The Branch Is Dead! Long Live the Branch!

The Twentieth Century has been the Jurassic Age of banking. As we approach the are closing out not only the century but the end of the Banking Era. Only banks that have the foresight to adapt to the new environment, already mostly here, will survive into the Twentyfirst century. Just as the dinosaurs either evolved into different animals or became extinct, banks will either quickly evolve into new organizations or become extinct. A test for banks' adaptability will be what they do with their branch networks. The banking industry will suffer the same fate as the dinosaur within the next five years unless the brick and mortar branch banking system is cast off in favor of more nimble delivery alternatives. The future represents electronic banking and off-premise banking, combined with personal attention to high-net worth customers. Competitors of the future increasingly will be the likes of Microsoft, IBM, AT&T, Fidelity, GE, Franklin, TimeWarner, EDS, ALLTEL, General Motors, USAA, Countrywide, and First Data. That's the way we've always done it There is virtually no place in the future for the suburban branch. Customers increasingly don't want them, and banks can't afford them. Fifty years ago, as postwar growth spread across the country, so did the suburban branching systems. Billions of dollars were spent to create the impression of security and convenience. Bankers were expected to be conservative and cautious. Customers complained about the slow pace of loan approval and short business hours, but these were banking behaviors that we wanted in our institutions. Now customers no longer view the banking community as the only safe haven for their assets. Brick and mortar no longer represents security to consumers. Security now comes from the knowledge of how their money is being invested. There's a transformation taking place as people rely on information as security rather than the perception that their money is sitting in some huge vault. How often do you think people choose a bank based on a branch? And if they do choose the bank for that reason, once they've opened the account, how often do they go back to the branch to do business? Our experience is that most people open their accounts at a branch because that's what we've made them do, but they rarely go back to the branch. To test this, go into a bank lobby at noon and see who's there. You'll discover that most of the people fall in the lower end of your customer profitability range, and that they're in the branch to cash payroll checks and third-party checks, and to make deposits. A branch is not the only way to meet those needs in a community. Furthermore, there's almost a ten-to-one cost ratio of accepting an over-the-counter deposit versus a direct deposit. I've been in banking 25 years and the whole incentive has been to get people into the branches. The perception was, if you get them into branches, you have an opportunity to sell them things. But, again, if you go into a branch, that's not what's happening most of the time. The opportunity to sell occurs when a customer opens an account, or through direct marketing, or through telemarketing. There's virtually no chance customers will be sold on a mutual fund or a CD when they come in to cash a check at the teller window or the drive-up window. Seen any dramatic change? Banks have spent much time recently focusing their operating efficiency ratio--squeezing out expenses through and gaining efficiency through mergers and acquisitions. All to the good. But look at the balance sheet of most large banks and you'll see that the largest component of operating expense is the branch delivery system. Most banks are aware of this, which is part of what the reengineering is about--the need to reduce the number of branches and make them more efficient, and to generate more revenues from them. But I'm not aware of a single bank that has as its strategy a dramatic decrease in the number of branches. …