For TD Bank convenience has long been considered a core ‘product.’ The emphasis goes back to its acquisition of Commerce Bank, which coined the tagline, “America’s Most Convenient Bank.”
In the quest for convenience, there never was a channel TD didn’t like, because it was all about serving the consumer however they wanted, whenever they wanted, and nearly wherever they wanted. Emblematic of that strategy was the company’s extensive and closely spaced branch system in the eastern U.S. Even today in some TD Bank communities you can’t go north, east, south or west without hitting a TD Bank office.
As the meaning of convenience changes, TD Bank is changing its branching approach — in number, purpose and style.
Like many financial institutions, TD Bank, the eighth-largest U.S. bank and a subsidiary of Canada’s TD Bank Group, saw a massive increase in usage of digital channels during the pandemic. In 2020 alone, in both the U.S. and Canada, TD saw a 57% increase in adoption of digital services. It has four million active mobile users in the U.S., counting both consumers and small businesses, and 50% of customers are active online, on mobile or both.
This all begs the question, is the company’s extensive U.S. branch system still the competitive advantage it was for years?
The short answer appears to be, “Yes, but differently.”
Factors Driving TD’s Revised Branch Thinking
In the wake of Covid shutdowns and periods of drive-through service only, TD Bank has learned some lessons, and sees the need for some changes, but it has also seen reaffirmation of the desire for branches (which it calls “stores”).
“We believe that the branch is essential to our distribution strategy,” says Ernie Diaz, Head of Consumer Distribution, Wealth and TD Auto Finance, in an interview with The Financial Brand. “There is a need for it and the consumer wants the option to bank with TD in whatever channel they want at pretty much any time they want.”
In other words, in spite of what digital gurus say, “the branch is not dead,” he declares.
Early on during the pandemic TD Bank consumers fell back on digital channels and drive-through service, but they wanted more, says Diaz.
“We have found that there is a strong relationship between the physical and the digital. The customer isn’t saying they want to do all one or all the other. They have gone between one channel and another, especially during difficult times.”
— Ernie Diaz, TD Bank
“For some needs, people were willing to make an appointment to come in, because they wanted to have a conversation,” says Diaz. Even as more use was being made of digital channels, the bank quickly put a digital booking service called Virtual Queue in place for both consumer and business customers. There were many thousands of check-ins daily before branches completely reopened.
One lesson taken away from the Covid period that may stand the bank in good stead — particularly given the flare-up in cases in the summer of 2021 — is the ability to quickly shift branch modes depending on what is going on with consumers and with the health of bank staff, according to Diaz.
“Every day you’re getting some Covid cases and with that you have to adjust when it impacts staffing in a particular store,” says Diaz. “What we have done is set up an approach where we adjust the operating model in the store temporarily. We may go to a drive-through-only model until we’ve restabilized staffing. Or we may have to go back to the Virtual Queue appointment-setting service to make sure we’ve got enough people in the store to handle the traffic and the social distancing.”
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Reallocating Resources without Losing the Classic TD Appeal
Having seen digital channels proven out during a time when many consumers wanted to avoid human contact, TD Bank has been approaching efforts to “optimize” its branch system carefully.
Banks and credit unions that lean heavily on physical presence pay for the advantage in real estate, maintenance and staff costs, and that’s just for starters. McKinsey estimates that one-third to one-half of the operating costs of a retail bank come from the branch system and associated employees. There’s a balancing act between spending for the traditional network and spending to build and improve digital channels.
Milestones Versus Millstones
A FitchRatings paper on U.S. bank branch optimization warns against getting stuck in ‘brick and mortar traps.’ The costs of maintaining branch networks can keep funds from going into investments in self-serve technologies.
On the other hand, studies indicate that as much as half of attrition among retail customers comes from unhappiness with service, according to FitchRatings. The perception that a financial institution lacks sufficient branches to serve consumers can cause consumers to leave for another institution. And while younger consumers like digital channels by nature, many studies indicate that they still want to have branches in easy reach.
In February 2021 during an earnings call TD Bank Group management revealed that it planned to close 82 stores in the U.S. By summer that had been completed, so that between that large closure and a handful of others, TD’s U.S. network had dropped 7% from 1,232 at yearend 2020 to 1,142 in August 2021.
The intent is to put the savings back into the business in the form of digital platform investment, among other items, according to Gregory Braca, Group Head, U.S. Retail, and CEO of TD Bank.
“One thing that Covid has taught us is that our customers want access to us, but they want it all ways,” said Braca in February. “They do want physical and we’re seeing many of our customers return into the store. And we’re bullish on that. And you’ll see markets in future years where we continue to invest in new stores. But what you’re also seeing is the need for investment in digital and digital capabilities, and we’re doing just that.”
How frequently consumers use a specific store may determine its continued existence in the TD Bank network, according to Diaz. Something else that will play a part in decisions is the travel time to the next-closest office should a store be closed. Diaz says there’s no satisfactory overall standard, and that drive time in different locales and states may mean more or less than in others.
“I don’t want to inconvenience our customer base,” says Diaz. “That would go against our ‘Unexpectedly Human’ approach to our markets.” But he says in most areas five to ten additional minutes driving should be acceptable.
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Bringing Flexibility to the Floors of TD Bank Stores
Diaz says the rapidly building participation in self-service channels is causing more of the business that comes into stores to be of an advisory nature. This suggests that stores be migrated to a model that allows them to actually adapt to days when more traffic will be people seeking advice from bankers and, conversely, to layouts favoring transactional business when demand for those services is heavier.
The bank is experimenting with modular furniture, including mobile teller station “pods,” that will permit locations to be adapted based on the nature of anticipated traffic. One such location is at a new store at the University of Central Florida in Orlando. The UCF store features a flexible layout with sit/stand workstations (pictured below) designed to serve as traditional teller counters (standing) or desks for more in-depth conversations (seated), according to the bank.
TD Bank’s new flagship store, to be located in the retail section of the “supertall” One Vanderbilt tower in Manhattan, will also be flexible, but in a slightly different way, the bank states. Branch employees will be “untethered” from workstations and equipped with tablets to allow them to have advice, service or sales conversations from anywhere in the facility.
Going forward, branch locations may consist of smaller formats, says Diaz, “but they will have tremendous flexibility built into them.”