Come for the salted caramel mocha, stay for financial advice.
That's the emerging branch model at Reliance Bancshares in Frontenac, Mo., as it plans to open coffee shops in three of its St. Louis-area branches. Executives hope the redesigned branches will boost customer traffic, which has dwindled in recent years as more clients bank online.
Reliance's plans illustrate how some community banks are looking to make money from excess office space, leasing out portions of their branches often located on prime real estate to other retail franchises. Reliance, for instance, is planning to lease space to Starbucks and Tim Hortons.
"The banks look like a bomb has kind of gone off and vaporized everybody," said Rick Sems, president and chief executive of Reliance's $1.1 billion-asset bank. "But branches are still important, and people still use them."
Branch location and design are a problem throughout the industry, industry experts said. Banks are often located in prime spots, but their physical size is a relic of a bygone era of branch-centric banking.
"A lot of banks have good real estate, good locations," said Tom Auer, a senior vice president for architecture at NewGround, who worked with Reliance on its remodel. With branches handling fewer transactions, "the physical brand needs to respond to that operations model."
Banks have started requesting designs that accommodate reduced teller services and more-personalized customer meetings, Auer said. Branches with 6,000 square feet rarely use half that space today.
"We're seeing some massive gutting and redoing of the internal structuring," Auer said.
Remodeling often leaves banks with excess space. Some banks have added community rooms or training areas. Others, such as Reliance, are leasing space to retail businesses.
NewGround has worked with at least one large bank, as well as smaller banks in Colorado and Iowa, on in-branch café projects. In many of those cases, banks requested that a wall or gate be placed between the two businesses.
Reliance plan is different because it is using an open-plan layout to integrate the café into the bank's retail area.
"This one is revolutionary," Auer said of the Reliance floorplan. "It's more open than anything we've ever done before."
Reliance's new branch also marks the latest chapter in the company's turnaround. Reliance was still reeling from the financial crisis in 2013 when Tom Brouster led a major recapitalization and became the company's chairman. The bank had suffered steep losses from commercial loans, and had undergone a series of management changes.
"My role is that of a turnaround banker," Brouster said.
But after returning Reliance to solid ground its bank earned $43 million last year Brouster and Sems have turned their sights to a different problem: What to do about branches.
"We have too much space," Sems said, noting that some of the branches need less than their typical 4,000 square feet of space.
With reduced branch traffic, Reliance is missing opportunities to talk with customers and sign them up for new products. "Without traffic coming in, how do you cross-sell services?" Sems said.
Sems, a self-described coffee lover, got the idea for the café-style branch during a visit to Starbucks. While waiting in line, he noticed that local professionals were holding meetings, or working remotely on their laptops.
"I thought, "Why couldn't I get them to come into my location?'" Sems said.
Sems decided to revamp the branches as communal spaces. Renderings of the new locations show a single room filled with café-style tables and overstuffed chairs. The branches will have a "library-ish" feel, he said, with hopes that customers will hang out and use the free Wi-Fi.
The branches are expected to bring up to 500 additional customers through the bank's doors each day. But Reliance is holding off on setting projections for customer growth.
"Even if we get 1%, we'd get more people than would actually come in and talk with us today," Sems said.
The bank is planning to earn revenue from the arrangement. Two of the remodeled locations will generate rental income, and the bank has more retail café-branches planned for the future. "The reason Starbucks and Tim Hortons like it is they get a good location," Sems said.
Reliance's redesigns have received some pushback from area residents who are upset about a potential spike in traffic, specifically road congestion caused by the addition of coffee shops.
At a recent city council hearing, where project approvals are debated, one area resident criticized the driving style of Starbucks customers.
"People want their coffee, they're not polite like, 'I want my coffee now,'" said Holly Graham, according to a video of the meeting posted by a local Fox News station. "I have no problem with Starbucks, it's just this location."
Highway traffic studies suggest that the changes will have minimal impact, Sems said.
A Starbucks representative declined to comment. Efforts to reach Tim Hortons were unsuccessful.