Integrating bricks and clicks with data

Improving the customer experience using integrated real estate, operations and technology strategies can make a branch network highly profitable. The key ingredient is Big Data with insights about your most engaged customers.

Bank branches continue to be a crucial customer engagement tool. In fact, as customers increasingly rely on technology, they begin to value their visits to the branch even more. This counter-intuitive trend was documented in a recent McKinsey & Company study, which found that consumers who access mobile and online banking more than once per week are 60% more likely to visit a branch.

To remain competitive, then, branch networks clearly must deliver an integrated banking experience. And that requires alignment between real estate, branch operations and marketing departments. With 86% of bank transactions now occurring without a bank teller, a growing number of banks have begun to reconceive the branch as a place that extends, rather than ignores, the brand impression that consumers experience through digital channels. This means starting from the beginning of the process: developing real estate strategies that help integrate “bricks and clicks” and maximize market opportunities.

Flexibility Factor

Flexibility must be built in to a bank’s real estate strategy, and therein lies the challenge. The average retail branch lease term is 10 years, which is a long time in a rapidly evolving market, and executing a property disposition for unnecessary branches doesn’t happen overnight. Meeting consumers where they are, in terms of location and usage, means more than identifying their basic demographics such as age and income. Today’s forward-thinking branch strategies are driven as much by consumer behavior trends as they are by demographic statistics.

Data and analytics can help speed the integration of clicks and bricks by enabling a bank to investigate not only what needs bring consumers to the branch, but also how these visits fit into online and mobile activities. Utilizing such data, the retail banking team can convert marketing and financial data into scenario analyses that uncover the best branch locations and formats for each targeted consumer segment.

Data-driven analyses also can help reduce the inherent financial risks in corporate real estate portfolio decisions concerning facility leases, acquisitions, closures, relocations or reconfigurations. Given that the cost of opening a new freestanding or in-line branch has risen from approximately $200 per square foot in 2003 to an excess of $400 per square foot today, retail property decisions must be precise, which means well-informed.

Though smaller has become more standard, the “right” size is whatever fits the specific branch strategy and is impacted significantly by technology. An emerging trend is to vary footprint by market need, often by decreasing square footage. At 3,040 square feet, the average planned new branch is roughly 1,000 square feet smaller than the average branch 10 years ago. For example, one mid-size regional bank’s technology-enabled transactional branches offer interactive customer service options with limited face-to-face staff, and are right-sized at 1,500 square feet on average.

In contrast, a large national banking and financial services corporation’s full-service “destination” branches are as large as 12,000 square feet. Meanwhile yet another national financial services corporation created a mobile pop-up branch that costs one tenth of its traditional branch and can be towed from site to site.

Flexibility does more than please customers; opening new locations quickly also gets revenue flowing quickly. As industry consolidation continues, institutions that can quickly reshape their branch networks will benefit the most.

Another increasingly common way to drive value in branch (and corporate) real estate comes from creating turnkey branch rollout and disposition capabilities in advance of the need. This efficiency advantage should not be underestimated, as financial organizations face rising legal, regulatory and security costs. As JLL’s 2015 Banking Outlook reports, the average efficiency ratio rose from 60% in Q1 2013 to 62.8% by Q4 2014, creating additional pressure to reduce branch costs. The report cites a leading global bank with a climbing efficiency ratio that closed 300 branches over two years to help trim $2 billion in expenses from its retail banking division.

On the growth side, a large regional bank extended its capabilities well in advance of its ambitious plan to roll out 170 branches in three years. Through advance planning and creation of turnkey capabilities, the bank reduced branch delivery time by 45% and costs by 20% – and new branch revenues started flowing that much sooner as well. Similarly, one global bank incorporated a turnkey branch strategy program and was able to reduce branch delivery time by six months during a two-year program encompassing 96 new branches and 86 branch renovations, along with the fast-track decommissioning of 14 branches in one month.

Across a single bank’s network of branches, facilities management practices and staffing levels may vary widely from site to site. Ideally, a retail bank will assign 65 sites per facility manager, and will centralize purchasing of landscaping, janitorial and other facility services to help ensure consistent regulatory compliance and quality of service across all sites and suppliers. Adhering to best practices for security, ADA compliance, technology management, environmental sustainability and energy efficiency not only reduces costs and compliance risk, but also enables the corporate real estate department to improve its service to its stakeholders in the retail banking operation.

A sometimes-overlooked path to more strategic capital allocation and greater efficiency lies in evaluating the bank’s ratio of leased versus owned branches and office facilities. Already, pressure for smaller, more flexible branch networks has led to a wave of sale-leasebacks for large institutions that have recognized value in transitioning unneeded real estate. Even small banks (fewer than 200 branches) can benefit from strategic sale-leasebacks, especially since these institutions tend to own, rather than lease, their facilities.

With well-structured data analytics, a flexible approach to branch configuration, streamlined facilities management and capital redeployment strategies, a bank can use its real estate to both gain competitive advantage and more fully engage consumers across all channels.

Mr. Brady is managing director and chairman of the Banking Industry Group at Chicago-based JLL, a global professional services and investment management firm specializing in real estate. He can be reached at [email protected]