Reimagining rather than closing branches
As branch traffic continues its decline and branch costs march upwards, community bank executives are often tempted to sell or close branches. Bad idea.
For the first few years, the numbers look pretty, since expenses for these now-defunct branches get wiped off the books. While deposits may roll off, they’ll do so slowly, so that the damage to the bank is not obvious. Interest from the loans generated by these defunct locations continues to accrue but slowly rolls off. The problem is that the physical branch is where banks gather the majority of their deposits, via new accounts. These deposits are the lifeblood of commercial loans, which are a core part of a bank’s business model. Likewise, branches are where customers often get their retail loans.
Without a branch, where are a bank’s customers going to open accounts and procure loans? Some say the Internet or other forms of non-face-to-face banking, but a number of research studies say otherwise. So, if customers aren’t buying bank products on the Internet, where are they making those purchases that they would have made at the now-closed branch? The answer: other banks, the competition.
Westamerica Bank’s attempt to close a branch in Upper Lake, Calf., highlights how such actions can stir community animosity. Eventually, the flow of interest payments from consumer and business loans dries up. The new deposits that would have helped generate new business loans are filling someone else’s coffers. Thus, the immediate cost savings realized by branch closures become the cause of losses in later years.
New Staffing Models
Branch closures aren’t always the worst way to go about things, as long as they are part of a business strategy that considers what customers are using the branches for. Consumers and businesses still need branches to open accounts and get loans; branch employees need to sell them these products. Thus, even in spite of the majority of transactions being handled online and on mobile devices, branches still provide immense value for a community bank’s business strategy.
Rather than going straight for the knife, community bank executives should consider whether they are truly deriving the maximum value and potential from their branches. This doesn’t mean keeping the branch as it exists today, but rather reevaluating and repositioning staff in ways which ensure that nearly every minute they spend on the floor is tied to a revenue-generating activity.
One idea is familiar to most in the industry: downsizing and redesigning the physical facility and adopting the universal banker or universal associate staffing model. A universal associate is trained to possess the skill set to identify customers’ needs, guide them through products and accounts, open new accounts, quickly direct them to loan/mortgage officers for more complex offerings and handle the occasional transaction.
The value of universal associates – and the challenge of developing them – has been well documented. Some of the nation’s larger community banks are leading the charge and reaping early rewards. Yet, many community bank executives balk at the time, energy and strategic forethought required in adopting this model and fall back into inertia.
Before brushing off the universal associate concept as too costly or too much trouble, consider this. A community bank executive in Texas that we work with was on the fence about the concept, until she went into a competing bank and waited for over a half-hour, with staff either too poorly trained or too uninvolved to help her with her needs. She realized: that’s a bank that’s going to have trouble attracting deposits and generating new loans.
Another idea to maximize the value of branches and branch staff is a bit radical, but is building steam with early adopters. It involves redeploying staff during slower-volume periods to handle product/account/loan inquiries made via internet video on a cross-branch model.
The similarities here to the adoption of virtualization in the investment banking world is striking. Say a bank has five trading centers around the world, each requiring 100 servers’ worth of computing power. Five hundred servers come with a hefty price tag – and what about busy days when 100 servers aren’t enough for a location? Because demand varies at each location at any given time, banks caught onto the idea of tapping into underutilized servers at other locations when demand spiked at one location. The result: cost savings and a more effective deployment of resources.
In this context, universal associates are an untapped resource that community banks can share across branches. We estimate that, as part of a cross-branch model, bankers could elevate their productivity to levels of 80% and upwards. More importantly, the time spent on this model would not be to handle basic, transaction-related inquiries such as disputes or lost/stolen cards, but instead on revenue-generating activities, like loans and accounts.
Rather than retreat from branch banking, community bank executives are better off reimagining it – understanding how customers use branches in a rapidly-evolving technological world. Those executives who resist the urge to cut branches immediately and, instead, rethink how to better staff and reposition their current branches to attract and maintain business will put themselves in a position to reap substantial benefits.
Mr. Karon is president and CEO of BVS Performance Solutions, which focuses on helping financial institutions enhance client service, employee satisfaction and profitability through training and technology. He can be reached at [email protected].