While bankers and analysts agree that branch networks need to be scaled down to rein in the cost of delivery, no one is saying that bank offces are going to disappear.
Take Minneapolis' First Bank System Inc., for example. The $34 billion-asset banking company is pursuing a strategy where the branch holds a significant - but much reduced - place in delivering bank products and services.
First Bank calls it the product distribution paradigm. The three- pronged approach involves mass-market or targeted advertising, the telephone, and the branch in the same transaction.
Thus far, the delivery scheme has been used primarily to promote home equity loans.
Customers are invited to call a centralized number to apply for loans. Those who qualify are then directed to a branch near their home or offce. Finally, the closing, which occurs in the branch, is viewed by First Bank as a cross-selling opportunity.
Everyone of those customers who bought a home equity loan who was new to FBS (bought) 2.2 more services in addition to the loan itself, said William F. Farley, vice chairman.
First Bank can point to significant growth as a result of this marketing effort. The portfolio of home equity loans has grown from about $500 million in 1990 to $2.2 billion last year.
That's 33% per annum, said Mr. Farley.
Since 1990, the overall consumer credit portfolio has grown by about 9.3% per year. The driver of that has been home equity, said Mr. Farley.
And, he added, the figure would be even higher - 17% per year - if the portfolio of indirect auto loans, which has been reduced by $1 billion, were excluded.
Further, some 60% of all approved consumer loans, including credit cards, were initially sourced on the phone. The remaining 40% were handled entirely in the branch.
Banks have to rethink which products are delivered in which manner to justify the channel, said Norman Jaffe, an analyst with Fox-Pitt Kelton in New York. First Bank, he added, probably doesn't get as much credit as it deserves for doing so.
The product distribution paradigm ties in with First Bank's aim to make its branch network smaller and more sales oriented. Like many other institutions, the bank has been trying to get customers to use alternative delivery channels for transactions.
The bank's telephone center, for example, last year handled 24 million calls, up from 18 million in 1993. Some 77% of customers' inquiries were answered via the automatic voice response unit.
Further, First Bank boasts one of the highest ratios of ATMs to branches in the industry - 3.4 to 1. Mr. Farley added that before the bank's acquisition of Metropolitan Financial Corp. last year, the ratio was about 5 to 1. Nationally, the average is nearer 2 to 1.
In recent years, First Bank has also shuttered 150 branches following acquisitions.
We're operating 310 branches today, said Mr. Farley. If we had not closed branches that we acquired over the last few years, we would be operating almost 460 sites.
That translates to eliminating about 1.2 million square feet of real estate in the last two years.
We have consolidated, sold, eliminated, and leased an enormous amount of our excess real estate, said Mr. Farley. We have on average $75 million in deposits per branch site. We are top four in the country there. (The figure) was over $100 million until we bought Metropolitan.
That's very good when you think about how many branches they have, noted Mr. Jaffe.
The bank's efforts at streamlining and cost cutting are reflected in its eYciency ratio. Last year, noninterest expense per dollar of revenue was 55.72%, down from 57.85% in 1993.
The move to larger, less-transaction-oriented offces will also alter the configuration of the branch, said Mr. Farley.
In terms of the way they are designed - the internal architecture o most of them are outdated, he said. Eventually, we'll have branches that have, maybe, one teller station for an occasional person who wanders in to do an occasional transaction. But the image of what a branch will be is going to be very diVerent - platform sales only, if you will.
First Bank has already taken steps in that direction. Branch offces are now equipped with telephone kiosks to acquaint customers with call center services.
The real desire is that the next time they have that kind of a problem or that kind of question they do it home or at the offce, said Mr. Farley.
And the bank is ridding itself of outmoded branches like the one in downtown Missoula, Mont. That was a very large facility with a huge atrium, said Mr. Farley. It was kind of totally inappropriately designed for what a bank does today. The building was sold to the federal government, which is converting it into a courthouse.
