I wrote this article decades ago. When I reread it recently it reaffirmed that, the more things seem different, the more they are the same.
“We have fought for years to keep our customers out of the branch; now we are fighting to get them back in so we can sell the, a variety of products and services,“ says one community banker, echoing the feelings of many others. But what do the customers want? Is it time to sing the requiem to the bank branch?
Many bankers seem to have had it with their most traditional delivery systems – the branch. It has served them well, but shows signs of having outlived its usefulness. Branch operating costs are high and neither automation not other measures seem to lower them. If we bring into the picture new competitors…bankers’ frustration levels rise further. Nonbanks lack the aging, costly brick-and-mortar infrastructure that banks do, and it shows in their bottom line. A typical bank may have an expense ratio of 3% on assets; Vanguard has a meager 0.38% ratio.
But before we consign the bank branch to oblivion, there is something ese that the Vanguards and Fidelities might teach us: There is a place for branches after all.
While many bankers have been seeking to close as many branches as they deem practical, organizations like Fidelity have been opening branches, albeit selectively, and making them an integral part of their customer service and delivery strategies. Do the nonbank competitors know something that bankers don’t? It just may be that they, as outsiders with a fresh approach to service delivery problems, have figured out that there is no one absolute answer to the question of whether the branch has a future. In fact, there is no one type of branch.; Different types of offices serve different purposes, and it would be a mistake to dismiss them all our of hand.
Many bankers assume that the branch as we know it will be dead in three to five years. The answer, they believe, is to shift to other distribution networks that meet customers’ needs for convenience such as mail, telephones or PCs. Others, focused on the high costs of brick and mortar, talk about slimming down the branch network and beefing up telemarketing. Still others buck the trend entirely…and add branches to improve market coverage. Another bank opted for a hub and spokes approach to improve reach and reduce costs.
As customer preferences change, new branch configurations as well as altogether different distribution networks become worthy of discussion. This evolutionary process is not only efficiency-driven but, more importantly, it is customer-driven. Customers have preferences about sales and delivery systems. just as they do when it comes to product features. Those banks who have tried to retain a local relationship orientation as they have grown to regional or super regional size face a dual challenge. They must identify the carrying distribution methods that appeal to various segments of their customer bases. And they must wrestle with the fact that the nature of the relationship changes in a non-traditional branch setting.”
How do you develop and maintain relationships at a distance? I’ve written, as have others, volumes on this question. Most answers gravitate toward technology and database management. Chase, BofA and others proved this is a successful approach, especially with younger people, and their market share continues to grow. But what about us? Here is what I wrote decades ago. The industry’s most successful mass marketers – credit card companies – are mainly single product entities that do not cross from lending to more comprehensive customer relationships”. This statement is still true with the exception of some mega-banks. “The point of departure is wrestling with what the customers want”, I wrote. And I stand by that assertion.
It’s interesting to note that today, as was the case then, very few of us found the ideal mix of distribution channels to optimize for two somewhat contradictory desired outcomes:
- Ideal match between customer channel preferences and bank service and sales delivery choices
- Optimized cost performance of a range of distribution channels
While much progress has been made on this important issue, the magic channel investment mix largely depends on your own customer segment composition. It is interesting to note that we are still struggling with the same issue. Here are some takeaways:
- Profound and sweeping changes in channel usage occurs more slowly than we expect, and the implications are more dramatic than we anticipate. The marketplace shift toward non-branch delivery has been meaningfully slower than predicted; once a customer has elected digital engagement, though, the implications are profound and lasting
- New technology doesn’t substitute old technology; it is additive to it. It’s a sad truth we must live with as we diligently work on meeting a wide range of customer preferences.
- Chase figured this out decades ago and committed to a multi-format and multi-channel distribution strategy; the forethought and intentional approach served them well. The Bank continue to build hundreds of branches. At the same time, it shutters many branches as well, and the new ones are a part of a laser-focused strategy to capture more core deposits in carefully selected SMSAs. There is a clear hierarchy of markets by total deposits, as well as a deliberate migration process of customer relationships from the branch to digital with great focus on deep engagement and wallet penetration.
Past investments in digital transformation fell short of expectations for many of us. Adopting a highly focused and explicit strategy for branch and all present distribution alternatives is likely to improve your results and achievement of desired outcomes.