Is Your Bank’s Retail Network Ready for What’s Next?

Retail Network Transformation Design at a Glance:

• Instead of widespread closures, retail banks should build a strategy based on how consumers want to use the branch and evolve their locations to that renewed purpose
• Successful banks like Chase use a segmentation strategy, ensuring they can align their branching approach with the opportunity in that market 
• For branch purpose, there needs to be harmony in the intersection between what the bank is trying to achieve and what the customer is trying to achieve 

A Q&A on the evolution of the branch network with Ben Hopper, Adrenaline’s Managing Director of Retail Strategy

The year-over-year trend toward branch network closures and consolidation continues with S&P reporting that banks now have a total of 80,000 branches in operation across the U.S. “Analysts say banks are investing more in their online platforms, where customers prefer to handle increasingly more of their banking transactions,” according to American Banker reporting on why banks close branches. “As a result, fewer branches are needed, and banks are continuously trimming their physical footprints in response.” But will this short-term solution to savings present a long-term problem for banks?  

The reality is that shuttering too many branches comes at a cost, as 31% of customers switch banks due to closures. In growth markets, having too few branches presents problems with market presence. Since people choose primary financial institutions with branches nearby, banks can’t just close their way to profitability. As outlined in Believe in Banking’s article on branch banking: “Reducing the geographic footprint and encouraging customers to use only the bank’s digital channels has had obvious benefits,” reports Insider Intelligence. “But the cost savings from branch closures have come at the expense of personal relationships.” 

The answer to the “branch problem” as some in the industry have labeled it, is not widespread closures with the assumption that the branch is meant only for transactions, and, is therefore, obsolete. Instead, the solution is building a strategy based on how consumers want to use the branch and evolving it to that renewed purpose. To gain some clarity on the power and potential of the branch network, Ben Hopper, Adrenaline’s Managing Director of Retail Strategy, shared some of his insights on top trends for retail banking and the importance of balancing savings and growth across the branch network.  

While most banks don’t have the resources of a big bank like Chase, there’s a lot people can learn from their approach to retail. Can you talk about Chase as a leader in branching?

We’ve been studying Chase for years. The thing that they’ve done very well is they don’t treat every market equally. They have a segmentation strategy by market. It’s a more advanced approach ensuring they can align their branching strategy with the opportunity in that market. Where I think some other banks get sideways is allowing regional bank presidents to lean on relationships with commercial developers in the market to define their branching strategy, as opposed to having market opportunity capture be the primary metric. A segmentation strategy allows Chase to look at a market and then deliver a network to the market they can most optimally perform in. 

Looking at the branch in the financial district in Manhattan, Chase has gone with a huge, city-center type of location that has connectivity to all the lines of business. That’s a different type of branch model than what they’ve delivered here in Nashville, which is more of a neighborhood-based location in a growing, but not a fully mature market for them. This approach feels very right for a growing city like Nashville. Using those two examples, I think we see how they do a good job of aligning the branch format and the branch programming to the market they deliver. They’re not treating New York the same as they do Nashville, and they’ve got two different sets of tactics for growing those two areas. 

Talk about the role of having a good data operation to tell you where that opportunity is and how you get in on the ground floor of a growing market that has a lot of potential. How do you identify those markets with data? 

I think the most powerful part of banking – that is somehow significantly underutilized – is the use of data to drive a strategy. Banks have so much data at their fingertips. Take their current customer sets, they know everything about those customers by studying active accounts: where customers are spending money, how much money is flowing out to competitors, where the money is coming from in the form of direct deposits, social security, etc. So, even with all that available, banks are still somehow underutilizing even their own data. On top of that, add FDIC data and census data. I’ll just say that we’re not an industry that is lacking in good data to drive decisions. 

It’s also important to add that at the highest level, analytics and the insights derived from data should be driving the strategy more than “gut” inclination.  That’s not to say that gut instinct doesn’t come into play, too, especially when you’re designing branches or trying to figure out what type of branch format to deliver in a community. I think the best example of that gut-based decision would be the “Genius Bar” that was in vogue a decade ago. At the time, bankers felt like that was a needed thing to educate customers on digital capabilities. I don’t know that they could point to a dataset that would have said that a genius bar inside a branch is a good thing that will drive digital utilization or market growth. But they were successful. So, maybe these decisions are a little bit of science and a little bit of art.  

That Genius Bar example gets to a little bit of the evolved purpose for the branch. Everyone is trying to define that evolved purpose, but they can’t do it all at once. How do they make strides toward their North Star, which may be in the future?  

The purpose of the retail branch network is going to be different for every organization. There are some organizations that are on this rapid growth journey. So, those institutions are looking for M&A opportunities. They’re aggressively going after the markets that those branches serve. They’re leaning into cross-sell of the current portfolio and new customer or member acquisition. Then there’s the kind of institution that is looking to get right-sized – maybe to prime itself to be in position for acquisition. For another bank, the purpose of retail could be efficiency. You can make some pretty quick strides from an efficiency standpoint.  Some are looking for loyalty and deepening their institutional values through community connection.  

The reality is that you can’t radically change the purpose of the retail organization every single year. But understanding what needs to be accomplished through that delivery channel for the organization at a given point in time – that is a primary objective. The most important thing for any organization to do is to align the entire organization around what they have to get out of retail that will lead them to the purpose of the retail bank for that organization. The next big consideration is on the customer side. The customer view of branch purpose must be translated into the experience the bank is creating. So, there’s an intersection between what the bank is trying to achieve and what the customer is trying to achieve. There has to be harmony there. 

To learn more about branch networks and retail network transformation strategies for your bank or credit union, get in touch with the experts at Adrenaline. 

Adrenaline is an end-to-end brand experience company serving the financial industry. We move brands and businesses ahead by delivering on every aspect of their experience across digital and physical channels, from strategy through implementation. Our multi-disciplinary team works with leadership to advise on purpose, position, culture, and retail growth strategies. We create brands people love and engage audiences from employees to customers with story-led design and insights-driven marketing; and we design and build transformative brand experiences across branch networks, leading the construction and implementation of physical spaces that drive business advantage and make the brand experience real.