7 Ways Banks Are Adapting Branch Networks to New Realities

September 28, 2015

According to the FDIC, there were just over 94,000 domestic bank branches at the end of June 2015: a net reduction of almost 1,400 branches from end-June 2014, and a decline of more than 6,000 branches since the U.S. passed the 100,000 branch threshold in mid-2009.

The recent decrease in the number of branches is being driven by a number of factors, including banks’ focus on cutting costs in recent years. In addition, the emergence and strong growth of online and mobile banking usage has led to consumers significantly reducing their use of branches for transaction processing. So how are banks adapting their branch networks to this changing channel environment? An analysis of presentations by leading U.S. banks at the recent Barclays Global Financial Services Conference identified a number of ways that banks are restructuring, repositioning, redesigning and restaffing their branches to ensure that this channel survives and thrives into the future.

Continuing to pursue branch consolidation. While banks continue to emphasize their commitment to the branch channel in general, they have cut their overall number of branches in recent years, and will continue to do so. At the Barclays conference, KeyBank reported that it had cut its branch network by 10% in the past three years, and envisages a further ongoing reduction at a rate of 2-3% per year.
Selling off (and acquiring) branch networks. Most leading banks believe they need to have critical mass in particular markets. If they feel that they cannot achieve this goal, they may decide to exit the market entirely. Citi is exiting a number of markets, as it seeks to focus on just 6 major metro markets. Fifth Third recently announced that it is ending its branch presence in Pennsylvania. These branch sell-offs create opportunities for other banks who want to grow their presence in those markets (BB&T acquired Citi’s branch network in Texas, and F.N.B is buying Fifth Third’s 17 branches in Pittsburgh).
Developing a hub-and-spoke approach. Rather than having a dense network of similarly-sized branches, some banks are looking to establish a hub-and-spoke approach in specific markets. This approach typically features a flagship branch as well as a reduced number of small branches. At the Barclays conference, Synovus claimed that it was applying a hub-and-spoke system. Other banks with flagship branches include Bank of America and Citibank, which now has flagship branches in four of its six target U.S. metro markets.
Redesigning and re-staffing branches. As the branch channel’s primary role shifts from transaction processing to sales and service, leading banks are overhauling store layouts and are replacing tellers with product experts. In addition to closing or consolidating 400 branches in recent years, PNC reported that it has converted 300 branches to its universal banking model (featuring concierge stations and reformatted teller stations). In addition to providing enhanced sales and services to branch visitors, PNC claims that these branches cost 45% less than traditional branches. In terms of staffing, Bank of America reported that it has added nearly 1,200 financial solutions advisers and small business bankers over the past two years.
Growing in-store branch networks. Banks like Huntington and U.S. Bank have significant in-store or on-campus branch networks, and remain committed to this channel. Huntington Bank recently announced that it was adding 43 in-store branches in Michigan via its relationship with Meijer Stores.
Incorporating new functionality into online and mobile banking services to drive branch traffic. Bank of America reported that its clients used the bank’s online and mobile apps to schedule an average of 14,000 branch appointments per week in August 2015. And in September 2015, Bank of America announced online and mobile banking enhancements, which included enabling clients to make same-day financial center appointments.
Applying guerrilla marketing tactics. Banks are becoming more creative in how they establish a physical presence to better interact with clients and prospects. Leveraging its relationship with the Green Bay Packers, Associated Bank has set up a virtual branch in the parking lot of Lambeau Field to target tailgaters.

While the overall number of branches is likely to continue to decline, most banks appreciate the key role that branches play in sales, service and branding, and remain committed to the channel. However, banks will continue to adjust branch density, design, layout, staffing and integration with other channels, in order to control costs and adapt to new consumer preferences and behaviors in how they interact with their banks.

5 channel takeaways from 1Q15 U.S. bank financials

April 29, 2015

The quarterly reports of the leading U.S. banks revealed a number of important channel trends:

