The death of the branch has been predicted for years. Until recently, the total number of branches across the U.S. has not significantly declined, but it looks like branch closure may start picking up steam. American Banker recently reported several major banks have announced an acceleration of branch closures in the coming years.
Closing a branch is sometimes necessary. However, banks need to brace themselves for two outcomes of these closures: You will lose some existing customers and you will not acquire as many new customers in that market/area.
The key to success in rightsizing the branch network is to minimize these effects as much as possible. Here are five strategies to reduce the impact of branch closure on attrition and new account generation:
Do not close branches based solely on performance.
It is easy to identify whether a branch is currently unprofitable, but it is much harder to predict the transfer of customers to nearby branches and the net impact of closure. The number of customers retained after closing a branch can easily sway the economics.
Let's take a simple example with two branches. One generates only $300,000 in annual revenue, but has $400,000 in expenses. The second generates $500,000 in annual revenue, and also has $400,000 in expenses. It seems like a simple decision to close the first branch and add $100,000 to the bottom line. But let's say the second branch has three other branches in the surrounding five miles, and most of the customers transfer to those branches. In this case, the $500,000 in revenue stays with the bank, and expenses go down by $400,000. The first branch has no nearby branches, all customers are lost, and the bank saves only $100,000. It sounds better to close the first branch, but it is much more profitable to close the second.
This only gets more complicated when you incorporate the impact on new account generation, the benefit of greater presence in the market and the location of competitors. The important takeaway is that most banks need to get more sophisticated and analyze recent branch closures in-depth to better understand the impact of future closures.
Find ways to maintain and grow presence and convenience during closures.
Customers demand convenience, but that no longer requires a dense branch network. While closing branches, look for other less expensive ways to maintain or grow the branch footprint and provide convenience, such as third-party ATMs. If you have previously added third-party ATMs, go back and analyze the impact on acquisition and retention to see if additional investments are warranted.
The mobile and online channels can also help fill in the gap. Investing in services like mobile check deposit improves convenience and can help mitigate the impact of branch closure. Make sure to advertise these features and services to build awareness of convenience.
Find the best ways to retain customers from closed branches.
What is the most effective strategy to retain customers when their branch is closed? How does that optimal strategy vary across different types of customers?
Test different strategies to retain customers – outreach from the branch, call center outreach, direct mail, local events, etc. Measure the impact of these different strategies to identify which work best across different customer segments.
Additionally, if you have closed branches recently, analyze what was common about customers who ended up leaving the bank. Understanding the profile of those who are most at risk can help target efforts for future branch closures.
Invest in others channels to drive customer acquisition.
As branch networks grow smaller and customers spend less time in the branch, banks must find new ways to drive customer acquisition. Today, most new accounts are still opened in the branch, and closing branches, therefore, puts future growth at significant risk.
Retail banks need to constantly innovate with the customer acquisition process. BBVA Compass recently launched a branchless bank with an account opening method that is "nearly immediate." This type of product can significantly expand a bank's footprint and fuel future growth.
Explore other alternatives.
Closing a branch is the most drastic course of action and should be considered only when there are no alternatives. Most banks have moved steadily towards extending hours across the network, but additional hours can swing lower volume branches to unprofitability. Reducing hours in select locations may help keep more branches open. However, shortening hours could also reduce new account generation in unpredictable ways, since customers may gravitate towards the bank with the most convenient hours regardless of whether those additional hours are heavily used. Try reducing hours in a set of branches and measure the impact before making broader changes.
Further, combining staff roles may also help keep less profitable branches open. Additional technology in the branch makes this increasingly possible. Again, there is risk of reduced cross-sell or increased attrition that necessitates trying any changes first. Additional training programs may also be needed as roles expand, such as having tellers assist with sales or relationship management.
Succeeding in tomorrow's banking environment requires more than just cutting costs. Any cost reduction needs to be done intelligently and with great care to minimize negative consequences. Moreover, to survive, banks will also have to innovate and develop new ways to attract and retain customers.
William Weidman is a vice president at Applied Predictive Technologies, a Washington, D.C.-based data analytics firm that offers services to retail banks. He can be reached at firstname.lastname@example.org.