A senior banking leader recently reached out to me after finding himself on the wrong side of a company downsizing. He was with a large bank and was seeking advice on potential career prospects he might pursue.
We met many moons ago and share a background in in-store branches. I always enjoy sharing war stories with veterans of
As we chatted about his most recent experiences, he shared that he had gained a lot of practice at his most recent employer in
He joined in the laugh and then pointed out that his role involved working with teams to assist customers in learning to utilize their digital banking products instead of visiting branches. He wasn't on the team deciding to close branches; he was on the "How do we limit customer runoff?" team.
My friend had also worked on teams that built new branches and entered new markets for that bank in the past. Half-jokingly, I asked which team he preferred. After a moment's thought, he replied, "Well, opening new branches is obviously more enjoyable and upbeat than closing them … but a lot of my tasks were similar."
I asked him to elaborate, and he explained that even when opening new branches in new markets today, there is a heavy emphasis on promoting self-service and digital banking products.
We discussed how financial institutions can now enter new markets without the level of facility expenditures previously required to compete. It wasn't all that long ago that it seemed unfeasible to make a significant impact in a market with far fewer branches than market leaders.
Now, all else being equal, having more branches in a market is usually a competitive advantage. However, the viable service area for each branch has greatly increased in recent years due to the widespread adoption of mobile banking.
This has led to overlapping service areas for some institutions with denser branch networks. Smart people can (and do) debate whether dense branch networks have a multiplier effect or a cannibalistic effect. I've long argued that the answer varies from bank to bank, depending on their ability to build, develop, motivate and retain great banking teams.
Assuming that one bank's branches have identical prospects to another bank's overlooks the fact that some organizations operate their branches more economically and/or productively than others. Some banks are better at keeping their branches visually appealing inside and out and have branch teams that are more adept at serving customers, community outreach and growing their business.
The ABA is testing an information-exchange network to allow banks to share their fraud data with each other. Companies including Baselayer are also building solutions.
In years past, a banking analyst friend of mine argued that a bank's prospects for success with new branches had less to do with the markets they enter than with their track record at current branches.
His favorite analogy involved restaurants. If your food, service or prices are bad, it doesn't matter how many new locations you open in a new market. You're not going to succeed.
I believe that in recent years, we can add a bank's mobile banking offerings and in-branch technology to the mix when considering their chances for success with new branches, as well as their decisions not only to shutter but also to keep existing branches open and operating.
Mobile technologies reduce the need for high-volume, lower-value-added transactions at branches. Concurrently, improved in-branch technology for bankers allows them to be more productive than in years past.
Smaller teams of more productive bankers make some once-marginal branches not just viable, but instrumental in winning and protecting market share.
Different banks will use different metrics to discern what branch densities work for them from market to market. One may be paring down its presence in a market while another is expanding theirs. And it's possible that both are making the appropriate decisions for their respective institutions.
However, regardless of the decision process for any given bank, it's important to remember that customers and prospects do not visit branches. They visit bankers.
Whether overlapping branches create a growth advantage or an expense disadvantage depends as much on the quality of their branch teams as on the branch density in any market.
Investing in the development and retention of great bankers may be the most important investment any bank can make in its physical branch network.
