Another Bank of America Branch Coming to a Town Near You

I recently conducted a series of test innovation workshops for five of FNBB’s customers. One of the elements of the workshop was modeling how to conduct an effective brainstorming session to generate potential ideas worth the time and effort for further exploration.  The brainstorming exercise could have used any question (i.e.: How could {city name} achieve increased use of public transportation?); the point was simply to model how to do brainstorming right. Yet, there is no reason not to brainstorm issues that are actually relevant to the institution.  I created a list of twelve questions that would allow those coordinating the workshop to have an idea of what types of questions might be effective for modeling brainstorming.  One question nearly every institution chose was “How can we transform the retail branch from transactions to engagement?”  Engagement in this context means that people would be making a branch visit for an interaction with bankers versus performing transactions.

Bankers are facing decisions related to the future of the retail bank branch.  Branches as they exist today are too big, and there are far too few transitions being conducted in them. The net effect is that fewer employees are deployed to service those transactions. Since the square footage has not been reduced, it gives a bad vibe. A prospect walks into a big, mostly empty branch with unused desks and few visible employees.  But closing branches creates a different set of challenges for a community bank, primarily in feelings of the community of being “abandoned.” Large, national banks have less of an issue abandoning local communities and therefore have more flexibility in managing branch counts and locations.  Thus, it seems the smaller the institution or the more rural the location, the harder it is to imagine the branch operating in any fashion other than the tried-and-true model from the 1970’s.

My thinking on this topic was augmented by a recent story in The Financial Brand. The article focused on large financial institutions like Bank of America aggressively opening new branches, which are small in size and geographically targeted. The author, Joel Berg, highlights that the largest banks have economies of scale in operating nationally, especially when it comes to marketing. However, does opening new branches make sense?  Why doesn’t Bank of America capitalize on its digital banking platform and go after markets that way?  Let’s examine some data to shed light on this issue.

First, you should know that nationwide total branch counts are receding. According to FDIC data, bank branches declined 12.8% between 2019 and 2022.  Secondly, Bank of America has a very robust digital banking suite.  To point, they have 57 million digital users, 46 million of which are categorized as “active.” They have a virtual financial assistant called Erica with nearly 19 million users.  They rock digital banking, and yet as a specific part of entering new markets, they are targeting those cities with physical branches. Why? Because physical branches become the differentiator.  Yes, they enable the acquisition of deposits, providing needed fuel for expanded lending activities. But mostly, the branches become a place for engagement where a customer can take an education class, meet with his or her banker or a financial specialist, or make an appointment for advanced problem solving.  According to Michael Abbott, global banking lead for professional services and consulting firm Accenture, when it comes to banking apps, he says, “it is literally a sea of sameness, but branches are where banks can make deeper connections with customers.” And, he says, customers are “desperate for conversation.”

It is notable that the branches which Bank of America is building are smaller, averaging no bigger than 3,500 square feet.  More importantly, the layout of these branches is oriented to engagement. No teller line, no customer service desks.  Instead, you have inviting open space and employees with tablets. Since all transactions can be performed via mobile, why not use that technology in the branch? (From a location standpoint, new Bank of America branches are going where people live and shop versus where they work, which makes sense if traditional downtown work areas are less important in the age of “work from home”).

Say you are a traditional community bank with a few branches with a traditional layout. Perhaps the last meaningful renovation of these branches is decades in the past.  You could embark on a program to repurpose your branch, but you can’t realistically shrink its physical size (although if you have a really big branch, then share half of it with a Starbucks…).  You could get rid of all of the traditional furniture and equipment, then retrain your staff to engage with you current and future customers.  But my experience is that few bankers want to abandon the investment made in all their legacy platform equipment and software. Plus, there is concern that a radical change in branch “look and feel” would be “off-putting” to older customers, who represent a disproportionate share of deposits. And yet, each year that passes, the number of older customers decreases and nothing meaningful is done to change the banking model to specifically attract younger customers.

Overall, the total number of Bank of America branches today is around 3,800, much less than the 6,100 branches they had in 2010.  Because you don’t need to go to a branch to conduct a transaction, the distance a customer can be from a branch has increased.  The nature of the branch makes it a destination; customers want to go there versus them having to go there. The areas Bank of America is targeting are right here in the Southeast, including markets in Alabama, Mississippi and Louisiana. Your strategy should be to take stock of the efficacy of your branches right now, and if it is determined they are not setup for success in attracting and keeping younger customers, to get busy changing them now. Don’t wait until Bank of America or Chase announces a new engagement branch is being built in one of your strategic markets. Act now and beat them at their own game.  Evaluate your digital banking platform; it doesn’t have to compete with Bank of America or Erica feature for feature, but it needs to generate a customer experience that would meet or exceed your future customer’s expectation.

Think this is too daunting a task?  It may be. But don’t despair, contact me and let’s have a meaningful conversation on how you can innovate to create long lasting success.  You can reach me at dpeterson@bankers-bank.com or 225-247-6113. I look forward to hearing from you.

 

Resources

https://thefinancialbrand.com/news/banking-branch-transformation/why-bank-of-america-is-covering-the-country-with-branches-172369/

 

The views expressed in this blog are for informational purposes. All information shared should be independently evaluated as to its applicability or efficacy.  FNBB does not endorse, recommend or promote any specific service or company that may be named or implied in any blog post.