Anyone who has taken a journalism class knows the importance of the “5 Ws” — who, what, when, where and why. Getting those points out clearly defines a good news report. But you might not realize that they are important to planning your branch and ATM networks as well.
Branches aren’t going away anytime soon. Sure, lots of articles and “experts” call for the end of the branch period in American banking as digital banking takes hold as the preferred channel for routine transactions.
Yet there are still over 100,000 branches and over 400,000 ATMs in the U.S. today — only marginally fewer than existed five years ago.
Branches remain a favorite place to open new accounts, although digital is making inroads for most basic products. Branches also remain the preferred place to get questions answered, with contact centers popular too. Basically “human interactions” are still important to customers — especially when they have a problem.
Here are five important points to remember as your institution updates and refines its branch strategy.
1. Who?: Nailing Down Who Your Institution Really Serves
Understanding who you serve today is critical. There is much discussion about the pursuit of the younger Gen Z and Millennial segments, but is your brand resonating with them?
You can’t plot a path forward until you determine your starting point. Your brand, your products, your reputation and your locations all influence who you attract.
I’m reminded of a conversation I had with a board of directors for a large New England bank early in my career. As part of a very competitive sales pitch, we analyzed the bank’s customer base to create a segmented profile.
The bank had never done in-depth customer analysis or distribution analysis. Believe it or not, that was the industry norm back then.
The board was a group of 12 white men in their 50s and 60s. Before I presented the results of our analysis, I asked them to describe their typical customer. After some silence, they finally started talking and the consensus of their comments was that their customers were upscale white men. Basically, they described themselves and their friends, the people they interacted with daily.
That was their perception. The reality was quite different.
The bank’s customer base skewed younger, blue collar and more ethnically diverse. They were stunned and now fully engaged in our presentation. We won the deal.
You Can’t Assume Your Way to Strategy:
Unless you seek out facts, you will make decisions on faulty assumptions.
2. What?: Answers to Set Your Institution’s Direction By
Answering the “what” question comes in multiple parts. What are your overall growth goals? What are your current resources? What investment path do you want to take?
In the past, I’ve seen situations where firms state that their strategy is to double in size in five years. That’s a goal, not a strategy. If you are growing at 5% annually and want to double your size in five years, what are you going to do differently to drive 20% annual growth?
There are many options for driving faster growth. All take great effort. Do you want to drive faster growth organically without changing your business model? Do you want to double down on digital growth? Do you want to grow through acquisition?
Each path forward takes careful planning.
3. When?: Balancing Speed with Essential Care
Timing is an important element to implementing any strategy, but even more so when planning changes to your physical distribution network.
Real estate changes slowly. Moving quickly and taking any available real estate often ends in disaster. You need to have a multi-year planning horizon and capital implementation plan. Patience is important to acquire the best possible branch or ATM site. The difference between an A-site and a C-site might be twice the sales volume and several tens of millions in deposits at maturity.
Ripple Effects Must be Recognized:
Branch closures must be planned meticulously or you risk creating a bad customer experience and increasing attrition.
Start by understanding the activities occurring today at the branch to be closed and determining where those transactions and account servicing activities will likely migrate upon the closure.
Next study those “receiving” branches to determine if they have the capacity to absorb that expected incremental volume. If they don’t have enough teller capacity or desks on the branch platform, you need to add capacity before closing.
Otherwise, you will create a busy receiver branch with longer wait times — a bad customer experience.
4. Where?: Not Always a Matter of Just Gut Feel
The “where” question is a big one.
The First Law of Geography, according to noted cartographer Waldo Tobler, is “everything is related to everything else, but near things are more related than distant things.”
In other words, your branch location benefits from its proximity to other complementary retailers. Each business has its own draw, but collectively the total draw is greater than any individual business. Locating a branch near a busy retail center enhances the branch’s ability to capture market share. Locating along a roadway that lacks any core retail draw negatively impacts your ability to capture the local opportunity.
Tobler’s second law, which complements the first, says, “The phenomenon external to an area of interest affects what goes on inside.” In other words, the market characteristics in the neighborhood surrounding your site impact your branch’s performance.
Market demand comes in many shapes and forms. If there isn’t enough demand, even a good site will suffer. If there isn’t enough growth, deposit growth will be a challenge.
5. Why?: The Question that has to be Answered without Question
And finally, the “why” question. Why are you building new branches? Why are you building in that market or at that site?
My point is that it’s important to be clear and prescriptive as to why you are taking any action. I hear all too often that “we’re building here because it’s our home market,” or “I hear this is an up-and-coming area.”
Branch Strategy Demands Facts:
Objectivity is critical in making long-term investments, and that is exactly what new branches are today. Leases often run 10, 20 or 30 years. The cost of leaving early can be high.
Understanding the markets you serve today, the number of branches you need to adequately cover each market, and how well your branches perform relative to market competitors are all important data points in making long-term decisions.
Once you make those decisions, explain the strategy to your team so they know why you are expanding or consolidating and exactly what your explanations are for the changes.
Throughout my career, I have seen situations where management announces major changes without explaining the rationale. This approach leaves teams wondering “why?” This often results in poor execution and results. Sharing a common goal and expectations can make a big difference.
How?: The Missing Factor that Can’t Be Left Out
The 5 Ws of journalism have many applications in life and business. Developing a strategy, tactical plan and executing it well take a lot of effort. You need a purposeful and repeatable process. Your ability to tell the “story” of that plan to your employees and customers can make all the difference between success and failure.
Now, some readers may wonder why I left out the sixth important element of good journalism, “How.” How you move forward and implement your plans deserves its own article, as good execution is as important as a good plan.