Tag Archives: TD Bank

Five Strategies to Adapt Bank Branches to The New Normal

There is a wealth of evidence that consumers are using online and mobile channels as the primary channels for their everyday banking needs:

  • Having reached critical mass in online banking penetration, the largest U.S. banks continue to report strong growth in active mobile banking customers (Chase +23% y/y to 17.2 million; Bank of America up 17% to 15.5 million; and Wells Fargo +22% to 13.1 million)
  • Regional bank customers are also growing their usage of non-branch channels.  45% of PNC customers use non-branch channels for a majority of banking transactions.  Fifth Third reports that ATM and mobile channels’ share of deposit volume rose from 12% to 31% over the past two years. KeyBank claims that online and mobile transactions are growing by 9% annually, while branch transactions are declining by 3%.

The rise of self-service channels for everyday banking transactions is leading banks to re-assess their investment in their branch networks.  For example, banks are changing traditional assumptions as to what constitutes optimal branch density within markets.  In a recent presentation, KeyBank claimed that branch density is now less relevant as long as a bank can pair branches with a good mobile offering. In addition, in a low-revenue-growth environment, banks are under pressure to cut costs in order to meet earnings expectations. As a result of these factors, banks are cutting branch numbers.

  • Bank of America is expected to cut branches to below 5,000 by the end of 2014, compared to more than 5,700 in the second quarter of 2011.  It recently announced the sale of branch clusters in North Carolina and Michigan.
  • Over the past six months Citibank sold all of its branches in Texas, as it focuses its energies on a select number of large metro markets.
  • KeyBank has closed or sold 8% of its branches over the past two years, and plans to cut its network further, by about 2-3% per year.

However, banks remain strongly committed to their branch networks.  This is largely due to the fact that consumers continue to value the branch channel, even if usage has declined.  A recent ABA survey found that 21% of consumers named the branch as their preferred banking channel, up from 18% in 2013. In addition, banks recognize the benefits in encouraging customers to use multiple channels.  Wells Fargo found that customers using its stores as well as online and mobile channels have a 70% higher purchase rate than customers who only use online and mobile. With in this mind, the following are five branch strategies that banks should follow, with examples of banks that have already implemented these approaches:

  1. Deploy new branch formats.  Given lower traffic and transaction volumes in branches, banks should launch branch prototypes with smaller footprints, so that they can maintain their physical presence, but at a lower cost.
    • PNC has converted 200 of its branches to a smaller format, with 100 more to follow by the end of 2014.
  2. Launch flagship branches in selected markets.  With changing ideas around branch density, bank can consolidate multiple branches into a large flagship store.  These flagship stores act as a brand beacon for the bank in specific markets, as well as providing space for the bank to showcase new innovations
  3. Reconfigure branch staff.  As branch activity is switching from transaction processing to sales and advice, and branches switch to smaller format, bank can reduce the average number of staff per branch, but should also change the functional balance, with fewer tellers and more sales specialists.
    • In the 18 months to June 2014, Fifth Third cut 22% of its branch service staff, but increased sales staff by 6%.
    • Over the past year, PNC has grown its number of investment professionals in branches by 4%.
  4. Incorporate technology into branches. As consumers become more accustomed with using technology for their everyday financial needs, banks should showcase customer-facing technology in branches.  This can enhance the user experience and capture sales opportunities
    • Regions is installing two-way video to enable customers communicate directly with bankers via an ATM.
  5. Open branches outside of footprint.  As having a critical mass of branches in a market is no longer a prerequisite for success, banks can open branches beyond their traditional retail footprint, to target specific consumer or business clusters.
    • City National has established branches in New York City, Atlanta and Nashville, dedicated to targeting entertainment firms that are clustered within these markets.

