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Finding Opportunity in Declining Branch Volumes


With average branch monthly teller transaction volume for financial institutions (FIs) declining more than 45% in the past 20 years, according to FMSI’s annual Teller Line Study, banks are challenged more than ever to keep their branches profitable.

Fortunately for banks with resourceful management, branch volumes and branch profitability do not have to go down in lockstep fashion. Depending on the transaction mix, of course, high branch volumes are generally viewed as a positive contribution to profitability. However, it’s possible for even very low-volume branches to be profitable through a combination of proactive management, operating-hours optimization, and technology-driven scheduling.

Branch Calculation Error

Although the Teller Line Study did indicate an ongoing drop in branch teller transaction volumes, this year’s results found that some branch “overpopulation” issues appear to be leveling out. For example, the number of branches, according to the FDIC, peaked in 2009 at 99,550 and had dropped to 97,337 by 2012, yet the total of deposits reached $8.9 trillion, $1.4 trillion more than in 2009.

With such an increase in deposits, and total deposits per-branch (on average), it seems likely that more branches would have become more profitable. Yet, we hear every day from banks that say they have too many branches, or that their branches are losing money. In our experience, this is often due to a calculation error on the part of bank management.

When banks that closed excess branches after the economic downturn realized their average deposits per-branch were rising, managers in many cases responded to that rise by increasing staff. However, in that time period, average pay rates increased as well, from $14.88 an hour in 2007 to $16.30 by 2013. That increase in labor expense, coupled with a failure to implement technologies that would foster teller productivity, drove the average cost per-transaction up considerably.

As noted in our study, the average cost per-transaction among community banks and credit unions was 85 cents in 2007. By 2013, it had risen to $1.08, an increase of more than 25%, making it painfully obvious that the increase in deposits during the period did not result in a corresponding profitability increase, on average. Banks suffered the worst with this metric, with their average cost per-transaction rising 34% from 2007 to 2013. By 2013, it was $1.22 for community banks.

As you might expect, we saw a corresponding decrease in teller-transaction volumes over the same period, based on the data analyzed for the study. The bad news for banks is that this decrease was much more significant for banks than for credit unions. Whereas credit union teller-transaction volumes (per hour) decreased 20% between 2007 and 2013 (from 10 to 8), bank teller-transaction volumes (per hour) decreased more than 32% (from 7.1 to 4.8), on average.

Rising Above the Average

Now, we’ll share some good news. Banks with resourceful, engaged management have embraced and surmounted the challenges of declining branch volumes and teller transaction volumes (not to mention, rising pay rates) and performed much better than the average. They have done this through a variety of means, from shortening hours of operation at low-volume branches to scheduling tellers more effectively, including replacing some full-time tellers with part-time workers.

These types of improvements are feasible for any bank to accomplish. From 2007 to 2013, despite the increases in labor costs, the labor cost per-transaction for the top 10 performers in our database increased only seven cents, from 64 cents to 71 cents. The average productivity of these banks, measured in teller-transactions processed per hour was 23.4 by 2013. That’s nearly double the average for community banks that year (12.9).

So, how can your bank achieve those types of results, even if your branch volumes are declining, overall? The answer is performance improvement – extracting more value from available resources. We are referring not specifically to employee performance improvement (although that does come into play), but rather branch performance improvement, which can be accomplished through these proven strategies:

More Effective Use of Business Intelligence. FMSI has long been a proponent of using business intelligence (BI) to pinpoint, address and monitor problem areas within bank operations, from lobby service to the teller line. This is true, not only in the financial sector, but also across a diverse array of industries. In the white paper, “The Rise of Analytical Performance Management,” author Thomas H. Davenport noted, “Performance management … has been propelled in recent years by business intelligence systems that contain and display performance metrics that have been extracted from transactional information systems. Analytical performance management allows firms to know – not just to speculate – which …. performance variables are associated with financial performance.”

Whether a bank implements a teller-traffic analysis platform with a scheduling engine or deploys customer relations software that can track behavior and perform cross-sell/up-sell and profitability analysis, technology-driven BI is a cornerstone of performance improvement. Windsor State Bank in New Windsor, Maryland, for example, achieved a 15% improvement in its teller-line productivity and a 15% reduction in its labor cost per-transaction over a six-month period (July 2011 to December 2012) after it implemented a BI solution for transaction-analysis and reporting.

Your bank may use risk management and compliance software already; these are BI solutions, as well. You may also have an already-deployed, underutilized BI solution that can target performance improvements. If so, we urge you to pull out the training manuals and expend some effort getting key players to use these tools. If you don’t currently have any performance-oriented BI platforms in-house, it’s time to evaluate some of the top players, many of whom offer free trials and extensive tutorials.

Taking a Practical View of Service. “Good” customer service is a stated goal of most, if not all, banks. However, when branches realize traffic and transaction volumes have dropped, it’s easy to assume poor service is at fault – and to add more workers in an attempt to boost service levels. To thrive in the current banking environment, banks must accept the fact that demographic and customer preference shifts are leading business away from branches, even if customer service levels remain high.

Given the current environment, we recommend banks focus on targeted service strategies that maximize efficiency while taking into account customer service excellence. By aligning the right number of staff, using a more sophisticated scheduling approach during both peak traffic periods and downtimes, banks can ensure desired service levels and minimize the cost of excess staffing. Furthermore, our research indicates service drops when staff has too much idle time and become bored.

Leveraging part-timers makes it easier to effectively cover busy periods without experiencing labor cost overruns. Banks should also ensure that their lobby staff and management personnel are trained to engage customers and become personally acquainted with them, offering to help them with needs other than those for which they typically visit the bank.

Put Incentives to Work. To help branches accomplish their goals, develop performance incentives for staff that meet service goals, master new technologies and support any general branch sustainability efforts. Employees should be able to participate in both individual and team incentive programs. Although management should certainly reward individual effort, groups that work well together tend to provide better customer service and create a more harmonious environment, which customers sense and appreciate.

Don’t forget to put social media and other contemporary outreach tools to work as well, asking customers to follow the bank – and even their local branch – if you have the resources. Then, create an incentive program that targets “buzz” generation. Challenge your teams to develop creative customer-engagement programs via social media. These could promote account specials, drops in loan interest rates and other triggers that might encourage a branch visit. Social media is easy to track, so you’ll be able to tell which teams achieved the most likes, shares, reposts and other buzz-worthy activities.

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].