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As branch numbers go down, is the future of banking going with them?

If you’ve done any scanning of the financial headlines lately, you’d think the banking industry was in some sort of downturn.

Numbers back up the concern.

The Wall Street Journal recently reported 1,700 branches were closed in 2017 alone. That represents 2% of all the branches in the United States, bringing the total down to somewhere around 90,000. This headline grabbed a lot of attention.

We know that the rise of mobile banking has reduced the amount of foot traffic in many locations. Are we in the midst of another digitally-led upheaval? Have millennials decided they’d rather conduct their banking without having to look up from their phones and actually talk to someone in person? (We kid, we kid).

What’s the real story?

Big banks aren’t necessarily in trouble. They’re just pivoting. Each mobile interaction costs about 10 cents per customer, while an interaction with an actual human being is around $4 (see infographic below from Bain & Co.). It doesn’t take a CPA to realize the cost savings of closing a branch that’s not being utilized.

Another reason the numbers are skewed.

Another data point that makes the closures sound more alarming than they actually are, is that they are attributable to the top ten banks. When larger banks make cutbacks to save money, the numbers reflect it, and the market pays attention.

Do we even need the branch anymore?

All the studies say: Yes, absolutely.While consumers are certainly shifting their routine banking needs to their mobile devices, they still visit branches. Studies put the numbers as high as 90%  as noted below from Bain & Co. The need for customers to spend time speaking to their banker, either face-to-face or over the phone, is still important.

What happens when a branch closes?

When branches serving less populated areas decide it’s not financially feasible to keep a branch open, longtime customers are forced to drive miles and miles to their nearest branch.

Customers may love you, but do they love you that much? Studies have shown that 40% of the time, customers will switch to a different bank that has a branch nearby. All banks deal with “churn” to a degree, and closing a branch can be a self-inflicted pain that may cost the bank in the long run.

What does this mean?

If the branch solution is built on a “If we build it they will come” mentality, perhaps the big banks closing branches did a poor job identifying the real opportunity in their markets. Otherwise, they they wouldn’t have to be closing the branch.

There is a precision to branching that can rear its ugly head later if not done well. At LEVEL5 we specialize in solutions that go beyond design-build, by helping you decide what kind of branch solution works best for your markets and needs.

What can we learn from big banks on what not to do?

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Branching: Location…Location…Which Location?

Consumers love the branch, so how do you get the one you want?

U.S. Consumers and the Branch. There is no denying that the number of branches in operation today is less than before the great recession. However, simply pointing out there are fewer branches is only part of the story. For example, when you consider a recent a IMF study, the number of branches is rising. Per their research, the peak of branches per capita was 35 branches in 2009. The low point was 33 in 2014 – the same level as 10 years earlier. But in 2015, the number of branches per 100,000 started rising again.

Let’s Talk about the S-Word. So instead of another article focusing on “if the branch is still important”, let’s talk about one of the key steps in making sure when you do branch – you get what you want. Let’s talk about Site Selection.

Good to Great: Site Selection

First Things First. The first step in site selection is not the real estate procurement, but establishing the business case. Site selection is the marriage of market analysis and real estate procurement. In a fintech and omni-channel banking world, understanding why to invest in the branch is crucial. And for banks and credit unions – that’s loans and deposits.

Begin with the End in Mind. Therefore, when it comes to site selection, the approach matters. Here’s why: If the business opportunity in a market can support the branch (solutions produce over $35 million in new deposits) then the critical component that takes the opportunity from good to great is how we procure the real estate.

Face the Brutal Facts. Selecting the best site for a branch or main office opportunity is not a matter of selecting the right broker. Brokers can serve a role in selecting a site, but brokers are not the answer. In site selection (market analysis and real estate), it is about realizing business opportunity.

A Retail Perspective. In retail development, there are two users that every owner wants – pharmacies and financial institutions. Owners of land understand the correlation of location and performance…and they understand that business opportunity is worth a hefty price.

Good is the Enemy of Great. But what if you could get the property you want, and the owner would not know it is you? You could avoid the premium and have a greater opportunity to perform. This is where LEVEL5’s real estate procurement process, during site selection, separates itself from everyone else.

Our proprietary process veils your identity to protect you from the market, the owner and yourself.

Furthermore, our approach negotiates contracts and performs all due diligence (surveys, environmental; and geotechnical test). A broker doesn’t study markets to define loans and deposits, they don’t negotiate contracts, and they do not handle due diligence. So, site selection with LEVEL5 is so much more.

Actionable Strategy

Getting what you want. For branch or main office opportunity to be realized, then the process has to move from strategy into action. Many firms speak to market opportunity or operations analysis, and even more firms design and construct financial facilities. However, it is taking action on the best location that brings branching and a new main office to life.

It’s about predictability of outcome. For the last seven years, LEVEL5 has annually procured between $20 and $25 million in property for banks and credit unions across the US. Driving predictability has allowed these banks and credit unions to outgrow their peers by 3x. Since the branch is still location driven, then selecting the best site is key to performance.

The consumer voice continues to speak loud and clear about the importance of the branch. Listen to what they have to say when banks and credit unions decide to close their branch.

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Millennials and the Branch: Strange Bedfellows

How do financial institutions connect with Millennials? Answer: A marriage of Science and Art

Earlier this year, shock waves were sent through the financial industry as study after study echoed the same message – Millennials highly value the branch. Though millennials and all consumers look digital-first for connection from their bank and credit union of choice, the branch is equally as important to consumers.

