The Five Questions Every Banker Needs to Answer About Their Branch Strategy
The traditional banking business model of the past was built around a decentralized branch strategy. Find a heavily populated area, sprinkle a network of easily accessible branches around it, and watch the growth happen. Pretty simple, right?
It worked like magic.
The psychology behind putting branches everywhere was intriguing: more branches implied a bank was doing well, so one’s money was somehow more secure. It wasn’t necessarily true, but it still seemed that way. Then the Great Recession hit. The large banks initially took the greatest blow, shuttering branches left and right. Then regional players continued the trend, despite the economic recovery that followed years later. Banks chose to put their faith more in cost reduction than customer service.
Market density matters.
What could have kept some of these recently closed branches open? Why close so many, even in places where there wasn’t a lot of competition? Turns out, maybe the bank’s misunderstanding of market density came back to hurt them. Given these ever-changing times, what kind of density solution is required to be successful?
Banks, particularly the larger ones, often close branches, not because of a shift toward digital and mobile channels (it’s certainly a factor), but a failure to plan for them in the first place. Though customers demand omni-channel options, at times, they still desire face-to-face contact with their branch. The latest surveys show the branch is a key channel:
What happens when a branch closes?
Closing a branch is a short-term solution, that while saving money initially, has long term implications. Studies have shown that up to 40% of customers change banks if their branch leaves the area.
Before you build your next branch, consider the following questions:
- Does your branch need to be large or small?
- Should the branch be fully-automated, or mostly?
- How can the bank’s or credit union’s people be convenient to the customer?
- Does it have to be a freestanding facility?
- Is a branch even right for the particular area?
So what’s the answer?
Perhaps bigger banks have done a poor job identifying the opportunities in their markets. Branching today takes considerable planning and precision, and if not done well can lead to unprofitable locations.
Market densities matter and the deployment of the right density matters even more. Density solutions are important and they do not always result in freestanding branches, which can be short-term considering the expense and risk. It’s really about convenience for customers and their needs.