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March 2008
What will the role of branches be in 2015?
That question is relevant to decisions being made today about branch
location, size, layout, useful life and financing (ownership vs.
leasing). Having the wrong number of branches, the wrong design, the
wrong locations and the wrong fit with other channels will adversely
impact branch effectiveness and overall shareholder return.
Branches are not going to go away, customers won't let them. They are
needed in the channel mix as experience with Internet only banks has
proven. Online activity will grow, but customers will still come to
branches to: get/dispose of cash, deposit checks, access safe deposit
boxes, and engage in complex transactions with customer service reps.
The use of cash by customers has, is, and will continue to decline.
Debit card, credit card, and ACH transactions will continue to gain
market share. Checks written, while declining in number and market
share aren't going away anytime soon. Some are being converted to ACH
items at point of sale, and in back offices. The number of items being
posted as checks to a checking account is declining. Remote deposit
capture (RDC) is making it possible to image checks and transmit them
from the branch to a central site. This in turn allows: great
reductions in branch courier runs and keeping branches open later for
greater convenience. Customers are scanning checks at ATMs.
Businesses are now using RDC to avoid trips to the bank. The service is
well accepted and growing. Major banks have expressed to us an interest
in extending the capability to retail customers. LCG has a patent
pending process for using regular fax machines and scanners for RDC,
opening up the consumer and lower end of the small business market.
USAA is offering a flatbed scanner based RDC service to its members who
have an insurance, deposit and credit relationship. Customers are being
served at increasing distances because an occasional trip to a distant
branch is not as inconvenient as daily trips.
What are some of the implications of these trends:
1. Fewer customer visits to branches, but the visits that do occur will be more important.
2. The effective branch footprint will grow, at least for
some customer segments. Banks will compete for customers at
greater distance, and have greater separation between branches.
3. For the same investment in branches a bank can achieve greater market coverage.
4. Fewer teller stations will be needed and more customer service space.
5. Space will be needed for check scanners at teller stations, in back offices and self service locations.
6. Branches will become smaller and at some locations there will be a need for more parking.
7. Some city branches will provide some pickup services to compensate for fewer branches.
8. Some branches may be subject to planned obsolescence over time.
We recommend incorporating these trends and implications in today's
branching strategies and the models and tools used to make branch
location and customer profitability decisions.
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