Beyond Bankers' Hours

BY BRIAN DIEPOLD AND STEVE RYMERS

Extended drive-up hours during weekdays and branch openings on Saturday typically provide the most benefit for banks.

| SYNOPSIS | Traditional bankers’ hours have less and less relevance today as institutions large and small move to extended hours. Pitney Bowes MapInfo research, however, shows that some forms of extended hours deliver a better return on investment than others. In general, it appears that allowing customers to access the branch's drive-up service on the way home from work during the weekday and access to the full sales and service capabilities of the branch while running weekend errands represents the most beneficial ways to utilize extended hours.

Bankers’ hours’ clearly aren’t what they used to be. Rare today is the bank branch that adheres to the traditional 9-to-4 schedule. Extended hours, either in the form of staying open later on weekdays or providing some accessibility on weekends, is now the norm. Our research shows, for example, that the median U.S. branch is open 42 lobby hours a week, or slightly more than eight hours a day.

Related Charts Large Banks Offer More Hours Weekend Hours Generally Most Helpful

The assumption in the industry is that these extended hours are necessary to increase foot traffic and, ultimately, improve branch profitability. Yet our research at Pitney Bowes MapInfo also shows that extended hours are not necessarily the appropriate tactic in all markets and under all circumstances.

While extended hours may represent a relatively easy way to increase foot traffic, it is not entirely clear whether this approach is cost-effective or that it provides a sustainable advantage over competitor branches. It has been shown in various studies that longer hours typically equate to higher deposits and loan production, but this comes at a cost, particularly in terms of personnel expense.

Bankers need to have a better understanding of the circumstances where additional branch hours matter most and thus yield the best return on investment. The difficulty in understanding the profitability of this strategy is that most banks also offer 24-hour online access, call center support, ATMs and night depositories to meet many of the same needs as extended hours at their branches. And extended hours are easy for competitors to replicate and therefore may raise everyone's costs for little or no competitive advantage.

Our research shows that, in general, larger banks gain the most benefit from offering extended hours on Saturday, as opposed to Sunday or weekdays. Community banks, on the other hand, achieve better performance from extended drive-up hours on weekdays.

Location, Location
Pitney Bowes MapInfo’s previous research has shown that branch performance is highly correlated with the location characteristics of the branch (see 'The Laws of Customer Attraction' in the March/April 2006 issue of BAI’s Banking Strategies). These factors include the local environment, competitor strength, market conditions in the trade area and facility characteristics. The research shows that, on average, approximately 65% to 75% of branch performance is attributable to characteristics that are largely dependent on location, while the remaining 25% to 35% is based on execution/implementation and staff performance.

Consumers’ perception of the sales and service features, ease of accessibility to the branch, visibility of the branch and its signage and synergies of nearby retailers can have a significant impact on the success of the location. Facility characteristics, such as the number of sales desks, partially determine the sales capacity for each branch, while other characteristics, such as tellers, drive-up lanes and ATMs, enhance the convenience of the various servicing options at the branch, typically leading to greater deposit generation.

In general, measuring the accessibility, convenience and visibility attributes of the branch helps us understand its attractiveness to the consumer relative to other branches in the market. All else being equal, we expect that branches exhibiting better accessibility, convenience and visibility will be better performing branches.

Branch hours, likewise, represent an opportunity for a bank to position itself as more convenient and accessible to the customer. In an industry historically well known for a common set of store hours, the norm is changing rapidly as banks use branch hours to gain an edge over the competition. The current landscape has changed to the point where it is no longer easy to know what your competitors are doing. It often varies by market. That means banks need different hours for different branches, depending on their local, micro-market competitive pressures.

The most common form of extended hours is weekend hours on Saturday. While 64% of branches offer weekend hours, only 1% carry over the weekend hours to Sundays. In terms of what options are available for banks to differentiate themselves, Sunday hours appear to be the best option but may or may not improve branch performance.

Generally speaking, larger banks tend to have more branches offering weekend hours and extended weekday hours, while community banks have a greater percentage of branches offering extended drive-up hours during the week. This may suggest that extended drive-up hours are more appealing to the typical community bank customer. It may also be the easiest type of extended service that the community bank can efficiently offer.

Overall, we observe that almost two-thirds of all branches are offering some form of extended hours. This begs the question of whether standard bankers' hours even exist anymore and suggests that the room to gain from extended hours may be diminishing. However, extended hours remain crucial from the standpoint of keeping up with the competition and retaining the current customer base.

