The bank branch is dead. Long live the bank branch?
Such is the strange state of affairs in the banking world. Faced with a challenging economic and regulatory environment, industry officials are saying they may not be able to sustain the vast network of branches they’ve built over the years. And the branches they do maintain may need to be reconfigured to meet the different demands of a changing customer base.
In other words, forget the teller windows and solid-wood desks of days gone by. Say hello to everything from banks that feature community rooms for free yoga classes to ones that feature video-conferencing stations. It’s all a matter of giving customers something more than a checking account with free checks – such pieces of paper are hardly necessary these days, anyhow — or a CD with a marginally higher rate.
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“You must have a value proposition that allows you to compete – and you can’t do it on price,” said Raymond Davis, chief executive officer of Umpqua Holdings Corporation, the Oregon-based banking institution with $11-plus billion in assets and more than 175 “stores” (that’s how the company refers to its branches). Davis was speaking at the annual Best Practices in Retail Financial Services Symposium, held earlier this week at the Boca Raton Resort & Club in Boca Raton, Fl.
Umpqua is widely recognized as one of the leaders in the movement to redefine branch banking. The company has turned its retail locations into community centers, offering wine tastings, trivia contests and, yes, yoga classes. The pitch is simple: Come for the fun and maybe do a little banking while you’re at it.
But as many of the 200-plus industry professionals at the Retail Financial Services Symposium attested, Umpqua is hardly alone in seeking ways to rethink the branch concept. In some instances, banks are adding video conferencing as a way to beef up “staffing” without having extra employees at the physical location. (Need help with determining the right investment mix for your retirement account? Just “meet” with a top financial specialist – via camera.) In other cases, branches are being folded into supermarkets – it not only translates into savings of hundreds of thousands of dollars versus building a stand-alone location, it also potentially exposes a bank to much more foot traffic.
“Our most profitable branches are supermarket branches,” said William Cooper, chairman of Minnesota-based TCF Financial Corporation, during a symposium keynote address.
The changes at the branch level are directly tied to what many banking officials describe as the “perfect storm” of challenges: a difficult lending environment, new federal regulations that limit fees (think Dodd-Frank) and – perhaps most important of all — a rapid migration of customers from branch banking to online and mobile platforms. So not only are banks finding themselves in belt-tightening mode, they also have to adapt to the fact that the old ways of connecting with customers (and therefore, selling more products and services) may no longer fully apply. And while banks saw business pick up in 2011 – industry net income increased by nearly 40 percent to $119.5 billion, according to the Federal Deposit Insurance Corporation (FDIC) – it still remains far below its post-crash highs. (In 2006, banks posted income of $145 billion.)
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Of course, not every bank is taking such a dim view of traditional branches, especially since bricks-and-mortar locations can provide meaningful opportunities to interact with established and prospective clients alike. Branches can also be part of a strategy for a bank to firmly root itself in territories it’s targeting. JPMorgan Chase opened 18 new branches in the San Francisco area in 2011 for just this reason.
At the same time, others in the industry are going just the opposite route. Instead of redefining branches, they’re envisioning a world without them. A case in point: Industry consultant Brett King, author of “Bank 2.0” and “Branch Today, Gone Tomorrow,” has founded Movenbank, billed as the first mobile-centric bank in the United States (it’s set to launch later in 2012). At the Retail Financial Services Symposium, King argued that branch banking is an outdated concept in a world that’s increasingly come to rely on electronic devices for almost every transaction. As King said during his keynote address at the event, customers simply prefer the convenience and flexibility of mobile banking versus debit cards: “When was the last time you pulled your card out of your wallet and it told you your balance?”