Optimizing your branch network.

AuthorStewart, Deb

The need for physical branches is in decline. Coping involves more than just figuring out which ones to shutter. It means figuring out the highest and best use for each remaining facility.

Here are the distressing facts: More than 2,600 U.S. bank branches closed last year, with most large banks contributing heavily to that total. These actions included the following:

* Bank of America closed nearly 150 branches last year, according to CNBC television.

* PNC Bank, Pittsburgh, has closed 240 branches since 2013. Most of those cuts came in 2014 when 190 locations were closed.

* JPMorgan Chase Bank recently announced it is closing about 300 branches (5 percent of its total) in an effort to trim costs, Bloomberg reports. JPMorgan also slashed its number of ATMs by 12 percent in the fourth quarter of 2014.

European banks between 2013 and 2020 are expected to close 40 percent of their branches--meaning 65,000 fewer branches, according to the consultancy Bain & Company, Boston. U.S. banks are expected to have 20 percent fewer branches by 2020, with the trend accelerating after that, according to the white paper, "Retail Banking 2020: Evolution or Revolution?" by PricewaterhouseCoopers (PwC), New York.

And it's not just the number of branches that is being cut, PwC cites that the average number of branch full-time employees has been reduced from 13 per branch in 2004 to an average of less than six today.

Is the branch still important?

As a part of PwC's "Retail Banking 2020" study, top executives were asked that question. "Fifty-nine percent of respondents expect the importance of branch banking to diminish significantly as customers migrate to digital channels, and 48 percent expect branch banking to change significantly by 2020." Yet, only 16 percent of respondents viewed themselves as "very prepared" for this shift.

Respondents globally view the largest banks as benefitting most from these changes, and smaller regional and community banks being the most threatened, PwC adds.

Jean-Werner de T'Serclaes, a partner at The Boston Consulting Group, says the future of bank branches wasn't just about closing them. "Banks are looking to optimize their branch networks rather than eliminate them," he says. "Relatively few bank customers want to do everything online, and most still want branches for face-to-face conversations about complex products such as mortgages."

Optimize your branch network

So if optimization is more than simply closing branches, what is it? What should you consider as you approach a network optimization project? What are the outcomes you are working toward?

Here are five general steps identified by leading experts in the field:

* Have the right people guiding the process and building consensus.

* Validate your banks' strategy--business/segment/geographic--optimization needs to occur in this broader context.

* Gather as much market and competitive data as possible.

* Analyze the data to arrive at several conclusions for each market/branch: close, consolidate, invest, reconfigure.

* Repeat--consumer behavior is going to continue to evolve-optimization needs to be approached as an iterative process.

Let's view each of these steps in greater detail:

  1. Have the right people guiding the process and building consensus.

    Darren Dewey, senior vice president, director of retail distribution at Associated Bank, Green Bay, Wis., offers this advice, "We have touched 200 of our 230 branches in the past five years--an executive committee was formed at the beginning of the process with our CFO, chief retail officer, commercial real estate manager and community market leader. We needed to make the right capital expenditure decisions with changing consumer behaviors and technologies. This balance of perspectives helped to ensure the right decisions and buy-in at the most senior levels." Denise Stokes, senior vice president, director of retail and marketing for Sandy Springs Bank, Olney, Md., describes a similar approach. "We established a channel committee about three years ago. Channel implies more than just the branch. We started broad-based, asking what is omni-channel about for us and what is the role of the branch in that context? The committee oversees all research and decisions around optimization. The retail/marketing head...

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