Tag Archives: branch

Five Branch Channel Trends

At the recent Barclays Global Financial Services conference, presentations by leading U.S. banks highlighted the extent to which they are adapting their branch networks, based on the need to reduce costs, leverage new technologies, and reflect changing customer behavior.  The following are five branch channel trends that emerged from the conference:

  1. Reduction in branch numbers.  Many of the larger banks are closing unprofitable branches.  Bank of America and SunTrust both reported 7% falls in their branch numbers over the past two years.  BB&T cut its branch network by 3%.  According to FDIC data, there was a net decline of 839 branches in the year to June 30, 2013.
  2. Emergence of new branch models.  Banks are no longer following a one-size-fits-all model for branches, and instead are deploying different types of metrics based on a range of factors, such as market characteristics, branch density and competitive strength. First Horizon is piloting a concierge branch model in Memphis, Nashville and Knoxville, featuring no teller rows and staffed by universal bankers.  The Fifth Third micro-branch format, which it expects to pilot in the coming months, has 2-3 staff in self-service, non-cash-handling branches.
  3. Flagship branches and lower density. PNC presented its new hub-and-spoke branch model, which features an all-purpose universal branch surrounded by cashless branches, ATMs and electronic channels.  This comes as PNC plans to close 200 branches in 2013.  Other banks that have recently opened flagship stores include Bank of America, Citibank and Umpqua Bank.
  4. Overhaul of branch staffing and training. As branches process fewer everyday transactions, and the role of the branch shifts towards sales and customer relationship management, banks are reducing teller numbers while deploying additional specialists in branches.  In the first 6 months of 2013, PNC reduced its teller headcount by 6%, while growing investment professionals by 17%.  Bank of America claimed that its specialist headcount has grown to 6,800, with half of these based in branches.  In addition, banks are training and supporting staff to enhance their selling capabilities.  SunTrust reported that investing in training and technology for front-line retail staff resulted in a 30% rise in sales productivity (sales per FTE per day).
  5. Branch as beachhead. City National discussed the establishment of a branch in New York City, far from its Californian retail banking footprint. This branch is designed to support the bank’s targeting of the entertainment industry.  And other banks have established beachhead branches outside of their retail banking footprint, both to build brand awareness as well as support the banks’ commercial banking and capital markets activities, which tend to have nationwide reach.  This week, BB&T announced that it is establishing a presence in Chicago.  Earlier this year, BBVA Compass announced the opening of loan-production offices (focusing on commercial banking and wealth management) in New York and Washington, D.C.  And in October 2012, BMO Harris opened a corporate banking office in Atlanta.

EMI expects there will additional changes to branch deployment, design and staffing to its role fundamentally shifts away from everyday transaction processing, and more towards selling, providing advice, as well as branding.

Bank Results Highlight Branch Network Resiliency

The emergence of online and mobile banking has led to many financial industry commentators to question the sustainability of the branch channel.   Recently-published data from three leading banks (Chase, Bank of America and Wells Fargo) indicates that online banking has achieved critical mass (with huge numbers of users, but low/no growth), while mobile banking is rapidly emerging as a key banking channel.

Does the emergence of online and mobile banking presage the end of branches? EMI’s analysis of the latest data on the top 15 branch networks indicates no significant evidence of banks dramatically scaling back their branch numbers.

  • Of the top 15 branch networks, 7 grew between end-2011 and January 2013, while 8 declined.
  • The largest growth in numbers came from PNC (due to its acquisition of RBC Bank in 2012), Chase and BB&T.
  • The largest declines came from Bank of America, which has signalled its intent to cut its branch network by 10%; and RBS Citizens.

Bank executives reiterated their commitment to the branch channel in reporting their latest quarterly earnings. However, they also highlighted the need for changes to the branch channel in the context of changing customer channel usage and technological advances, as well as the ongoing need to control costs.  Changes will probably involve some reductions in branch numbers, as banks eliminate underperforming individual branches and exit geographic markets where they feel they cannot gain critical mass.  Of course, banks may also seek to grow their branch presence in targeted markets (as Chase is doing in Florida and California).  In addition, bank need to make significant changes to branch design, staffing and operations, a topic that EMI discussed in a recent blog.

U.S. banks are reducing, repositioning branches

An EMI analysis of recently-published quarterly bank data by the FDIC found that U.S. banks are continuing to reduce branch numbers.

U.S. branches are very heavily concentrated in a limited number of banks:

  • Just 50 banks (<1% of all banks) hold more than than half of all branches (51%).
  • More than 6,100 banks (93% of all banks) have five or fewer branches.  And, of these, more than 1,400 branches have just one branch.

Bank branch numbers change based on bank merger-and-acquisition activity, purchase and sale of portions of branch networks, as well as organic growth.

  • Over the past year, the vast majority of banks (83%) did not change branch numbers.
  • 548 banks (8% of all banks) grew their networks by a total of 2,359 branches.  PNC had the largest growth (+421 branches), largely due to its acquisition of RBS Bank as well as an Atlanta branch network from Flagstar Bank.  Chase also had strong growth (+185 branches), driven by organic growth in key expansion markets like California and Florida.
  • 609 banks (9% of the total) reduced their branch networks by a total of 3,092 branches.  Aside from bank sales/closures, the bank with the largest decline was Bank of America, which is in the process of cutting its branch numbers by 10-15%.

Even following the reduction in branch numbers, there are almost 98,000 bank branches in the U.S., so clearly the branch channel is not going away anytime soon.  However, more and more customers are gravitating to self-service electronic channels for their everyday banking needs, so a reassessment of branches’ traditional role is needed.  At the same time, branches have untapped potential as sales, advice and marketing channels.  The following are some key areas that banks need to focus on to both right-size their branch networks and equip these branches to realize their full sales, service and marketing potential:

  • Network density.  Banks will need to determine optimal branch density in key markets, in order to maintain a significant physical presence, and deter competitive market entry, while avoiding significant overlap between branch catchment areas.
  • Branch size. Less traffic in branches will necessitate smaller branches in some markets.  Some banks are already creating a variety of branch formats to reflect different market opportunities (as defined by market profiling that covers information like the number/projected growth of people and businesses within a radius of the branch, the bank’s overall strength in the market, as well as competitive intensity).
  • Branch design.  The design and layout should reflect branches’ new sales and advisory role, with less space for teller counters, and a layout more conducive to staff-customer face-to-face interaction.  Recognizing that branches play an important branding and PR role for the banks, many banks are redesigning branches to convey a more customer-friendly image and promote connections with the local community.
  • Staffing. Again, the changing role of the branch will mean that there will a reduced need for tellers with a greater role for specialists, such as mortgage bankers, investment advisors and small business bankers.  Staff training and support tools will need to reflect their new roles in the branch.
  • Technology and channel integration. As banks change the design and staffing of branches, they are incorporating technology to showcase new products and services, connect with remote staff (e.g., using videoconferencing in the branch to connect to financial advisors), and promote other bank channels (Bank of America is using QR codes in teller counters to enable customers to download its mobile banking app.)