Adapting Branch Networks in the Era of Digital Banking Dominance

There’s no longer any question that banking has hit the digital tipping point. According to a 2019 American Bankers Association (ABA) survey, the banking channels used most often by consumers are online (37%) and mobile apps (36%), with bank branches now in third place at 17%. But before we declare the branch model is doomed…take note: a 2018 Celent survey found that 77% of consumers prefer visiting a branch to discuss a lengthy topic, 63% prefer a branch for investment advice, and 51% opt for a branch to open a new deposit or credit card account. And Deloitte’s Global Digital Banking Survey revealed that branch experience influences customer satisfaction more than mobile or online channels.

So while banks are investing more and faster in digital platforms, they are also looking to solve the puzzle of next-gen branch banking. Here are 3 ways that banks can reinvent their human channels to perform effectively in a digital world.

Reduce the overall number of branches, but look to open branches to expand reach.

Over the past decade, there has been a net decline of more than 13,000 bank branches in the U.S.

The pace and extent of each bank’s branch reductions have varied widely, driven largely by growth opportunities in footprint geographies and competitive intensity:

  • In April 2019, midwest-focused U.S. Bank announced plans to trim up to 15% of its branches by the end of 2021 as it pursues a digital-first strategy.
  • Wells Fargo’s branch strategy maintains significant branch presence in attractive markets, while aggressively reducing branch counts in other markets.

Lower branch density has reduced the cost of entry into some new markets. While many banks are cutting their overall branch numbers, they are also opening branches in targeted strategic markets.

  • In 2018, Chase announced plans to open 400 branches in 15-20 expansion markets, including Boston, Washington, D.C. and Philadelphia. As a result of this expansion, Chase’s branch network coverage will rise from 69% to 93% of the U.S. population.
  • Similarly, though Bank of America has reported a net reduction of more than 750 branches over the past five years, it has also opened 200 new branches, with another 400 expected to open over the next three years in markets like Cincinnati, Cleveland and Pittsburgh.
  • To achieve its ambition of national presence, PNC has targeted new markets with a digital-first strategy supported by a thin branch network. It recently opened branches in markets like Dallas and Kansas City, and reports these new branches are generating deposits at five times the pace that the bank would expect for a de novo branch in its legacy markets.

Reimagine branches.

Branches have long since begun transformation from service centers to…well, something else. Some banks have set an immediate course for sales, driving service transactions to smart ATMs and contact center hotlines and pulling real estate from tellers to sellers. Other FIs have redesigned select branches or entire networks as everything from experiential attractions to coffee houses to community centers.

Universal trends are fewer square feet and more open space. Matching those changes, branch headcount is lower and skill levels higher. From the nation’s largest banks to some of the smallest, branches are being reinvented.

  • On the regional end of the scale, 132-branch Berkshire Bank is introducing new “storefronts” in greater Boston. No tellers, but if you need to make a conference call, you’ll find free co-working spaces and event rooms. Just be prepared to have a “needs assessment” with your friendly Berkshire banker coming or going.
  • Global bank, HSBC deployed “Pepper,” a humanoid robot in New York City, Seattle, Beverly Hills and Miami. Likely more of a marketing play than a scalable technology innovation, the bank claimed that the presence of Pepper boosted business by 60% in New York alone.
  • Chase–ever practical–launched Digital Account Opening in branches, so the technology can handle the busywork leaving bankers time for providing advice (read selling). And Bank of America is in the middle of a six-year plan to renovate 2,800 branches, flat-out taking humans out of many, leaving only machines.
  • Oregon-based Umpqua takes a contrarian view that people want to bank with people, and invites branch traffic with cookies, chocolate coins, movie nights and marketplaces where small business clients can share their wares with retail customers.

Make physical and digital work together. Human matters.

Intuitive technology is good for reducing cost, but humans are better at driving sales, creating relationships and building loyalty. Beyond the small businesses and aging boomers who still prefer the corner bank to the cool app is the reality that in “money moments that matter,” people turn to people–whether it’s in a branch or a contact center. But those humans must be consistently positive, empathetic and “know” everything that the technology channels know. Winning banks will:

  • Design an onmichannel approach that enables customers to use the channel they choose with consistent experience
  • Recognize the brand value and acquisition horsepower of branch networks
  • Give your customers great digital experiences, but power your human channels with the best in technology and insights to make the most of those moments that matter

7 Small Business Marketing Tips for Banks

There are more than 31 million small businesses (6.0 million employer and 25.7 million nonemployer firms) in the U.S. and the vast majority of banks provide a range of banking services to this segment.  However, many banks do not have a dedicated small business marketing programs.  This is in part due to the small business segment often falling between two key segments: consumer and commercial. 

For banks to effectively grow their small business banking franchise, they need to identify the unique characteristics and financial needs of this segment, and then build an integrated series of marketing initiatives to drive small business awareness, interest and engagement.

