Brick & Mortar Renaissance
By
Thomas P. Johnson Jr.
With renewed commitment to branches, banks use a variety of approaches to boost sales productivity.
Not so long ago, branches were believed to be Paleolithic — certainly, there were more modern ways to gather deposits and make consumer loans. But because of their unrivalled ability to strengthen customer relationships, branches have shed their dinosaur skins and metamorphosised into multi-product sales offices.
One indicator of the industry's new-found faith is the branch opening data from First Manhattan Consulting Group, which predicts that the industry will add about 2,000 new offices a year (net) in the next two years to the 87,777 bank and thrift branches the Federal Deposit Insurance Corp. counted at mid-year 2003, which itself represented an increase of 1,216 from 2002.
As the industry steps up its spending on brick and mortar, branch productivity is emerging as the critical issue in justifying the investment. After all, ours is an industry widely acknowledged to be burdened with excessive overhead. New offices are being opened even as bank mergers consolidate branch networks as well as back office systems.
The work required to rationalize branch networks is largely quantitative, however. By contrast, identifying the special mix of people, technology, incentives and metrics that leads to overall system profitability is more art than science. Bankers are convinced that one essential element is cross-selling non-bank products to bank customers. National City Corp. CEO David A. Daberko puts the issue plainly: "If you don't generate more revenues with more investment and insurance products, the costs are going to eat you up."
As illustrated in this issue's interviews with Daberko and Wachovia Corp. CEO Ken Thompson, there is no single all-purpose approach to successful cross-selling. While both National City and Wachovia are focused on the same goal, they approach the task very differently. National City, for example, tracks branch productivity through the profitability statements of each individual office, while Wachovia pursues the same objective via a sales management tool called "book of business."
National City and Wachovia are two examples of what can be seen industry-wide: An era in which financial institutions use a variety of techniques to boost cross-selling and new customer acquisition. This is a theme to be elaborated on in the next several months, when we present the findings of a new study by BAI Research titled "The Front-Line Factor."
"The most common barrier to the implementation of relationship strategies is frontline execution," says Paul McAdam, managing director, BAI Research. "It's particularly difficult for large banks that span states and regions to ensure a consistent approach to the customer. The project examines this issue from a perspective that includes top management's role all the way down to training, incentives and staffing in the branches."
We look forward to sharing what we've learned with you in the next issue of Banking Strategies.
Mr. Johnson is publisher of Banking Strategies and president and chief executive officer of BAI.