Human Connection. The research by Bain and Fiserv point to an inherently human response during the banking process, establishing trust and demonstrating value through relationship. Relationship is the heartbeat of the financial services industry and relationships are established over time.

Branching is about relationship. Banks and credit unions all offer similar products and services (perhaps at slightly different rates), but the motivation to buy (a loan) from one company over the other comes down to relationships. And consumers of all demographies are coming to the branch for that connection. In fact, the Fiserv study found that Millennials are the most likely demographic segment to visit the branch, and they are the most-likely to apply for and receive a loan through the branch.

Therefore, a key question for all banks and credit unions should ask is: How can we better connect with a demographic that wants what we have?

Science and Art. When it comes to branching there are no silver bullets or secret sauces to success. However, there are guiding principles, call them natural laws that govern victory, and it’s a marriage of Science and Art.

Science of branching. If there is one step we witness financial institutions (FIs) skip over in their pursuit of connection with consumers through the branch is developing a business case. In our industry, we have data at our fingertips and its plentiful. But, the science of branching is not about the data, it is the interpretation of the data for a specific outcome.

Market conditions. Collecting specific data about the local market conditions around your existing branches, or proposed new ones reveals more than you could imagine. It reveals the preponderance of consumers who desire what you have – loans. It shows how they want to connect with you (mobile, automated, and the branch), and it reveals the specific products and services we should offer in branches.


The index data above is much more than good local information about product and service demand. With this data in-hand we can go to the next level to establish the total headcount, and the function of the branch. So instead of staffing branches “how we always do” we can staff for a specific outcome based on what local consumers want today, and what they will need, tomorrow.

Loans and Deposits. Furthermore, all data collection for branching should result in a specific loan & deposit forecast for that opportunity. Only with this information can we build a business case that will allow for measurements of return on investment. Historical experience has proven that a freestanding branch’s profitability comes into focus at $25 Million (deposits & loans). Nevertheless, as branches get smaller and more flexible perhaps lower opportunity can be feasible. In any case, understanding opportunity and starting to develop a detailed plan – if it’s a 70% one – will create a greater likelihood for a predictable outcome.

 

Art of branching. Certainly, much of the business case for the branch is art as we interpret the data; however, the art also flows into design. The function and headcount of the facility are finite components so that is science, but how we integrate those into our consumer experience is unique to the local community we serve, and your business, and that is an art.

A unique consumer experience. Connecting with the local demography, the community and your consumers is unique to your business. The experience should be well planned and purposeful, always remembering your personality and value proposition are unique to you. A consumer experience that begins before the consumer walks through the door, and continues through the branch environment. And the beauty is though again we have guiding principles that govern victory, we have freedom of creativity to build connection, so the branch experience it takes on different personalities in each community we serve.

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Training drives performance. And the glue that holds all of it together is your human capital – your people. Nothing in branching drives success better than training your staff to learn how to connect with people and opportunities. For many FIs, this means adopting the Universal Banker model for their business. This means we combine skills training to optimize each opportunity our staff has to connect with consumers. To shift the employee mindset and branch purpose from order-taker to advisor, teacher, council and guide through the consumer’s financial journey. Every consumer is at a different stage, and they look to their bank or credit union for help. Your success depends on your ability to capitalize on those opportunities.

So, what’s next? That’s really up to you. The process outlined above is but an overview, a 30,000-foot glimpse into a portion of the process of connecting with consumers who want what you have in the branch.  So, a good question follow-up question might be:

What is the Business Case for the Branch in a Fintech World?

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Belvoir Branch Renovation

Belvoir Federal Unveils Branch Renovation with New Technology

Woodbridge, VA, October 22, 2014 – Belvoir Federal Credit Union, $310 Million in assets, celebrated the unveiling of its largest branch at their “Renovation Celebration” event on October 21, 2014.

The credit union hosted a day of celebrations to showcase the high-tech branch and new capabilities offered to members, including remote teller stations, instant cash recyclers, multiple teller pods for transactions, and an open office concept
to promote more communication between members and frontline employees.

In addition to the modern technology in the renovation, developed by the LEVEL5 the design-build team, the branch offers iPads for members to use while in the branch, a café setting, and media walls for flat screen televisions to highlight the latest news, weather, and credit union information.

Patricia Kimmel, CEO/President of Belvoir Federal Credit Union, stated, “We are investing in our members and credit union’s future by designing a branch that provides the latest and most efficient technology. Our branch offers a new and personalized experience for members when they come in to see their financial partner.”

The “Renovation Celebration” event was well attended by a steady flow of members coming to visit the new branch. Throughout the day, Belvoir Federal offered members coffee and donuts in the morning, a hot dog and chip lunch with music by B101.5, and cake in the afternoon. The credit union also hosted a private event for all staff, board members, and distinguished personnel from Ft. Belvoir to attend a special after hours ribbon cutting and hors d’oeuvres event.

Dottye Bunch, Belvoir Federal’s Facilities/Project Manager, worked closely with LEVEL5 to complete Belvoir Federal’s state of the art redesign. Dottye stated, “It’s been a pleasure working with the LEVEL5 design-build team on this remodel. They listened to what we wanted for our members and built a branch that is beautiful and offers our members a unique experience.”

To view more project images, click HERE!

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