Banks are increasingly dependent on their ability to obtain core deposits through branches, which means that a bank's branch footprint strategy, including its de novo strategy, is more important than ever.
Bankers are finding the traditional "build-it-and-they-will-come" approach for de novo branches is falling short.
Most often, the fundamental reason de novo branches fail to thrive is that banks often treat new branches as business as usual — paying scant attention to their unique status.
De novo branches have different needs than a mature branch — they need to be managed outside the existing network to give them the highest chance of delivering optimized results.
The reporting structure for de novo branches should be distinct from business-as-usual for the first 24 months.
De novo reporting structure must be more tightly controlled than mature branches (allowing for more attention from management), and governance and monitoring would be finely tuned for de novo issues and geared towards reaching specific targets.
Similarly, the organizational structure should be established separately from the larger, existing network. Many large institutions lack a dedicated team to manage programs, plan strategy and provide the right support needed by de novo branches; the solution is to create a small, core staff team focused on servicing the unique needs of de novo without creating a costly, separate support system.
As branches mature, they can be moved into the business-as-usual category.
Different personnel skills must be emphasized. In traditional branches, a significant percentage of sales (70% or more) come from selling more to existing customers. Obviously, this is not the case in new branches. De novo personnel must focus on relationship-building and customer acquisition and training should be similarly distinct.
Banks should be running a full sprint with marketing and promotions by Day One, not just starting the race. The pre-opening phase should include direct mailing, events and community outreach. The goal is generating pre-opening consumer and small-business accounts and developing relationships.
The opening day should drive enough traffic to the branch to generate new relationships with at least 100 new customers and $1 million in deposits. That's going to take more than a banner over the door. New branch openings should include attractions and entertainment for prospective customers and involve local groups and businesses.
The post-opening phase is all about continuing to drive and acquire new consumer and small-business customers, ensuring retention of promotional rate deposits, and cross-selling current account holders. The need to maintain discipline around momentum and retention of early wins cannot be overstated.
De novo branches cannot rely on sales from existing customer walk-in traffic. The action plan and targets will be fundamentally different than a mature branch. The de novo staff need an incentive plan with the following parameters:.
- The goals must be pure and focus exclusively on the one thing that matters most: acquisition. In other words, the tracking and rewards system must not be diluted by operational elements relevant to an existing branch.
- The reward should be proportionate to the energy and skill required and to the value delivered. Hence, de novo incentives should be richer than business-as-usual.
- Comparisons should always be apples-to-apples, so performance should be tracked against other de novo branches, and not against a network of existing branches.
These core elements should be underpinned by a detailed action plan that is uniquely tailored to the de novo circumstance. The target is new business and the timing is yesterday. The plan should emphasize short-term goals, speed, specificity of targets, and discipline. This type of a plan can keep the entire team on track and provide an early warning system for problems.
Successfully building a new branch requires a specific set of tools and activity. A strategy that treats de novo as distinct from the rest of the bank enables the new branch to grow into maturity — and can bolster the performance of an entire retail network.
Jeff Hawkins is the leader of the North American Financial Services Improvement Practice at the business-advisory firm AlixPartners.