Doing More with Smaller Branches at Citizens Financial

It's a common refrain these days: Bank customers are doing more of their banking online and on mobile devices and visiting retail branches less often.

While this shift in behavior opens the possibility of acquiring new customers through low-cost digital channels, not to mention closing branch locations to save money, for the time being it leaves many banks saddled with legacy retail networks that have significant overhead.

In this environment, the news that Citizens Financial Group in Providence, R.I., has managed to persuade tens of thousands of its customers to visit a retail branch in the near future seems extraordinary.

The $146 billion-asset bank in February launched an initiative called Citizens Checkup, which is designed to give customers a chance to sit down with a banker to discuss their financial needs, said Brad Conner, vice chairman of the consumer banking division at Citizens.

"Much the way our customers would go into their doctor for their annual physical checkup, we invite them to come in for an annual financial checkup with their trusted adviser," he said at an investor conference hosted by Deutsche Bank on Wednesday.

So far, Citizens has contacted about 325,000 customers, 80,000 of whom made appointments for a checkup. The goal is to deepen the bank's relationship with its customers while ensuring that brick-and-mortar banking remains relevant, Conner told the audience in New York.

Ken Thomas, a Miami-based community reinvestment and fair-lending consultant who has followed Citizens for years, said the bank's Checkup program is the first such initiative he has heard of. He called its early results impressive. "A bank like [Citizens] has hundreds of thousands of customers, but [80,000] is a very significant number for even the largest bank," he said.

Financial literacy, which Citizens' initiative seems tailor-made to provide, is a hot topic these days among regulators and lawmakers and even in the White House. Citizens, said Thomas, "is really filling a very critical role here, and they absolutely should be commended for that."

The Checkup initiative dovetails with Citizens' ongoing effort to retool many of its more than 1,200 branches, turning them, as Conner put it, "from transaction centers into advisory centers," and ultimately reducing the footprint of its retail network by as much as 50%.

The bank intends to accomplish this drastic reduction, Conner clarified, not by closing branch locations but by shrinking "the physical size of our network in terms of square footage." Several branches have already been reworked and another 40 or 50 locations are slated for similar treatment.

The trouble is that when a bank shuts down or cuts services at so many branches, it runs the risk of getting dinged on its next Community Reinvestment Act exam, Thomas said. Providing financial-literacy services to the community through its Checkup initiative, on the other hand, "is CRA gold" — a way for Citizens to offset any negative effects of reducing its retail network so radically. Said Thomas, "Anytime you bring in more than 1,000 [people], certainly more than 10,000 people, that's very significant."

Citizens' announcement of the Checkup program became part of a public conversation among bank chief executives throughout the week about the value and even the necessity of brick-and-mortar banking.

Jamie Dimon, the CEO of JPMorgan Chase, which has more than 5,000 branches in the U.S., on Thursday called branches "critically important" during a Sanford Bernstein conference in New York. Ally Financial, an online bank with no physical storefronts, meanwhile made the case for technology over tradition. With no branch operating expenses to worry about, Ally "can share those efficiencies with our customers in the form of better rates and lower fees," CEO Jeffrey Brown said.

Branch advocates may be winning the debate for now. Indeed, the number of commercial bank branches and other offices nationwide has fallen only 2% since the financial crisis, according to the Federal Deposit Insurance Corp., from 90,034 in 2008 to 88,256 in 2014.

Richard Davis, the CEO of U.S. Bancorp, said he had no desire to save money by closing storefronts at the price of higher funding costs in the future. "We have 3,200 branches, so we are not trying to make a statement of closing locations," Davis said at the Bernstein conference.

But Citizens isn't the only large bank looking to refocus its retail network. Dimon admitted that "the branch will get small, and the headcount may drop a little bit" but that, at the same time, "the advisory part of the branch may grow a little bit."

While Thomas applauds efforts to keep branches relevant as customer behavior changes, he cautioned that the impending death of the branch has been greatly exaggerated before. "Bankers have to be very careful that they don't get too much caught up in this branchless-society approach," he said. "We had that same false argument back in the 1970s when the first ATM came out — that ATMs and electronic banking were going to displace all branches. It didn't happen."

"Branches continue to be very important, especially for seniors and even a lot of millennials with money," Thomas added. "Even if they don't go into them a lot, they want to know that they're there."