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If you're investing in branches - look out

In my recent book I posited that I wasn't against branches and that rather than advocating the wholesale closure or departure from branch networks, that I was interested in seeing branch focus/form adapt. The reality is though, the more and more I look at what is wrong with the whole retail banking business in respect to imperative for innovation and change, the more that branch-led distribution thinking is killing the ability to innovate because of bloated legacy cost structures.

Branch networks have to shrink
Let me put this out there on the table right now. The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I'm not talking 10 years out here... I'm talking in the next 2-3 years. Which is why I was bemused by the following piece of news a couple of weeks ago in the WSJ:

The New York bank, No. 3 in U.S. deposits as measured by the Federal Deposit Insurance Corp., wants to expand the Chase name. Some expected an acquisition. Instead, Charlie Scharf, the head of retail operations, said J.P. Morgan would build 1,500 to 2,000 new branches over the next five years--an expansion equivalent to the entire branch network of a large regional bank.
Wall Street Journal: JP Morgan Sees Long-Term Payoff In Huge Branch Expansion, David Benoit (Dow Jones Newswires), Feb 16, 2011

JP Morgan is hoping to add $2Bn dollars in pre-tax earnings by 2025 off the back of this move. Are they serious??

Let's just look at a few of the facts:

The action is all in channels, not in branches.

Bank visitation and utilization is in decline, cross-sell effectiveness has leveled off, and there is massive debate over what the branch should look like? Bank's aren't building deeper, richer customer relationships through branches - despite what they might wish. Branch usage is in decline, costs of branch distribution infrastructure is increasing and ROI is decreasing, the skill mix of staff required is changing and the new resources required to differentiate are expensive and difficult to find and train. The future of branch looks pretty bleak.

Why are big banks slow to change?

The bigger the bank brand, the more they already have invested in physical real-estate. The most powerful individual in the retail bank, besides potentially the Head of Retail, is going to be the guy with the biggest bucket - the Head of Branch Distribution. In this environment, strategy is led by those with the most power and leverage internally and much of that is still down to P&L. In this environment, the instinct of the banker is to fall back on old established habits and to lead with a branch distribution strategy when there is spare cash for growth, rather than experiment on something new like Mobile or Social Media. It's why a bank like JP Morgan Chase, HSBC or Bank of America will spend 90-95% of their "channels" budget on branches still today, flying in the face of all logic to diversify channel expenditure in a major way. It's why very few of the bigger banks still are yet to appoint a head of mobile or a head of social media.

Sure digital channels are cheaper to run, and you can't just close half your branch network overnight, but the mix of investment is simply wrong. If you don't start by reinventing the engagement of customers across every channel, then one day you are going to be stuck with an irrelevant business.

One positive example of adaptation is the recent appointment by TD Bank of Brian Haier to the role of Head of Direct Channels and Distribution Strategy. Brian's background was leading the Retail Distribution business for TD Canada Trust with a salesforce of 25,000 frontline staff. I guess TD figured out the best way to solve the budget problems was to take one of the Branch guys with the biggest buckets and simply put him in charge of Direct Channels so there would no longer be any argument about where the future of the bank lies.

For JP Morgan Chase, on the other hand - if I was a shareholder, I'd be offloading stock, quickly...

Citi's Apple Store - This is not innovation

Comments: (5)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 March, 2011, 13:43Be the first to give this comment the thumbs up 0 likes

Branch or digital channel is a vibrant debate.

My only request to banks is, if you're going to invest in branches, please do so whole-heartedly: When I visit a branch, don't ask me to call PhoneBanking - as one or two of your ilk do now!

A Finextra member
A Finextra member 14 March, 2011, 14:15Be the first to give this comment the thumbs up 0 likes

Totally agree with this perspective Brett. In the UK though, I think there are also political considerations - headlines of mass branch closures with attendant job losses would not be welcome to the banks/government at the moment.

A Finextra member
A Finextra member 14 March, 2011, 15:30Be the first to give this comment the thumbs up 0 likes

I wouldn't entirely agree when it comes to business banking and specifically business banking. Svenska Handelsbanken have demonstrated the value of branches having over the last few years opened over 80 branches in the UK, empowered their branch managers to make lending decisions without recourse to Head Office and, as a result, have seen very high levels of customer satisfaction and upper quartile margins.

Absolutely the style and use of branches needs to change, however branches as part of the channel and marketing mix will be here for a lot longer than might be expected.

Brett King
Brett King - Moven - New York 14 March, 2011, 16:20Be the first to give this comment the thumbs up 0 likes


My issue is not that Branches will remain - my issue is that it is just one choice of channel. The mix of spend/P&L is totally out of balance with customer behavior today IN ANY SEGMENT. 

Banks need to be channel agnostic and the spend or organization structure just doesn't even come close to reflecting that today.

Branch is not a superior channel to mobile, internet, social media, ATM, etc - it is just a channel.

Seen in that light, with appropriate metrics to understand the way customers engage - we will see a very different channel distribution structure emerge.


Brett King
Brett King - Moven - New York 14 March, 2011, 16:23Be the first to give this comment the thumbs up 0 likes


I think if you lead with total channel service as a proposition and show consumers that it is not just a cost savings/austerity measure there would be greater acceptance of this. 

The problem is, there is not the investment in the other channels to make that happen, largely because most executives still classify stuff like the internet as a transactional channel where migration is a cost savings measure. They don't build internet as a service channel, and they don't enable the conversation.

Just try emailing your bank and see how long it takes to get a response and you'll get what I mean...


Brett King

Brett King

CEO & Founder


Member since

14 Apr 2010


New York

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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