Mobile banking is continuing its strong growth. Three of the leading U.S. banks provided quarterly updates on active mobile banking users, and each reported double-digit y/y growth in 1Q15: Chase +22% to 20.0 million; Bank of America +13% to 16.9 million; and Wells Fargo +19% to 14.9 million. According to eMarketer, more than half of adult mobile phone users are expected to use mobile banking in 2015.
Consumers are transitioning to self-service channels for a growing range of transactions. PNC reported that 50% of its consumer customers used non-branch channels for a majority of their banking transactions in the first quarter of 2015, up 7 percentage points y/y. PNC also reported that the non-branch (ATM and mobile) channel share of deposit transactions doubled from 20% in 1Q13 to 40% in 1Q15.
Many banks are slowly shrinking their branch networks. Leading banks who reported significant branch reductions in the most recent quarter include: Citibank (down 61 during the quarter, as its pursued its strategy of consolidating its presence in 7 U.S. markets), PNC (-37 branches), Regions (-33) and Chase (-31 ). Although Bank of America has closed more than 800 branches over the past three years, the net branch decline fell to 20 in the first quarter of 2015.
Some banks are growing branch numbers…and in-branch sales staff. In spite of the general perception that the branch channel is in the process of terminal decline, some banks are in fact acquiring or opening branches in order to capture growth opportunities. Huntington Bank reported the addition of 43 new in-store branches in Michigan. And even though Bank of America reduced branch numbers by 260 over the past year, it grew sales specialists by 5%.
Banks remain committed to the branch network as consumers use multiple banking channels. While electronic self-service channels have a dominant share of everyday banking transactions, branches still play a key role in areas like new account generation, customer relationship management (including cross-sell), and branding. Wells Fargo claims that its most loyal customers are not those who have the most products, but rather those who use the most channels most often. It reported that mobile banking sessions rose 38% in 2014, while branch visits remained steady.

Five Ways to Reinvent Bank Branches

June 18, 2014

Recent banking industry news continues to highlight growth in self-service channel usage, and an ongoing shift away from branch channels.

The latest data from the FDIC shows that there were 96,684 domestic branches at the end of March 2014, a net decline of 672 branches from the end of March 2013. While the y/y decline is less than 1%, the number of branches has been steadily declining in recent years.
In a recent presentation, Regions reported that branch transactions fell 8% in 2013, while mobile banking interactions rose 59%.
A report by Bernstein Research found that Fifth Third could close nearly 600 branches, based on their deposit levels and proximity to other branches.
Bank of America has continued selling off portions of its branch network, with recent sales of 13 Tennessee branches to First Horizon, as well as 13 branches in Michigan to Huntington Bank.

These trends point to a need for a significant reinvention of the branch channel if it is to remain relevant for consumers, and strategically important for banks. Here are five areas that banks can focus on in order to achieve this:

Avoid both inertia and “following the crowd.” There is a danger that banks avoid making necessary changes to their branch networks because of internal resistance and a cultural predilection to carry on as before. Equally, banks may be inclined to close a significant portion of their branches because they perceive that it the prevailing industry trend. Both of these tendencies should be avoided. Decisions on branch numbers, density, design, staffing and support should be based on strategic analysis of market trends, competitive threats and overall company objectives.
Don’t make branch decisions based solely on cost. Branches represent a significant cost for banks, and with declining branch usage as consumers gravitate to other channels for everyday banking transactions, the tendency will be to cut branches. However, this is a narrow view that does not take into account the sales, service and branding roles that branches play. Although Regions reported an 8% decline in branch transactions in 2013, it also claimed that 80% of sales came through the branch. And while Bernstein Research claimed that Fifth Third could close 47% of its branches, a Fifth Third spokesperson said that the branch remains the most visible brand identifier in their communities.
Test different branch formats. Some of the leading U.S. banks have been piloting different branch formats in their markets. In February 2014, Capital One opened a new Capital One 360 Cafe in Boston (these cafes raise awareness of Capital One’s online bank unit). In May, PNC opened a pop-up branch in Chicago, and SunTrust opened an innovation branch in Atlanta. And banks like Bank of America and Citibank have opened flagship (or “destination”) branches. Banks are looking at these new branch formats not only to assess how they resonate with different customer segments, but also to determine optimal staffing levels and the impact of these branches on overall branch density within markets.
Overhaul branch staffing. Changes in average branch size and format, as well as in the role of the branch, have important implications for branch staffing. Smaller branches require fewer staff, and staff activities will shift from handling everyday transactions to selling and providing specialized service and advice. This has important implications for recruiting, training, compensation, support and internal communications, and banks need an integrated branch personnel strategy with input from multiple functions within the bank, including HR, sales, service, marketing and product.
Leverage branches to build beachheads in new markets. Traditionally, branches have marked a bank’s footprint within defined geographies. Now, some banks are moving beyond these geographic constraints to open branches in out-of-footprint markets to focus on specific segments (such as commercial, private banking and wealth management clients). BBVA Compass has been opening loan-production offices along the East Coast. BMO Harris opened a corporate banking office in Atlanta, well away from its traditional Midwest footprint. As these branches do not target the mass market, product expertise and service quality are more important factors that having strong branch density in a market.