Kudos to Deluxe for assembling a great roster of thought-provoking content for its Deluxe Exchange in early February. One of my KPIs for the value of such conferences is the volume of notes I’m inspired to take for future reference. I left Miami with ten pages of food for thought in my notebook—and the actual food was quite tasty too!
One of my favorite sessions featured Bill McCracken, President of research firm Phoenix Synergistics, making a case for the enduring value of the bank branch. We’ve been hearing about “the death of the branch” for some time, but the narrative has never fully rung true for me. It’s refreshing to see Synergistics’ hard data bring a more nuanced perspective to what strikes me as a premature eulogy.
It’s factually correct that since peaking in 2008, the number of US bank branches has fallen each year. The decline has been nominal, however, and largely mirrors the ongoing rate of consolidation among US banks and credit unions. A strong argument can be made that the banking market was over-branched in the mid-2000s; a rationalization from those numbers does not necessarily imply that the channel has outlived its usefulness.
According to Synergistics’ research, 80 percent of US adults visit a branch at some point each year. Despite stereotypes about Millennials and Generation Z, this percentage is fairly consistent across all age groups. Granted, the mean number of branch visits has declined sharply, from 3.9 in 2006 to 2.5 in 2018. Interestingly, the most notable drop occurred among those aged 65 and older in 2011/12—which happens to coincide with Social Security moving its disbursements fully to direct deposit. I think we can all agree that if an account holder is visiting for no reason beyond depositing a check, there are better alternatives for all parties involved.
From the FI perspective the branch remains the primary sales channel for new accounts and services, with 50 percent of account openings still occurring in person at the branch (online via desktop computer ranks second at 33 percent). Despite continuing advancements in digital banking, FIs have yet to find an effective substitute for the lead generation that occurs during informal branch conversations while conducting ordinary business.
Synergistics’ data also reveals a clear correlation between the frequency of branch visits and both a customer’s Net Promoter Score and likelihood to recommend the FI to a friend– two important indicators of retention and new client acquisition. Although one might argue whether this information reflects correlation or causation, given the stakes involved it’s hardly a formula banks want to disrupt until they have compelling acquisition/retention alternatives.
Another often overlooked factor is the role the branch plays in small business relationships. Not only do small business accounts tend to be quite profitable, they often foster additional consumer relationships with business owners and/or managers, which are typically coveted accounts in their own right. Consider that despite the supposed “death of cash” (another over-hyped concept), many small businesses rely on their branches to make nightly cash drops and replenish cash drawers. I rarely visit my local branch without seeing a shopkeeper tending to such duties. According to Synergistics, small businesses visit branches an average of 4.8 times monthly—increasing to 9.6 for firms with $1–5 million in annual revenue.
A couple of interesting asides from the data:
- Isn’t it ironic that two of mobile banking apps’ highest rated features are Branch Locators and the ability to schedule appointments with a branch representative?
- One new concept that’s lost on me is the notion of an unstaffed branch. If a customer has made the decision to come to a branch, haven’t they telegraphed the desire to interact with a human? Unless the area has a lack of broadband access, other than for transactions requiring the transfer of cash I’d think investment would be better deployed enabling a video teller experience from the customer’s home base.
In a subsequent conversation McCracken shared the following: “Across the country, financial institutions have been modifying their branch strategies and networks—some reducing the number of branches, some reducing or replacing branch staff with self-service devices, and some building new branches. Our survey shows that in a more digitized environment the branch still plays a key role interacting with customers of all ages. Even “digital natives”—Millennials—find branches valuable. Moving forward, FIs need to strike a balance between personal contact and self-service.”
None of this is meant to imply that banking’s branch model is perfectly healthy—adjustments are needed, and their numbers will certainly decline further. Nonetheless, it’s far too early to relegate them to the history books alongside rotary phones and knuckle busters.
Bill McCracken (firstname.lastname@example.org) is President of research firm Phoenix Synergistics. Synergistics helps clients improve their Brand and Communications, create and refine the products and services that they deliver, and optimize the Customer Experience driven by those commitments.
Glen Sarvady (@154Advisors) is Managing Principal of 154 Advisors. 154 Advisors provides actionable insights on the payments industry.