity to manage endowments. The bank’s experience working with family businesses during legacy transition provides a unique entry point into this advisory service.
  • To reinforce the idea of the bank as Bostonian family members who are accessible to other family members, Century Bank employees write a personal note to each new account holder.

“We also do all of the other things you would expect,” Kay says—“direct mail, social media, grand openings, attending networking events. But it’s the things you don’t expect that have allowed us to grow and thrive.”

When a new bank enters your market

Heartland Bank and Trust Company, based in Bloomington, Ill., has acquired several banks in recent years and has also seen multiple banks entering its markets. “We are careful to focus our message on the benefits of doing business with us, not on the weaknesses of the entering bank,” says Nicole Williams, VP and marketing director. We work to target that messaging geographically (on drive patterns or residential). Our focus is on customers who may experience a bump with the new bank and determining what’s important to them.”

Here are some of the tactics Heartland uses to deliver that messaging:

  • Find out the acquiring bank’s conversion date. Begin your campaign tactics about two weeks prior and then for about two months afterward. If customers are going to experience a bump in the road that causes them to look, it is typically in that time frame.
  • Know your strengths. Heartland is community-focused and locally owned with localized decision making. They offer free checking. They present these strengths in different ways depending on the market.
  • Target direct mail within a radius. Focus on the area around the acquired branch locations and be sure to list your nearby locations.
  • Use geofencing with mobile ads. Try to catch customers who are visiting acquired branches. A simple product message—for Heartland, that would be free checking—works best in this media.

“The key is to stay in front of the acquired customers, and when they have a negative experience, you are on the top of their shopping list,” Williams advises.

Century Bank also has a lot of experience with new competitors, with numerous money center, regional, midsize and community banks entering its established markets—and it’s not slowing down, Kay says. What’s a smaller bank to do? “We watch new entrants carefully and may enhance our tactics in certain markets. But we prepare for new competition every day with a consistent, unique, personal approach to our markets and customers.”

Where is all this going?

There are some shifts in consumer behavior that may have an impact on historical acquisition assumptions.

Acquiring banks may retain fewer customers than in the past. “There are more sticky products today than in the past,” says Kerstein. “Mobile banking, the ease of biometric identification, less reliance on cash all make it easier to stay with your old bank even if your branch is sold. We’re beginning to see the edge of this trend but it’s important to be aware and watching for it.”

Banks may not need as many branches as in the past to enter new markets. Clearly, there isn’t much agreement on this assumption. Bank of America entered the Denver market in 2014 and had opened five branches by 2017 (some unstaffed and less than 1000 square feet). A similar strategy is being employed in Minneapolis, Indianapolis and Pittsburgh, building on existing wealth management, mortgage and other existing relationships in the market. On the other hand, Chase has announced its intent to enter the Boston market with 50 locations. Very different strategies are being employed by very large, well-regarded institutions.

Whether you’re acquiring or having a new entrant in your market, “community banks need to play on convenience and commitment to your local community, the branches’ trade areas,” Kerstein concludes. “Large banks will always have more branches. But it’s the idea of buying local, knowing who I’m buying from, helping my community that can help you win the game.”

Deb Stewart is a contributing editor to ABA Bank Marketing.com. Located in Charlotte, N.C., she is an independent consultant working for the financial services industry. Email: [email protected].