Should you reopen all of your branches?

Look for efficiencies now while building a long-term strategy.

Whenever banks and credit unions face earnings challenges, the branch network emerges as an obvious target for expense reduction. At typical retail-driven institutions, branch operations account for about two-thirds of total noninterest expenses. In that the forced closing of branch lobbies during the pandemic has driven consumers into other channels, it has correspondingly raised a question of whether institutions need to reopen all their branches.

In assessing this, first keep in mind the fundamental role of the branch is not as a transaction processer; that is simply a cost we absorb for the convenience of our accountholders. Rather, the branch exists to add new accounts, to recruit customers into the institution and to ensure bankers meet clients’ continually evolving needs with the appropriate products and services throughout their lives. In this role, the personal interaction that branches deliver can provide both value and differentiation, especially for smaller institutions.

Still, earnings constraints may demand cost reductions and, if so, the top consideration should be to consolidate around existing strongholds. This would include paring one-off forays into markets where the franchise lacks the critical mass to leverage the network effect—the phenomenon whereby larger branch networks capture a disproportionate share of balances as consumers seek omnipresent live/work/shop branch coverage. Correspondingly, it also implies maintaining branch depth in areas where the institution already enjoys a strong incumbent position.


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