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

Four Channel Trends in Leading Bank 4Q15 Financials

The largest U.S. banks have been publishing their quarterly and full-year financials over the past two weeks.  Within these reports, we can discern a number of channel-related trends.  These trends have a direct impact on how banks interact with their customer base in terms of providing everyday banking and value-added services as well as cross-selling additional products and services.

We’ve listed these key channel trends below:

  • Banks are continuing to reduce their branch networks.  According to SNL Financial, the total U.S. branch network fell by 1,614 branches and is now at 92,997, a decline of 1.7%.  These declines are driven by banks’ desire to cut costs, as well as from a recognition that greater usage of self-service channels for everyday banking transactions may enable banks to reduce bank density.  The following chart looks at net changes in branch numbers for leading banks with more than 500 branches:


Citibank reported that it plans to close an additional 50 branches in the first quarter of 2016 as it exits certain markets (including Boston) and will concentrate its branch presence in six key metro markets.  It is worth noting that in other markets where Citibank has cut its branch presence, it claims to have retained over 50% of deposits through its online and mobile channels.

  • Banks are overhauling branch design and staffing.  Not only are banks reducing their overall branch numbers, they are changing how branches are designed and staffed.   In its 4Q15 earnings conference call, SunTrust mentioned that it is relocating to new, smaller branch locations in Richmond and Raleigh, which will reduce its square footage in these markets by half.  Overall, it has reduced its branch footprint by 2.5 million square feet over the past four years.  PNC reported that 375 of its 2,600 branches have been converted to its Universal Banker model, and it plans to convert an additional 100 branches in 2016.
  • Mobile banking is maintaining its strong growth trajectory.  According to Javelin Strategy & Research, 30% of U.S. adults used a mobile banking service weekly in 2015.  Reflecting this trend, leading banks continue to show double-digit y/y growth in mobile banking users (Chase +20% to 22.8 million; Bank of America +13% to 18.7 million; and Wells Fargo +15% to 16.2 million).  These customers are also using mobile banking for a greater variety of transactions.  For example, Bank of America reported that mobile banking’s share of total deposit transactions rose steadily from 4% in 4Q12 to 15% in 4Q15.
  • Online banking usage remains strong…and is growing.  While mobile banking garners most of the headline in financial trade press, online banking remains a key customer service channel, and some leading banks continue to register strong growth rates in online banking users.  This is likely due to a number of factors, including overall account growth, increased customer comfort with using online banking, new online banking functionality, as well as lingering concerns over mobile banking security.  The following table compares 2015 online and mobile banking users and growth rates for Chase, Bank of America and Wells Fargo:


We expect that as banks continue their migration towards self-service channels for a growing number of everyday banking transactions, banks will continue to scale back their branch networks.  This will involve reducing branch density in particular markets, as well as exiting markets where they lack a critical mass or where their branches are underperforming.  However, banks in general want to maintain a physical presence in markets, so they can leverage the power of the branch as both a sales channel and a branding beacon.

In addition, banks need to provide a consistent user experience across their online and mobile channels.  In the short term, banks will continue to provide more functionality in the online channel, as consumers build trust in using their mobile devices for more complex financial transactions.  But the distinctions between online and mobile channels are blurring, and banks are already starting to refer to “digital channels” to encompass desktop, tablet and mobile channels.  Even the traditional delineations between “online” and “offline” channels are breaking down, as banks showcase their digital services in branches, and as digital channels include functions to enable customers make in-branch appointments.


10 takeaways from leading credit card issuer 2Q15 financials

The major U.S. credit card issuers have now published their quarterly financials.  A review of these reports by EMI revealed the following 10 trends:

  1. Outstandings are growing. Credit card loan growth is once again being led by regional bank card issuers (such as SunTrust and Wells Fargo who tend to cross-sell cards to existing bank customers), as well as card “monolines” (such as Capital One and American Express). Banks with national credit card operations report lower growth (or even declines) as a result of the lingering effects from the financial crisis, runoff of promotional rate balances, as well as high payment rates. But even here we are seeing signs of growth: although Bank of America reported a 1% y/y decline in average outstandings, it also reported its largest quarter for new account origination since the fourth quarter of 2008.
  2. Volume continues to grow, but with some slowdown. Some leading issuers continue to grow volume at double-digit rates (Wells Fargo grew loans and volume by 15%, boosted in part by the bank’s acquisition of the Dillard’s portfolio). Other issuers had lower volume growth, and many pointed to the impact of lower gas prices. For example, Discover reported volume growth of just 2%, but absent gas prices, this growth was 5%.card_volume_2Q14-2Q15
  3. Net charge-off rates continue to decline to historic lows. For many leading issuers, net charge-off rates are well below historic norms. In addition, the rates continue to decline; of the 13 issuers studied, 12 reported year-on-year charge-off rate declines.
  4. 30+ day delinquency rates are also declining. Delinquency rates tend to be a leading indicator of future charge-offs, so it is notable that 30+ day delinquency rates continue to decline.
  5. The profit picture is mixed for issuers. Six leading issuers provide credit card profitability data, as they operate standalone payment units. Four of the six issuers reported y/y declines in profitability as growing expenses exceeded revenues. However, Chase increased net income  for its Card Services unit by 33%, driven by lower costs (9% decline in noninterest expense, and 10% fall in provision for loan losses). American Express grew its U.S. Cards net income by 15%, as revenue growth of 6% and a 4% decline in provisions exceeded a 4% increase in noninterest expense.
  6. Growth in lending and volume are driving revenue growth. In the wake of the 2008 Financial Crisis and subsequent industry retrenchment, credit card industry revenues fell significantly. As the economy stabilized and then grew, leading issuers continued to struggle to attain revenue growth. Now the return to outstandings growth, as well as continued loan growth, is finally enabling issuers to increase revenues.
  7. To support this revenue growth, card issuers’ noninterest expenses are increasing. The rise in revenues is driving growth in expense areas like marketing and rewards costs. Of the five issuers providing noninterest expense data, four reported y/y increases, led by Discover (+18%) and U.S. Bank (+13%).
  8. Provisions for loan losses are (mainly) decreasing. As net charge-off and delinquency rates continue to decline, three issuers reported y/y declines in their provisions for loan losses. However, Capital One and U.S. Bank increased provisions, with Capital One growing provisions by 69%.
  9. Issuers are increasing credit card yield. Of the seven leading issuers who reported card yield in their financials, six reported y/y growth. The exception was Wells Fargo, which had the highest yield in 2Q15. However, five of the seven reported q/q declines; the exceptions were Fifth Third and SunTrust, which had the lowest yield among reporting issuers.
  10. Issuers are using a range of channels for new account acquisition. In general, cards issuers are continuing to reduce their dependence on direct mail for new card acquisition, and are focusing more investment on digital and branch channels. Chase reported that its online channel accounted for 62% of new card accounts in 2Q15. Even though Citi is continuing to cut its U.S. branch network, it reported that credit card acquisition via branches was up 10% on a same-store basis.