A steady decline in branch traffic is more ominous than simply a customer's preference for online banking. For smaller banks, the decline is the first domino to fall in a sequence that strikes at the heart of community banking.
There is an antidote to decreasing lobby traffic, but putting all your chips on a mobile banking program only compounds the problem.
Over the past few decades, we've pushed customers out of the lobby knowing electronic transactions are more convenient for customers and cost-efficient for banks. ATMs, ACH, telephone banking, online and mobile banking, bill payment and now remote deposit capture have triggered significant declines in branch transactions.
We've done such a good job that the average number of transactions per branch fell 45% since 1992 according to The 2013 FMSI Teller Line Study, resulting in a 124% increase in branch labor cost per transaction.
Despite declining transactions, the number of U.S. branches actually increased 15% between 1994 and 2003, helping to further dilute the number of transactions per branch.
The conventional response is to close branches and cut the hemorrhaging. But that solution triggers a cascading set of concerns.
Customers choose banks in large measure by their proximity to work or home, and by the size of the bank's branch network. Closed branches inconvenience customers, shrink the network and make the institution less appealing.
Customers rely on branch offices for opening accounts, answering questions and resolving issues. Each newly closed office reduces the opportunity to help.
Perhaps even more alarming is a bank's inability to cross-market products. Each lobby customer lost is another person who can't be welcomed to the bank, sold a product or extended personal service. And, online marketing can't match the persuasiveness or the intimacy of a staff interaction.
Perhaps the most ominous consequence of a decline in lobby traffic concerns branding. Ask a smaller bank what differentiates them from larger institutions and you'll invariably hear "our people." If, indeed, staff members are the biggest brand differentiator, the decline in traffic and the closing of branches exacerbates the problem. Declining traffic means community banks are increasingly unable to put their best foot forward. They cannot unleash their strongest weapon because fewer and fewer people are unable to experience the level of service and the personal attention available at community banks.
So what's the real solution? Boost lobby traffic.
Community banks need a steady flow of prospects and the best response may be to partner with a local retailer. Position the retailer or franchise owner inside your lobby and market to their customers. You'll need to consider several factors when selecting a partner: demographics and frequency of customer visits, product compatibility, credibility and reputation.
Bank staff could manage the facility or simply collect rent. Chances are the bank's prominence, reputation and parking accommodations would make it an attractive partner or landlord.
Consider local businesses, Federal Express or UPS facilities, insurance or tax preparation services, coffee franchises, realtor office or even a U.S. Postal Service sub-station. A partnership with a successful retail concept virtually guarantees constant customer traffic.
Last year, U.S. branch closures hit the highest level on record 1,487 locations according to SNL Financial. The decline will likely continue over the next decade.
One option is to eliminate branches, push mobile services and promote virtual bankers, but to follow that path takes the community out of community banking.
Kevin Tynan is senior vice president of marketing at Liberty Bank for Savings in Chicago.