The recent story about the failure of Guaranty Bank in Milwaukee filled my inbox with folks asking me what the closing of the bank’s 107 in-store locations said about the future of in-store branching.
Some have cited Guaranty’s in-store branches outside its primary market as a contributing factor in the failure. Others have said that First Citizens Bancshares’ passing on those branches — despite acquiring Guaranty’s deposits and assets — was a sign of in-store branching losing general appeal.
Drawing a sweeping conclusion about the state of in-store banking from one story is difficult.
I suggested to one reporter that if he were looking for evidence that in-store branches are not part of some banks’ plans, he absolutely had it in the First Citizens deal. However, I said that if he looked at the closing of the Guaranty in-store branches as an indictment on in-store banking in general, I would strongly disagree.
The closure of the 107 in-store branches is a big story. Customers who had used those branches need to figure out how to access their money. Moreover, if Guaranty’s in-store branching program had been successful, why wouldn’t the acquirer have kept it in place?
That is a fair question and one that I would not attempt to answer for the parties involved. I would suggest, however, that there are numerous business lines that some organizations find great success with that other organizations decide are not in their company’s wheelhouse, so to speak.
Leaders make decisions that they believe are in the best interest of their businesses. What is right for one may not be universally right for all. Still, there has long seemed to be a habit among bankers who do not operate in-store or other alternative branch formats to simply claim they are unviable.
An interaction at a banking awards program several years ago was illustrative of the many I have had regarding in-store branches. A gentleman at my table owned a company that designed brick-and-mortar bank branches.
When he learned that I worked quite a bit with in-store programs, he felt compelled to tell me why he did not think they made sense. He was passionate about making the point that these tiny branches in loud stores were not private enough for people to feel comfortable banking there.
The funniest moment came when he said, “I just don’t think those little branches can work. We have one near our neighborhood. My wife opened an account and banks there, but I’ll never use it.”
He felt compelled to tell me why in-store locations didn’t make sense, but his own household banked at one. I smiled and said, “Well, I think your wife is a smart lady.”
One of the more common arguments still made against in-store branches is to point to the banks that once operated them but have either entirely or mostly exited the channel. Critics will go back to even before the smartphone era began to cite unsuccessful in-store branch programs.
But when critics point to some banks’ failure at utilizing in-store branching as evidence against the channel, others can rebut with evidence of successful operators.
There are quite a few highly respected banks and credit unions currently running in-store branch programs, some of considerable size. Most are as committed to their programs today as ever.
Furthermore, if in-store and other small, alternative branches were such poor performers, it would follow that the institutions with the most of these branches would be underperformers.
But let’s take one example of a bank with extensive use of in-store branching: U.S. Bank. The Minneapolis-based bank, which I have worked with, has generally drawn glowing praise from analysts, reporters and commentators over the past decade. It has been one of the industry’s best-performing banks by whichever metric you choose to evaluate performance.
I mention U.S. Bank specifically because as of this year, it has the largest in-store and on-site branch program in the world, operating branches in more individual retail partners than any financial institution in history. At a recent Barclays conference, the bank’s leaders specifically highlighted the in-store and on-site channel as a vital element in their differentiated branch strategy. They cited the channel’s convenience-orientation, large transaction volume, extensive small business servicing, and small, optimized footprints.
Does that mean that every bank can or should try to copy U.S. Bank’s commitment and investment in an in-store branch channel? I would not make that argument. However, neither would I accept the argument that other institutions’ ineffectiveness at operating profitable in-store programs proves the channel is unviable.
In fact, the placing of small branches with multitasking bankers in high-traffic retail establishments makes more sense by the day. As mobile banking technology leads to eroding foot traffic at traditional brick-and-mortar branches, face-to-face access to large customer segments on a daily basis is an increasingly scarce and valuable asset.
Simultaneously, as retailers face their own technology-related challenges from online competitors, large store chains are finding that in-store bank partners bring far more value than just the lease payments. Well-run, in-store branches are excellent partners in increasing customer loyalty, engagement and purchases within their stores.
Well-run in-store branches may not be in every bank’s future. But they will most certainly be a vibrant part of banking’s future.