• Jim Kearney
  • Erik Steffensen
Mar 14, 2019

Cutting the branches: The case for letting go of physical locations

Retail banking faces steep declines in branch visits. In fact, 1,700 branches closed shop in the 12 months ending in 2017: the biggest drop on record, according to a Wall Street Journal analysis of federal data. For more customers, particularly younger adults, branches no longer drive the choice of bank. Financial services organizations sense this, as a recent BAI Banking Outlook survey reveals: 72 percent list technology integration as their top investment priority, followed by customer digital experience at 52 percent. Branches? Not on the list. 

Yet most retail banks don’t offer the alternatives customers seek. They struggle to attract millennials—used to retail experiences shaped by Amazon and other tech-driven companies. Banks must also consider Generation Z and those to follow as they plan long-term investments. 

Meanwhile, virtual banks such as Ally continue to join the market. So what happens if and when a tech colossus such as Google or Amazon enters banking?

Banks know disruption is coming, if not here already. So now what? How can banks leverage disruption to shed legacy costs and forge new paths to current and new customers?

It's time for retail banks to unlock the capital in their branches and redeploy it.

When going away means growth

Done strategically, shedding some branches reveals a real upside. In the near term, this transition funds itself—eliminating lease, overhead and security costs each branch carries. Meanwhile, a more personalized, convenient customer experience via digital can retain existing customers and attract younger ones. It drives a more flexible, responsive business model that adapts and innovates with speed and cost efficiency: a win-win for customers and banks.

How can financial institutions replace a location-centric model with something customer-centric?

At times of major industry change, it pays to stay close to customers, current and prospective. Do you know what they want in a banking relationship?

Fresh market research driven by new questions focuses customer data into a clear picture of where you are and want to go. What does your current base tell you? How might it change five or ten years from now? How do population, age, ethnicity and incomes shape desired customer experiences? Can you forge business intelligence and data into a timeline that predicts customer evolution?

Now, imagine the ideal network to serve consumers and grow market share—with a free rein to reconfigure the customer equation.

Five powerful paths to connect

These five pathways can connect you with your customers, decrease physical branches and increase user-friendly alternatives. Consider turning to:

  1. Online and mobile for secure electronic transfers on all tech platforms and for nearly all transaction types, including payments and trading.
  2. Telephonic services for information, problem-solving and help. Artificial intelligence offers a great way to support this channel.
  3. Enhanced ATMs with private, secure enclosures for large cash deposits, cashier's checks, money orders, bonds and/or video chats. This personalizes service in more locations for customers while lowering overhead.
  4. House calls and business calls for investments, loans, notary services and new customer contacts. Think “Geek Squad” for banks, where bankers visit consumers. Customers consider it a tremendous positive when met on their terms and turf.
  5. A redefined in-branch experience that accounts for the other four connections. Talk with leaders outside banking—in the retail, hospitality and/or consumer products spaces—to learn how they innovated in-store experience. Why not partner with one of these organizations to commingle experiences in exciting new ways?

Contrary to some expectations, these out-of-bank experiences can improve personalization. Cutting branches frees up capital and staff to provide concierge services once limited to private banking customers. And while branch tellers have limited time and information to help customers, centralized employees with instant access to the customer's full banking relationship can answer questions and tailor services.

What stays? What goes?

With the branch dilemma, it helps to turn the question around: If your bank was brand new and still branchless, where would you plant stakes and why? How would it feel to visit the branch? 

Every branch must earn its keep. Perhaps as many as 30-50 percent would close or look different if they served customers the way they prefer.

As you assess locations, divide them into groups. Some might serve high net worth individuals and retirees; others might operate in major cities such as New York and Chicago. What about high-tech hubs such as San Francisco and Austin? Or key suburban and rural areas?

After creating such branch profiles, informed decisions will surely follow:

  • Leave the branch alone if your customers resist change and prefer traditional experiences.
  • Keep the branch location but downsize and/or redesign it to better serve needs. This might work well with diversified customers in high-density, high-touch or high-service locations. Redefine the experience as you go; forge partnerships with food and beverage or other service businesses to split costs and reimagine customer care. 
  • Close the location; sublease or sell it. Know the main types of branch transactions and fill voids to retain current customers. You could replace branches with enhanced ATMs or position house-call bankers for regular area coverage.
  • Create connections customers value most. The days when customers met banks on their terms have turned around. Bankers must connect whenever and wherever customers have questions, post transactions, or need financial services.

Transitioning from a location-centric to tech-enabled model puts you on the on-ramp to deeper loyalty, more customers and lower costs—all at once. You'll thrive among your competitors—and give the term “branch out” a whole new meaning.


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Jim Kearney and Erik Steffensen are principals with Point B.

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