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Consumer Hypocrisy Clouds Retail Branch Strategies

How many consumers insist on opening new accounts in branches? And yet how many never step foot in a branch again after opening their account? The numbers will surprise you.

Novarica, in tandem with, conducted a study that posed attitudinal questions about how important bank branches are when consumers consider a new banking relationship. The survey, fielded in late October and early November last year, received 2,754 completed responses.

The prevailing belief among financial marketers today is that younger consumers don’t care about bank branches while older consumers prefer branch banking. But Novarica cautions that sweeping generalizations like these can be misleading. Novarica found a surprising 58% of those under 30 would not consider opening an account at a bank without a branch nearby. And conversely, 64% of those 50 or older say they can imagine a time when they will do all their banking virtually.


Across all age groups, 68% said that they wouldn’t currently choose a bank that doesn’t have convenient branches. Almost three quarters (71%) of customers state that branches and/or ATMs located near their home or work are important when selecting a bank.

50% feel they have transactions that can’t be completed online or at an ATM. Only 29% of respondents find going to a bank branch to be onerous.

Younger consumers represented the group most concerned about ATM locations. Overall, only 11% of respondents said ATM and branch locations are the most important factor.

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The Branch Centric View is Dying

Most banks still consider branches to be the core channel within their distribution network, and use labels such as “alternate” or “direct” or “self-service” when referring to other channels. But Novarica says this view no longer holds water.

“Up until around 10 years ago, branches were the bank,” observes Novantas partner Kevin Travis (Novarica and are divisions held by Novantas).

“Customers knew the bank because they saw the bank,” he explains. “They bought from the bank because it was there. Fast forward a decade. The branch, which for so long was everything — the brand, the sales channel, the service location — is losing its place at the center of the customer relationship.”

Now only one of six customers shops for bank products in branches — the rest do so online. For day-to-day banking, consumer preferences are trending strongly online and to mobile devices, and in-branch traffic in many markets is falling at rates of 7% or more annually.

While a wide range of transactions have migrated out of branches (e.g., balance inquiries, withdrawals, transfers), deposits remain very sticky in the brick-and-mortar world. A hefty 58% of consumers still opt to visit the teller to make their deposits.

And the branch is still the destination of choice for higher-value interactions — e.g. account opening, financial advice — with convenient locations continuing to impact consumers’ decisions regarding their financial providers.

The key take-away, Novarica’s says, is that consumers are still attached to their branches, even though they rely on them less and less, especially for everyday interactions that are more convenient for them to handle using self-service and digital channels.

Translation: You’re going to have a harder and harder time justifying a large, staff-intensive branch network.

Banks and Customers Alike Stress Over Fees

Novarica asked survey participants about the two most important factors when considering opening a new checking account. No shock here: Fees were cited as the most important consideration by most consumers.

“In 2013, the banking industry will continue to look for ways to control declines in net interest income and net interest margins that will include re-pricing their mass market offerings,” explains Lee Kyriacou, a partner at Novarica. “As a result, mass market consumers will continue to churn at higher rates than in the past.”

“Most people shopping for new checking accounts today are doing so because they’re dissatisfied with their current banking relationship,” says Rob Rubin, partner at Novarica and head of research for the Novarica Bank Shopper Insight series. “And high fees are the biggest reason why.”


Novarica says financial institutions need to be aware that fee-sensitive consumers maintain lower balances than others. Among those who say fees are the most important factor, the average lowest daily balance is $1,137.00 vs. $2,255.00 for those who say fees aren’t important.

Respondents who identified fees as the most important factor when considering a checking account had 50% lower average lowest daily balance versus respondents who didn’t identify fees as a top 2 consideration.

As bank retail customers continue to seek additional services like mobile check deposit, the banking industry is preparing itself for yet another year of lower net interest margins. For many banks and some credit unions, 2013 will continue to struggle balancing customer expectations and competitive pressures against the bottom line.

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What Drives Mass Market and Affluent Consumers?

Novantas research shows that affluent customers are detaching from traditional branches much faster than other customers. They are more likely to want to conduct day-to-day banking activities in virtual channels, and are the most willing to buy financial products over the phone, especially simple products like CDs and checking accounts.

The mass market segment, however, is quite different. Density and universal access — whether via branches or other formats such as standalone ATMs — remain the single most important factor in attracting mass retail business. For this segment, value proposition simplicity is the second most important factor in determining market share.

“Providers with complex offers usually have at least 5% less penetration than competitors with simple offers in this segment, in terms of consideration and purchase behavior,” says Travis at Novantas.

