Location Driven Expansion
For decades now, the banking model for expansion has been largely driven by one thing: location, location, location. Credit unions, community banks, and big banks have pursued a branch-centric expansion strategy. These locations have served as hubs for commerce, income, and growth for the financial institution. In essence, the mindset has been that one bank can essentially “invade” another’s turf with physical locations.
As financial institutions grew by adding branches, they were able to add more products and services. The more products and services consumers would have with them, the more likely they were to stick around. This could be called the “sticky” model. If someone were “sticky,” they would be likely to continue to conduct more business future with their financial institution. The model generally looked something like this:
Location > Growth > Products & Services
In other words: You build the branch… People come… They buy products and services.
The Modern Age of Banking
Prior to modern online banking (circa 1994), banking was fairly staid and predictable. We all carried around checkbooks and check registers. Debit cards were just going mainstream. Your employer might not have offered direct deposit yet. You may have visited your local financial institution’s branch as often as once a week. Your local grocery store probably had had a wall of shame for people who had written bad checks.
For the institution, convenient physical locations attracted more relationships. Transactions performed by tellers helped drive cross sales. Loans were signed in person and funded on the spot. Peak hours drew long lines in the lobby and drive-through.
Times have changed.
Today, banking has become much more complex. There are more products, more services, more options, and far more regulations. But while national banks are reducing their number of locations, community banks and credit unions are increasing them.
Product Driven Expansion
While big banks may be cutting their net number of locations, they are investing intensively in online and mobile technologies. BBVA’s purchase of Simple is just one example. Why are banks like BBVA doing this? Because this technology has the power to remove “location” from the growth equation. And this can shake the game up entirely.
With location neutralized or eliminated as a primary driver behind consumers’ decisions, growth will come from a new source: the products and services financial institutions provide. So the new model looks like this:
Product & Services > Growth > Location
You build the products and services…. People buy them…. You build branches to support and reinforce achieved growth.
Make People Sticky First
Here’s another way to think about it: engineer an attractive product offering that immediately makes people “sticky.” Once you attain a certain level of penetration in a particular market, that might warrant building a branch… if it’s in the right location. In this light, the new model looks something like this:
Sticky > Growth > Location
Online and Mobile Banking Isn’t Enough
Chances are you already have online banking and mobile banking at your financial institution. Even if you have online account opening, having those products does not automatically guarantee success. You must make those products absolutely fantastic! Go beyond the bare minimum and set a standard of excellence that wows everyone — even your competition.
For some reason, financial institutions tend to think of online and mobile offerings as a secondary product. They aren’t secondary products. They are the primary product for the Modern Financial Age. We don’t need to sell loans. We need to sell an online and mobile application that manages money and sells loans. People are beginning to choose lenders based on how they feel about the process and how easy it is, not the location.
We can’t always anticipate changes in business or life. We can, however, choose to turn those changes into an opportunity for growth. Online and mobile channels are changing the way people do business. Let’s grow with it sooner rather than later.