Last week, we released our take on Curbside Banking, a supplement to the previously released “Branch Design After COVID-19” Guide Book. Both have been incredibly well-received and we’re grateful for all who have read it and reached out to us to learn more.
Within the Curbside Banking supplement, we introduced a new Micro Branch concept. While we have done previous posts on Micro Branches, we thought we would return to this topic. This time we’ll focus on 3 underlying strategies that are often overlooked when considering going small.
For this week’s post, we are going to begin with the “Network Effect.” What is the Network Effect? Funny you should ask, that’s what we’re here to talk about.
The traditional economist states that the more people use something, the more valuable that it becomes.
In the retail banking world, Bancography states the following:
“The network effect is the phenomenon by which large branch networks capture a disproportionate share of market deposits. For example, a four-branch network captures more than twice the deposit volume of a two-branch network; an eight-branch network captures more than twice the deposit volume of a four-branch network. Viewed another way, average deposit size per branch increases as a function of the number of branches, as each incremental branch a financial institution adds provides a lift to – and derives benefit from – all its preexisting branches in the market.” – Bancography, April 2017
In other retail terms, it answers the question of why there is always Starbucks across the street from every Starbucks. When you see one on every corner, you start to want Starbucks. Saturating a market with brick and mortar has an exponential growth metric attributed to that strategy.
So, let’s now bring this back to your Retail Branch growth strategy and how the Micro Branch plays a role.
When you operate a network of branches in a given market, there is an assumed volume of Loans and Deposits that are up for grabs. When we run our consulting engagements, we estimate a Market or Trade Area’s total forecastable Loans and Deposits volume. From here, we estimate what your “fair share” is and what is also available. This availability is where your branch expansion plans come in.
While building several full-scale, standalone branches is ideal, this is not always feasible. Do you lack the available capital for a series of additional free standing branches, but want to capitalize on the Network Effect? A Micro Branch may very well be the perfect answer.
A Micro Branch can often cost 1/3rd the price of a free standing branch, yet allows you to further penetrate and saturate a market. This addition of low-cost brick and mortar locations allows you to expand your brand, serve your customers/members, and grab available Loans and Deposits in that market. A compounding effect will take place with each additional location because of the Network Effect. This will aid the percent increase of those Loans and Deposits at the locations already in existence.
To learn more about the Network Effect, and how Micro Branches may be the missing key to your retail strategy, Contact Us today.