According to Travis, the third most important factor for mass retail banking is direct channel access, in particular phone channel capability. Price is the fourth factor, most likely due these days to the broadly low-priced environment in which the market is stuck.

How Branches Should Be Designed and Networks Scaled

With so many customers roaming freely among channels (one of four either never or rarely uses the branch after opening accounts), important questions about marketing, sales and network capacity must be addressed through a new multi-channel perspective.

Travis with Novantas says banks desiging a multi-channel strategy in this new environment will need a much fuller view of customers, including deeper insights into channel-based profiles, transaction patterns and sales potential.

“At many banks today, fragments of this information remain scattered across various product and operational silos, leaving important knowledge gaps as teams consider plans for each major locale,” Travis observes critically.

Some might argue that dwindling branch traffic undercuts the need for heavy advertising in dense markets. However, Novantas believes traditional marketing should become more important as branch traffic continues dropping; how else can financial institutions stay in front of consumers if not through advertising? Travis at Novantas says national bank brands built over decades with advertising may find they need fewer branches than other players to acquire new bank customers in new markets.

Ultimately, Travis feels that only about 75% of the pre-recession peak branch network will be needed going forward, both for reasons of changed growth and profit dynamics, and accelerating customer migration to alternative channels.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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  1. In the first table 48% would be willing to open a new account without going to a Branch, 21% are neutral and 30% disagree. 1% is missing.

  2. “Consumer Hypocrisy”? What can you possibly mean by that headline? I might suggest that “complexity” would be a more accurate—and useful term. Institution selection behavior is rarely as simple as the questions asked in consumer surveys. This may be frustrating for the authors of the studies, but I’m sure you don’t mean to imply that it is the consumers who are at fault when their behavior doesn’t fit someone’s theory.

  3. Tim,

    Consumers exhibit hypocrisy in that they say one thing, but do another. They say they that branch proximity is hyper-important when choosing a banking provider — thinking they will need/use a physical location more than they do/will — but then they don’t follow through. It’s a contradiction, a conflict between perceived expectations and reality. As The Financial Brand has speculated before, perhaps the reason consumers crave branches nearby is the emotional comfort thinking their hard-earned money is “close at hand,” and they can walk in and get it at any time.

    Whatever you call it, there are inconsistencies between consumers’ stated needs/intended behaviors and their actual actions that confuse financial institutions. That’s all that’s intended by “hypocrisy” reference. It isn’t intended to be a slam on either branches nor consumers. Just drawing attention to the psychological/behavioral contradictions.

  4. Jeff,

    I don’t think consumers contradict themselves as much as you think. They say that branch availability is important in selecting an institution—and the actual enacted behavior of the typical consumer bears this out. Subsequent reliance on e-channels for handling routine interactions does not alter the fact that branch presence shaped the all-important institution-selection decision.

    It is not inconsistent or irrational for consumers to ascribe value to the availability of branches, regardless of their subsequent channel choices. The perception that branch utilization is a measure of branch value is, itself, the cause of much confusion for financial institutions. Just as one can place a high value on, for example, health insurance coverage even if hospitalization is only rarely called for, it is perfectly rational for customers to value access to a wide variety of channels when considering the best institution to meet their various current, and unknowable future, needs.

  5. Tim,

    So branches are a security blanket? An underutilized comfort? An insurance policy for unknown and uncommon contingencies? If the primary role of branches is one of psychological reassurance, then you could make the case that branch density should mirror that of hospitals. Do you really need one on every corner if you only go when there is an emergency?

    The level of importance consumers continue to place on branches does not match their current/projected utilization. This is a discrepancy. One can argue about the language used to describe this discrepancy, but a discrepancy remains nonetheless: consumers are saying they think they need branches more often than they actually do. So what should a financial institution use to make its branching decisions — consumer perception, or actual utilization? If utilization is divorced from the equation and FIs build branches purely to win relationships with consumers who think branches are important, then aren’t branches nothing more than a marketing tool — giant and very expensive billboards?

  6. Steven Reider says:

    Hi Jeffry,

    I have to weigh in with Tim here. There is nothing hypocritical about consumer decisions impounding contingencies that may not occur. The psychological reassurance you note is valuable in many situations. This weekend, at Super Bowl parties across the US, you’ll find hosts (at least the good ones) preparing more food than is likely to be consumed. But the marginal cost of opting for excess capacity is worth the tradeoff of not having capacity when you need it. No one wants to run out of food and drink in the third quarter, so you prepare that extra bit and if it’s not consumed, so be it. At least you didn’t spend the afternoon worrying about empty plates and hungry guests. And most people similarly will choose the bank with extra branch capacity just in case they happen to need it.

