Fifth of a Series.

Financial institutions that close too many branches too fast risk alienating many customers - including many of the upwardly mobile and higher-income people they desperately want to hold on to.

Nearly half of the financial consumers responding to the annual American Banker/Gallup survey said they do business with tellers or other branch representatives at least three times a month.

Whereas many bankers have assumed that branches appeal mainly to the elderly and lower- to middle-income groups, young adults and upper-income customers are more likely to be paying multiple visits a month.

While "I never go into a bank" has become a common refrain among ATM enthusiasts and the computer literate, only 2% of the 1,031 survey respondents said this was literally true. Another 14% said they went less than once a month. On average, these 14% had not been into an office for three and a half months.

"The branch's demise has been greatly exaggerated," said Charlotte Wingfield, a San Diego-based partner of KPMG Peat Marwick.

A study her firm commissioned from Yankelovich Partners indicated that even regular users of personal computers deem it more desirable to bank in person than on-line.

Similarly, Payment Systems Inc. of Tampa has concluded that the computer-savvy "like PCs in addition to, not in lieu of, branch banking," said vice president Joseph Majestic. PC banking customers do six of their 25 average transactions a month at branches, PSI found, while all households do seven of their 13 transactions in person.

Bank and thrift customers in the 1996 American Banker poll averaged 3.3 branch visits a month. People who primarily use credit unions and nondepository companies were just under 3.0.

Inconvenience, often equated with distance from a branch, is still the No. 1 reason people change financial institutions. In response to an open- ended question, 53% said they made their last switch because they moved, changed jobs, found a more convenient institution, or saw their preferred branch close. By comparison, 37% cited dissatisfaction with service or pricing. Only 1% said it was because their bank merged or changed ownership.

The findings reinforce a new wave of revisionism about brick-and-mortar and its role in attracting and keeping customers. A "branches are doomed" mentality has given way to strategies of "selective reconfiguration."

"The hype has been that alternative delivery will replace branches, but they are still the primary delivery channel," Ms. Wingfield said. "The branch is alive and kicking, but misunderstood and under-leveraged. Knowing what's going on in the branches can be the key to success."

Bankers are struggling to build that knowledge.

"Preferences for delivery channels are absolutely key," said Ron Coben, executive vice president and head of community banking at Bank United in Houston. "I do not yet have the history, by customer, of whether they use our lobbies, ATMs, drive-ups, or PC banking. I'm not pleased about that, but we're getting to it."

Mr. Coben foresees channel preferences changing with age.

He said he suspects that many of those who grew up with near-total automation may, as they mature, seek out the higher-touch services and advice that only manned offices can deliver.

"Branches are not going away soon," said Mr. Coben, who runs 70 of them and will take on more if they can help Bank United expand into new markets. "A large segment of the population prefers face-to-face contact. Though it may not be every day, the branch is still important to them.

"Longer term, we might use video conferencing to connect customers with specialists, who then would not need to be in every branch. But that's more of a tomorrow issue."

"Banks may be closing traditional branches, but they can have more locations than before because there are more flavors of branches," said William Gregor of Gemini Consulting in Cambridge, Mass. "It's a sign that the industry is trying to understand what customers really want - and a lot of that can be satisfied in places like supermarkets."

But not all of that, according to Mark Gibson, who recently joined Compass Bancshares in Alabama after playing a role in futuristic branch planning at the consulting firm John Ryan Co.

"Will the supermarket branch be able to replicate everything that people go to traditional branches for?" Mr. Gibson said. "Probably not. That's why you will need a certain number of traditional locations - though they'll have to change in different ways."

George Frerichs, a veteran branch banking consultant and head of the Frerichs Group in Chicago, said a bank with 20 branches in a typical metropolitan market can scale that back to 12 full-service hubs, complemented by smaller outlets that can include supermarket locations.

"It's not that they have to close that many - they just have to change their mode of operation," Mr. Frerichs said in a recent interview. "We see the future of the branch primarily in sales, service, and education ... like boutiques in department stores, with much more of a shopping or retailing environment."

David Partridge, director of Towers Perrin's financial institutions practice, predicted that with the supermarket notion maturing, banks will seek out "new retail environments" and beef up bank-at-work programs in hopes of stimulating revenue.

As banks, thrifts, and credit unions are searching for the right mix, nonbanks like Charles Schwab & Co. and Fidelity Investments have opened hundreds of offices. They all seem to be saying that physical locations still matter, and the public is voting so with its feet.

People with higher incomes are especially coveted - by banks and nonbanks alike. Many are the professionals and small-business owners that some brokerage firms have lured away from banks.

Several experts said the over-$75,000 earners' 3.3 branch visits a month - 49% of them said they go three or more times - are correlated with business needs.

"No bank is fully effective at exploiting the cross-fertilization opportunities between small business and private banking," said Charles Wendel, president of Financial Institutions Consulting, New York. "If banks want to get better at cross-selling, the branch becomes a very important factor."

"Whether the $75,000 people's branch visits are business or personal doesn't matter," Mr. Gibson said. "The bank has to be there in some form."

Richard C. Hartnack, vice chairman and head of community banking at Union Bank of California, said 30% to 35% of his customers don't visit branches at all. "That may be a California thing," he said.

One-third of the rest are "constant users - small-business people who come in almost every day," Mr. Hartnack said. "The more affluent you are, the more sources of income you have. You get checks."

In Philadelphia, CoreStates Financial Corp. is aiming upscale with a new breed of investment resource center. The modified branches are chock-full of technology developed with KnowledgeFlow Inc. of Bridgeport, Pa., and the approach is anti-broker soft-sell.

"You don't have to be a customer to use it and learn from it," said CoreStates Bank senior vice president Richard Lindsay. "Hopefully, then you'll do business with us."

CoreStates acknowledges its targets already do business with Merrill Lynch and others. "They like their brokers personally, but feel at their mercy and don't trust everything they say," said Mr. Lindsay. "We don't offer a bunch of commission salespeople, we offer resources."

Next: Card battles

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