Tentative Recovery in U.S. Credit Card Lending Continues in 1Q13

EMI’s analysis of recently-published U.S. bank data by the FDIC reveals that credit card outstandings rose 1.6% y/y to the end of 1Q13.  Outstandings have been recovering in recent quarters, following a protracted period of declines as a result of the 2008 financial crisis.  In addition, net credit card charge-offs continue to decline, falling 12% y/y in 1Q13.

Our analysis also finds that:

  • 1,238 U.S. banks (19% of the total) have card assets, with 6% of banks having more than $1 million in card assets.  55 banks have more than $100 million in outstandings, with just 23 banks holding more than $1 billion in credit card loans.
    • Of the 55% with more than $100 million in assets, 31(56%) reported increases in their credit card loan portfolios between end-1Q12 and end-1Q13
  • The three largest credit card issuers–Citibank, Chase and Bank of America–all continued to report credit card loan declines, as they continue to deleverage.  The cumulative decline for these three issuers was 5%.
  • The former “monolines”–American Express, Discover and Capital One–all increased outstandings.  Capital One reported a 44% increase, largely due to the acquisition of the HSBC card portfolio.  American Express grew credit card loans 6%, with Discover’s outstandings rising by 7%.
  • Many regional banks continued to increase credit card lending, albeit from significantly lower bases than their national bank counterparts.

These trends in credit card outstandings–slow overall growth, declines among the big three issuers, growth for monolines and regional banks–are consistent with industry predictions that EMI published in a blog earlier this year.

Market-Specific Metrics Inform Bank Branch Network Investments

The emergence of virtual channels, the need to cut costs and speculation of more industry consolidation are all spurring banks to reconsider their branch networks.  Recently, EMI Strategic Marketing Inc. published blogs on the changing role of the branch, as well as trends in branch numbers for leading U.S. banks.

Banks have reiterated their commitment to the branch channel, but many are unlikely to maintain branch numbers at current levels.  Bank decisions of branch numbers and deployments are increasingly based on an analysis to the bank’s relative strengths in different markets.  Is the bank’s branch network spread too thinly, with few branches and low deposit shares in many markets?  Does it have critical mass in terms of branch numbers and/or deposit share in particular market? If it does not have sufficient scale at present, should it expand its branch network organically or through acquisition? Or should it leave some markets?

EMI Strategic Marketing Inc. analyzed end-2Q11 FDIC data on the branch footprint of the top 15 retail banks. (Note: this does not include M&A activity over the past year, such as PNC’s acquisition of RBC Bank.)  We focused on the number of metropolitan statistical areas (MSAs) where these banks had branches, branch concentration levels, and market strength indicators.

  • The banks with the most extensive branch networks are Bank of America and Wells Fargo, who both have branches in more than 200 MSA markets.
  • Regional banks naturally have a more concentrated branch presence.  RBS Citizens, PNC and M&T all have more than 60% of their branches in 10 markets.
    • RBS Citizens has top-three share in only 14% of the 49 markets where it has a physical presence.  Recent speculation indicates it may sell off its branch network in Illinois and Michigan.  The bank has branches in seven MSAs in these two states, but does not have a top-three deposit share in any of these markets.
  • Market strength: Wells Fargo has a top-three deposit share in 70% of its MSAs.   Four other banks (M&T, Bank of America, SunTrust and PNC) are ranked in the top three in more than 40% of their markets.
  • In late 2010, Citigroup announced that it would be concentrating on 16 U.S. metro markets.  This helps to explain why 61% of Citibank’s branches are in just 10 MSAs.  On the other hand, it has five or fewer branches in more than half of its markets.  Given its stated objective to concentrate its efforts on about 15 metro markets, we can expect Citibank to leave many of these markets where it has a token presence.  However, it will be aiming to significantly grow share in its target markets.
  • Capital One, which has built a retail branch presence in recent years through acquisition, has 84% of its branches in just 10 MSAs. (In fact, 57% of Capital One branches are in just two MSAs: Washington-Arlington-Alexandria, DC-VA-MD-WV and New York-Northern New Jersey-Long Island, NY-NJ-PA.)