Banking customers can be divided into three broad groups—Millennials, small business and commercial customers, and those of us retail customers outside (or inside) either cohort who would rather “press the flesh” at a local branch than use technology to transact business.
Millennials could care less about a branch location, since they can make deposits on their smartphones, use virtual banks and even arrange loans through the non-bank intermediaries that are flourishing on the Internet.
By contrast, the traditional customer places a value on personal interaction. And if there are alternate choices, that customer may not willingly move to another branch; or worse, the management at the closed branch may decide to take his or her “following” to a competitor.
Bankers fail to realize that banks are a “fungible” business, since they all deal in a similar product. Yes, marketing departments attempt to distinguish themselves from the competition and may attempt to lure customers via short-term promotions. But from a long-term perspective, personal interaction remains the key factor in customer retention. The assumption that customer loyalty is such that they willingly want to deal with new faces at a new branch is mistaken.
I have written a number of articles on the concept of Human Resource Accounting, including an article in a BAI predecessor publication (Magazine of Bank Administration, Dec 1972). In essence, HRA proponents argue that certain personnel costs represent an investment, not an expense of the current period. At present, GAAP (a set of generally accepted accounting principles) does not permit that treatment in external financial statements. But there are exceptions—especially where the primary source of revenue is the competence of the staff (for example, a professional sports team or a management consulting firm).
Closing branches may produce immediate cost savings. But what about the investments made in training staff, tuition reimbursement, community organization memberships, and other costs incurred to attract customers? From personal experience, perhaps that is why my regional bank continues to operate a branch in an affluent area with a skeleton crew which, based on non-existent foot traffic, should have been closed long ago.
Yet as the part-time manager noted, that branch is the source of large deposits and there are two other competitors next door, so the decision was made to keep it open. It seems to me that if internal reports properly accounted for such staff “investments,” that would be an important factor in termination and branch closing decisions.
Marvin Weiss is a retired professor of accounting at the New York Institute of Technology. He holds a PhD from NYU’s Graduate School of Business. His first contribution to BAI editorial, “Accounting for Human Resources,” ran in 1972.
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