Getting the Most Out of Your Branch Network


8-25-14-fiserv.pngWith narrowing net interest margins, less-than-optimal loan volumes and service charge fees under fire, it’s more difficult than ever for America’s financial institutions to plan for the future and achieve their strategic objectives. You probably believe you’ve squeezed every drop of efficiency out of your operations already. What’s the key to further efficiency, profitability and growth in this environment?

It all comes down to the branch.

Branches represent 66 percent of the non-interest expense for the average financial institution, at a time when consumers are making the transition moving to online and mobile channels. That’s why banks must maximize the value of the branch to position themselves for success. Financial institutions of all sizes can profit from creating what I call a “branch planning playbook.” This is a highly structured process of reimagining your branch network, and the time to start is now.

An Honest Appraisal
You can begin by stepping back and asking some tough questions.

  • What has been the historical purpose of your branches? Document how each one has performed, based on this purpose. Imagine the shape of your branch network if you were starting over today.
  • Does your funding strategy make sense? How you fund your bank—with wholesale or low-balance accounts, for example—shapes your path to high performance.
  • Do you have excess capacity? All financial institutions experience excess capacity as they add branches. The question is how long they will subsidize it.
  • How do your branch efficiency metrics stack up to those of high-performing peers? Measure core deposits, revenue and number of accounts per office. Then size up revenues, loan volume, deposit totals and number of accounts per full-time equivalent employee.
  • What are your franchise-level growth goals? Determine how these goals compare to the growth projections in the market.

Evaluate Each Market
Now you should have a picture of where your financial institution has been, where you stand and where you want to go. Next, you must examine how that matches up with your marketplace and how you can improve your position.

For a complete market view, you’ll need market analysis tools. There’s a wealth of data available and you want software that can identify both competitive saturation and the demographics of your potential customers. These tools are indispensable as you complete these steps for each branch:

  1. Define the geographic market. Typically, this is an area with about 20,000 households and businesses.
  2. Identify the primary market type. Is this market consumer-oriented, commercial or diverse? Is it large or small, urban or rural? Define its growth characteristics.
  3. Measure market growth potential. Get five-year and annualized growth estimates for consumer and commercial loans and deposits.
  4. Evaluate your best consumer and commercial segment opportunities. Upscale earners or growing families, for example, represent solid prospects.
  5. Quantify your best product opportunities. Select products and services that appeal to your top consumer and commercial segments.
  6. Analyze market competition. Identify your competition, their locations and market share.
  7. Evaluate your current customer base. Identify the household and business types with which you resonate. Analyze wallet share and gauge customer loyalty.
  8. Build a branch strategy matrix. This is expressed as a quadrant diagram that sorts your branches according to current market position and market growth potential, identifying top branch performers as well as branches that may be candidates for closure or consolidation.

Define Focus and Set Clear Goals
Armed with your research, you can now set up your branches for greater success. Narrow the focus of each branch to products and services that fit the market. For example, you might designate a branch as an origination point for commercial deposits, catering to the health services industry. Then, staff accordingly.

Set obtainable goals. Your goals should be conditioned by what you’ve learned about the growth potential and competition in the market.

Executing the Plays
The strategic framework in the branch planning playbook provides an orderly plan for refining your branch network to achieve strategic objectives. It will mean making important decisions—perhaps even closing or consolidating branches. But you can rely on the intentional use of market analytics to help maximize your financial institution’s investment in current branches and inform your decisions to open new ones.

I encourage you to start imagining a more focused future, today.

To further explore the process for creating your own branch planning playbook, review the Branch Planning Checklist from Fiserv.