Your bank's branch network is a serious investment. How do you make sure that the investment is the right one, and in the right scale? Intelligent branch planning can provide the answer, and save your institution millions of dollars in the process. Here are five ways, backed by the numbers, that branch planning can help you save money and prepare to grow.
In a nutshell, a truly effective branch network strategy will improve your financial institution's profitability all while managing compliance risk. However, as you consider the real value of a branch network plan, you're probably also considering the cost of leaning on an external partner for that help.
Regardless of whether you're opening, closing, or relocating branches, or a combination of all three, changes to your branch network are costly. They may come with new price tags, or jeopardize the value of prior investments.
What if your changes result in higher-than-expected customer attrition? What if closing a branch results in serious CRA or Redlining risk? What if the services offered in your current branch network present Fair Lending problems? What if you put a new branch in a profitable part of town but on the wrong side of the road? What if your ATM locations are cutting into in-branch sales?
Any one of those missteps can cost thousands or millions of dollars.
These are questions that a comprehensive branch strategy, something we call Branch Network Optimization, can answer. The benefits of Branch Network Optimization are more than just insights - it can save your institution a lot of money.
Let's jump in...
The average construction costs of a new branch averages $700K, and that's without consider the cost of the mortgage or rent, any personnel costs, or other technology used. If you're adding additional branches, or operating in a market with high property values, that cost could be even higher!
Many financial institutions are also considering how their ATMs fit into their branch network strategy. If this sounds like you, branch network optimization can even help you figure out the purpose your ATMs serve for your customers, updating them or even getting rid of some.
The median salary of a bank executive in 2016 was $345K. That said, it comes out to about $165 an hour. Some bank leaders are making much more than that, while others are making less.
Imagine that you have three bank leaders each spending multiple hours per week working on the growth strategy. We're estimating an average of 3 hours per week, based on our experience. That comes out to around $25,000 in just time spent.
It doesn't include the cost of any Board meetings. The average bank Board meets approximately 9 times per year. Assuming that the Board is also focused on growth strategy, there is some additional cost associated.
More than 70% of new customers open a checking account in the branch, according to one study, and some put that closer to 90%. Forty percent of customers looking to open more complex products still choose to go to a branch, according to a different study.
Bottom line: branches play an important role in helping close customers.
That suggests that one of the best ways to attract and close new customers is by being where they are. While the potential revenue associated with intelligent branch planning is dependent upon your market, there is often a chance to increase sales with a better branch strategy.
Closing a branch isn't free, particularly when you consider the potential compliance costs associated. A branch closure can present CRA risks, and will need to be approved by your regulator. Even after a branch closure is approved, you may lose more customers than anticipated, and face Redlining risk.
As we've seen repeatedly over the past few years, Redlining is a primary area of focus for regulators, community groups, and the press.
The average cost of a Redlining or Redlining-related Fair Lending settlement since 2015 has been just under $32M. Even though a few larger settlements have raised that number, it's still pretty staggering.
While Redlining is not always related to your branch network - marketing and other factors certainly play a role - it is one of the factors that the examiners will consider. In particular, we have seen repeatedly that the regulators require adjustments to the branch network to make up for that risk exposure.
A risk-conscious strategy can help reduce your risk exposure, and ensure that you're in a good position to comply and grow.
The average bank branch has approximately $63M in deposits in the US. For existing customers, the branch remains an important part of their relationship with the bank.
Less than 1% of banks believe that they will face less competition in the coming years. As the battle for customers continues to heat up, will your bank be in a position to keep your customers happy?
Intelligent branch network optimization can ensure that your customers are satisfied with your bank and the services you provide, ultimately helping to protect the millions in existing deposits you have already won.
Ncontracts Viewpoint: If your bank is looking to grow successfully in 2019 and beyond, Branch Network Optimization might be a good fit for you.