Tweaking Branch Hours with Analytics

With branch transaction volumes declining more than 45% since 1992, financial institutions (FIs) are struggling to keep branches profitable. While branches are important to FIs as a resource for developing business relationships and customer loyalty, banks struggle to support the financial drain of branches whose transaction volume does not justify the corresponding operating expense.

One means of reducing overhead in these low-volume branches (LVBs) is adjusting hours of operation, yet many managers are uncertain where they can cut hours without impacting customer service. When asked why they don’t open a particular LVB an hour later, a bank retail vice president is likely to say, “Because this is how we have always done it, and it meets our customer’s expectations.”

A better approach is engaging in a detailed hours-of-operation analysis that examines actual customer transaction patterns. After such an analysis, these same senior level managers are often surprised to learn there are so few transactions occurring during the first hour of operation at their LVBs.

Opening Later

For simplification purposes, let’s suppose a bank with 10 LVBs decided to push back by one hour the opening of these branches on Monday, Tuesday, Wednesday and Thursday. What sort of annualized labor cost savings would the bank achieve?

Let’s assume the salary and benefit hourly pay rate per-employee is $16.30 (industry average) and that each LVB has two employees opening up the branch Monday through Thursday. The weekly labor cost savings for opening up the 10 LVBs one hour later for four days during the week would be $1,304 ($16.30 x 2 employees x 4 days x 10 branches). Annualized this would be $67,808.

It is important to note that this figure only measures labor cost savings and doesn’t take into account other savings, such as the reduction in lighting and heating/cooling needs that are achieved with the revised operating schedule.

In a real life example, we analyzed over a three-month period in late 2011 the teller transaction volume for a 56-branch community bank operating primarily in the Northeast. Like many community banks and credit unions, this institution was experiencing declining branch transaction volumes due to a variety of factors and possessed several LVBs.

Upon a review of the bank’s branch teller transaction volumes in relationship to its weekly hours of operation, we determined that the aggregate savings opportunities for the bank by adjusting its weekly hours of operation to better match its customers’ needs would be $235,648 annually. No operating hour changes were recommended for nine branches where hours were already optimal or very close to optimal given branch volume. However, in the 47 remaining branches, some type of change was suggested, such as opening a half hour later and closing a half hour earlier on some days of the week. For branches that were open on Saturdays but failed to garner substantial business, we recommended terminating Saturday hours.

Before deciding where to cut hours or days of operation, however, banks should evaluate other factors, such as whether or not the branch is important for other activities such as loan servicing, how much new account activity the branch has had recently or has potential to gain in the near future and the branch’s total deposit base. Since hours-of-operation analyses are based strictly on transaction volumes, banks should proceed cautiously so as not to inconvenience customers and potentially lose their business.

It is also prudent to craft a detailed marketing communication plan to all customers who will potentially be impacted by any change in branch hours. Messaging around other available channels, like ATMs and call centers, can be relayed in this communication to help make the transition seamless for your customers. Along with email and direct mail to your account holders, signs can be displayed in and around the locations announcing the branch hour changes.

Mr. Scott is president/CEO of Alpharetta, Ga.-based Financial Management Solutions, Inc. (FMSI), which provides financial institutions with business intelligence and performance management systems for efficient branch staff scheduling and lobby management. He can be reached at [email protected].