The data also suggests that banks as a whole find certain environments, such as suburban areas and heavy retail, to be more important for offering extended hours compared to, say, office parks or industrial areas. Intuitively these feel like the right places to offer extended hours. However, we need to have a better understanding of how these behaviors affect the performance of the branch, which requires measuring the impact of extended hours on bank deposits.

Impact on Deposits
In order to better understand the impact of extended branch hours, we need to examine where the gains are generated and the exact relationship between additional lobby hours and branch performance. Specifically, we need to:

• Quantify the impact of extended hours;
• Measure the difference between extended weekday hours, weekend hours, and extended drive-up hours;
• Understand if certain types of banks can benefit more from offering extended hours;
• Determine the types of market environments that allow banks to capitalize from offering extended hours; and
• Reveal the financial impact to the bank by offering extended hours.

Measuring the impacts of the different types of extended hours on branch deposits helps us understand the circumstances when it can be most beneficial to offer extended hours. Using a regression model that includes data from a national sample of approximately 10,000 traditional branches — which controls for market effects, brand value and other branch characteristics — we have isolated the effects of extended branch hours on deposit performance.

While we observed the national/super-regional banks offering extended hours at a higher percentage of branches (see chart, 'Large Banks Offer More Hours') the regional banks appear stronger at leveraging extended hours into greater deposits. We also noted that if we calculate an impact per hour of weekend hours, this would be considerably greater than the overall impact of each additional extended hour. This would suggest that there are additional gains from offering weekend hours compared to extended weekday hours and that the offer of weekend hours may be a better signal of convenience to the consumer (see chart, 'Weekend Hours Generally the Most Helpful,').

These results show that the typical U.S. branch can gain approximately 0.3% in deposits per hour of extended lobby hours. Assuming a branch of $40 million, this is approximately $120,000 in additional deposits per lobby hour. Offering weekend hours or extended drive-up hours appears to create a greater benefit of 11.6% and 8%, respectively, while Sunday hours and extended weekday hours do not appear beneficial as a whole.

In terms of deposit performance, the type of extended hours offered by a branch does matter, as these results are robust across bank type. What the data tells us is that consumers respond more favorably to (or seek out the convenience of) branches with weekend hours and extended drive-up hours. These are the charac-teristics that portray convenience to the consumer and therefore are the characteristics that result in the most beneficial deposit impact for the banks.

Earlier we mentioned the impor-tance of how these offerings fit into the multi-channel options of the consumer. It appears that allowing consumers to access the branch’s drive-up service on the way home from work during the weekday or to access the full sales and service capabilities of the branch while running weekend errands is the most beneficial utilization of extended hours.

Of course, like many branch questions, each is a unique situation and the complexity of the market as well as competitive characteristics around each branch play a large role in the individual outcomes.

Does it make financial sense?
While extending branch hours or offering more convenience-related services in general will help drive customers to the branch, these features will also raise the operating costs of the branch, which include fixed compensation, equipment and other incremental branch costs. In order to fully understand the impact of extended branch hours, we must weigh the benefits in terms of increased deposits and loans (and therefore revenues) against the costs of adding these features.

Given some revenue assumptions and the modeling results, the average branch could increase its deposits by 11.6% from offering extended hours. This would result in a positive net present value over the life of the branch of approximately $375,000.

Similarly, adding extended drive-up hours to the typical branch would have a positive net present value of approximately $360,000. It is important to assess any new offering for its incremental costs and benefits to the network in this manner. And, as previously mentioned, branches in some environments stand to gain more than others by extending branch hours. For example, adding extended drive-up hours to a suburban/small town branch would result in a positive net present value of approximately $750,000 while add-ing weekend hours at an average rural branch would raise deposits, but only enough to produce a net present value of about $90,000.

In summary, there is certainly evidence that extended branch hours lead to greater deposits at the branch and it appears that this can be a profit-able mechanism to drive marginal improvements in a branch’s bottom-line. But such improvements can’t be expected to occur overnight. It takes time for consumers to recognize the changes at a branch and more time to adjust their behavior.

Increasing branch hours is not going to be a miracle solution to boosting a branch's performance. But in the long term it will help the branch attract and retain customers by offering the convenience they desire.