    Viewed another way, note that the marginal cost of choosing the bank with broad capacity is nil. With banking products so homogenous, why wouldn’t a rational consumer choose the institution with more branches? If product, pricing, and service are equal, the consumer derives substantial potential benefit — but no additional cost — from choosing the bank with broader access. The hospital analogy actually supports this: the rise of satellite clinics of major hospitals over the past two decades reflects a goal of providing more convenient access; of building enduring relationships with the hospital and its brand, rather than relying on emergency event occurrences for revenue.

    Two other points: first, branches do not need to be giant or expensive, so you can capture that billboard effect without spending $2 million for a branch. Second, consumers lie on surveys. Maybe not always intentionally, but there’s a broad gap between empirical and self-reported data. There’s a broad body of media research that shows gaps between Nielsen results from the old “booklet” days versus the “set top box” measurements. Even in anonymous surveys, not every one is willing to confess to watching Melrose Place (or in today’s equivalent, The Real Housewives of Albany). Self-reported income data are notoriously inaccurate, too, and no doubt self-reported branch channel use data are, too. A colleague at a top 20 bank shared a statistic with me that more than 70% of their customers use a branch at least 2x per year. How many of these same customers would claim “I never use a branch”? In their minds, twice a year = hardly ever = never. But the reality is, while branch utilization may remain below all-time highs it’s hardly nonexistent, and when the branches are used, the consumer certainly values their presence greatly.

    As long as there is no cost to the consumer of choosing a bank with a broader network, there is no disconnect between the expressed desire for branches and the modest utilization of those branches. It is perfectly rational to choose more over less purely based on the possibility (but not certainty) of future need, given no difference in cost. And this is exactly why smaller institutions, if they hope to win their markets, must find differentiating attributes, be it superior pricing, service, or products, to mitigate the vastly larger networks of the regional/national banks.

  7. Branches have always been expensive billboards and they remain so today. Customer surveys rarely if ever ask quality questions that would lead to usable data on why a customer makes a decision to create or change a relationship with a particular FI. The evidence that institutions with a preponderance of branches in a market gain a disproportionately large share of market supports the assertion that branches work as billboards. Despite recent claims to the contrary, this is still true. The issue should not be branches or no branches but what constitutes a value in branching. I would suggest that the ability to retain branches, or even add them, carries a great value. Being able to do so while remaining profitable is the real key and there are branch formats that allow this, even in the diluted markets of today.

    Which FI will be the first to close branches in a market and retain its market share? The answer is no one. Despite new channels for consumers to interact with their financial institution, consumers continue to rely on physical branches for their relationship decisions. It may not make sense to surveys pointed toward transaction analysis but it does if you look at consumer behavior. Is anyone really surprised that consumers are complex and their behavior even more so? Note that entire industries exist to understand and shape consumer behavior. Surely, they would have collapsed by now if it were as simple as this article assumes.

  8. Steven – You are absolutely correct. Consumers regularly exhibit contradictions between perception and reality in surveys. And surveys asking consumers about their intentions are notoriously inaccurate predictors of actual future behaviors.

    Your analysis of consumer psychology towards branch density makes a lot of sense: “Hey sure, I’ll choose the bank with more branches. As long as it doesn’t cost me anything, why not?” But that doesn’t seem to align with what consumers are saying in studies. They are saying branch density is a primary driver of their decision, which implies they place heightened importance on branches because they think they may need them. It’s the difference between viewing branches as a just a bonus/perk vs. a necessity.

    Is branch density really a key driver of consumer decisions? Sure, if consumers say so. But does it make sense? Not based on actual utilization.

    Please note: The Financial Brand has never accused people of being rational consumers. They make all their decisions for emotional reasons. Also, there are few venues that celebrate branches as much as The Financial Brand. No one is saying branches lack value, nor suggesting they are dead. But for the purposes of stimulating discussion, The Financial Brand poses the same hard questions that many banks and credit unions are asking. If there’s a lesson here, it’s that articulating the case/role for branches is getting trickier.

  9. Jeffry, Agreed. Lets hope that bankers and credit union management give as much thought to this as your contributors! These are some of the better commentaries I have read recently on branches place in banking.

  10. Of course,a multichannel strategy environment will need a fuller view of customers,including deeper insights into channel based profiles,transaction patterns and sales potential.

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