The following are 7 areas where banks should focus attention in developing small business marketing initiatives:

  • Incorporate small business into bank advertising campaigns. It’s expensive to develop dedicated small business advertising campaigns; only small business finance specialists (such as Kabbage) or the very largest banks do so. However, banks can highlight their commitment to the small business market by featuring small business owners and services in bank-wide brand campaigns.
  • Build marketing initiatives and offers around National Small Business Week. National Small Business Week is organized by the U.S. Small Business Administration (SBA) and takes place each year in May. Many banks now celebrate the week with special offers, events and other initiatives targeted toward small business needs.
  • Participate in/host dedicated small business events. Many banks speak at, exhibit at or sponsor small business events in their footprints, which helps to position them as a provider of advice and services to small businesses, while also allowing banks to engage directly with small business owners. Banks that have invested significantly in small business events include Chase (which hosts regular Chase for Business Conferences in various cities, most recently in Pasadena and Columbus) and Wells Fargo (which participates in Small Business Expos throughout the country).
  • Leverage the branch network. A Mercator survey found that 79% of U.S. small businesses visit a bank or credit union branch at least once a week. Owners also want to create and maintain networks within their local markets. Banks can leverage business owner branch affinity and networking needs by hosting events in their branches. In addition, banks should deploy dedicated small business bankers in larger branches, as well as incorporate small business signage and collateral into all branches.
  • Carry out small business surveys. A wide range of banks now carry out regular surveys that both provide a gauge of small business health (optimism, key challenges, opportunities) and reveal small business attitudes toward hot topics (e.g., tax reform, regulations, technology usage). Banks are increasingly publishing findings in more creative formats, such as infographics. It is also worth noting that banks conduct these recurring surveys at different intervals:
  • Create dedicated small business portals. Most banks have built and branded online small business portals that act as a one-stop shop for small business information and advice.  To encourage repeat visits to these portals, banks need to provide a range of content (articles, case studies, podcasts, webinars, videos, infographics) organized around key small business needs or life stages (e.g., starting a business, selling a business), and designed to create an excellent user experience.  Prominent small business banking portals include:
  • Develop a dedicated small business social media presence. Banks can emphasize their commitment to the small business market, as well as promote various small business events, offers and other initiatives, by creating a dedicated small business presence on social media, particularly on Twitter. Banks with dedicated small business Twitter handles include:
    • Chase for Business (@ChaseforBiz, 191,851 followers)
    • Wells Fargo (@WellsFargoWorks, 57,715 followers)
    • Capital One Spark Business (@CapitalOneSpark, 42,318 followers)

With the wide range of marketing options at their disposal, it is vital that banks do not use a scattergun approach to their small business marketing initiatives. Instead, banks should look to create an integrated small business marketing plan that includes goals and objectives, reflects overall bank positioning, has consistent messaging and creative execution, and works in tandem with the bank’s small business sales and service channels.

Banks Are Reducing Branch Networks…But Remain Committed to Human Channels

In reporting their quarterly and annual financials, leading U.S. banks reported continued declines in their branch networks.

These declines are driven by banks’ need to cut costs, as well as reflecting the significant shift to digital channels by consumers and businesses for their everyday banking needs.  However, There is plenty of evidence that banks remain fully committed to their human channels, especially the branch channel.

  • JPMorgan Chase announced last week that it plans to open up to 400 branches in the next five years in new markets.
  • At its 2017 Investor Day, Citigroup discussed its retail banking campaign in Manhattan, which featured three new Citigold Centers as well as the addition of 70+ relationship managers and financial advisors.  This campaign led to a 16% rise in checking deposits, 18% growth in assets under management, and 35% increase in personal and home equity loans.
  • Wells Fargo has a branch presence in more than 460 markets, which it considers to be a competitive advantage over national banking competitors such as Chase and Bank of America, both of whom are in less than 250 markets.  Wells Fargo also highlights that it is in the 15 fastest-growing U.S. markets.
  • Fifth Third presented its “bricks and clicks” approach at its Investor Day, which articulated the roles of both digital and branch channels as well as the importance of integrating these channels.

Why do banks remain committed to human channels?

  • While digital channels are effective for day-to-day banking needs, bank clients tend to prefer human channels for their more personal and complex banking needs.
  • With the switch to digital channels for everyday banking, banks no longer need highly-dense networks in order to establish or maintain a physical presence in new markets.
  • Reflecting their changing role, branches are increasingly staffed with specialists (e.g., mortgage bankers, small business bankers, investment bankers) who increase branch effectiveness as a sales channel.
  • Maintaining a branch presence in a market is key to raising and maintaining brand awareness and affinity.

Banks need to invest in both human and digital channels, in order to reflect customer needs, preferences and behaviors.  A truly integrated channel strategy and structure, which is built around the customer journey, and which reflects the unique attributes of both human and digital channels, is vital for banks to optimize returns on their channel investment.