Often, a branch’s success is based on the three main factors: a balance sheet, the income statement, and a cash flow statement. Financial institutions, as they should, carefully examine the return on investment and customer satisfaction averages among the above factors when determining a branch’s success. A retail branch placement, however, isn’t always for profit and may need a modified measure of success. Thus, it is wise to understand the branch’s purpose to help determine its true success.
Banks and credit unions, alike, utilize retail branch placements for various reasons:
Like traditional branch expansion efforts, expanding a bank’s service area or credit union’s field of membership is the top reason for a retail branch placement. As branch expansion efforts are rapidly changing with an omnichannel delivery method focus dictated by advancements in technology, the physical branch footprint is at a precipice. Coupled with a decline in costly large-scale brick and mortar branches and the mass vacating of branches across the U.S., financial institutions are considering store front micro-service centers, client experience lounges, and in-store retail locations seeking higher foot traffic and access to their competitors’ clients. In essence, financial institutions are meeting potential clients where they frequent instead of enticing them to visit a traditional branch or online site.
According to a survey published in 2019 by the American Bankers Association (ABA), while bank and credit union branches as a banking channel have fallen to a third place spot behind online and mobile, “77% of consumers prefer visiting a branch to discuss a lengthy topic” while “51% opt for a branch to open a new deposit or credit card account.” While consumers enjoy the benefits of convenience, they want the assurance that their financial institution is still physically accessible. In 2021, consumers emerging from a life of restriction are returning to the retail environments craving the human connection they have missed.
Test Market Potential
Cautious on spending budgetary resources on a traditional branch in a new area regardless of the extensive research conducted, financial institutions are opting for a retail branch placement to verify that the market can sustain a branch of stature. In cases where the market did not deliver as planned, the financial institution was able to shift focus without spending a fortune.
When a financial institution has a large percentage of the market share, opting for a retail placement in close proximity to an existing branch could be to prevent a competitor from gaining a ground hold in the market.
Offset Transaction Volume at a Sister Branch
There are times, albeit pre-pandemic, where a branch faced the positive issue of sheer volume. In this case, a retail placement in close proximity to the busy branch helps the branch service their clients quicker and more efficiently.
Measuring success when utilizing retail branch placements in your financial institution’s overall branch strategy should be tied the metrics to the branch’s purpose. Simply calculating profitability or transaction counts could be misleading. Staying focused on the retail branch’s purpose helps set a benchmark for true picture of success and profitability.