Building a High-Powered Branch Network in Retail Banking

The so-called Great Recession of the past two years has created unprecedented challenges for retail-banking branch networks. In many markets, regulatory moves are putting pressure on fees, with unfavorable deposit spreads and poor consumer-credit quality compounding the difficulties. Branch-driven revenue growth is becoming harder and harder to achieve. Many banking executives, faced with a deteriorating revenue model and an expensive branch infrastructure, are responding by closing branches and adjusting staffing—while simultaneously looking for ways to improve sales productivity.

Although the extent to which these dynamics are taking hold varies among the major global markets, it is undeniable that the future role of bank branches is under scrutiny in CEO suites. A fundamental question being asked is, will the role of branches be diminished in the new normal? The answer, in our view, is a resounding no.

The nature of branch networks may be shifting owing to new economic realities and continually evolving technology, but the crisis has deepened the need among consumers and small businesses for reliability, reassuring face-to-face contact, and a safe harbor in choppy financial seas. As a result, the role of the humble neighborhood bank branch will be more important than ever in the postcrisis era.

Banking executives, in order both to benefit from this trend and deliver what their customers truly need, must move to recapture the full potential of a high-powered branch network. Doing so would represent a sea change from the precrisis tendency of many banks to simply ride the wave of high growth—and get away with some bad practices along the way. Now it’s time to get back to basics.

Indeed, many banking CEOs worldwide are asking themselves questions such as the following:

• How can we respond to the deteriorating profitability of the deposit revenue model?
• How can we increase the volume of high-value branch-based interactions with customers?
• How will the format of branches and the need for branch density change as a greater share of customer service interactions go digital (via mobile devices and the Internet)?
• How can we further optimize the branch cost base?
• How can we truly and sustainably improve the branch experience in a way that drives greater customer engagement and loyalty—and profits?
• How can we sharpen overall sales-force effectiveness in branches?
• How should we adjust our operating model for branches in the postcrisis era?
• How can we make changes rapidly across the network with a high degree of compliance?
• How can we spread best practices and cultivate a sense of urgency and zeal in the network?

The answers to these questions will be of paramount importance to retail banks over the next few years. Fact is, although remote channels are gaining share in the sales and service of certain products—with most customers displaying more multichannel behavior—branches remain the primary driver of market share for consumer and small-business relationships, as well as the anchor channel for retaining high-value customers. Banks hoping to move fast out of the postcrisis starting gate must therefore devise a strategy for developing high-powered branch networks that can eclipse those of their competitors.

In several recent publications, we discussed how retail banks can best endure the financial crisis, pursue overall excellence going forward, and choose the right business model for their particular set of resources¹ 1 See these BCG White Papers: Come Out a Winner in Retail Banking (September 2009), The Near-Perfect Retail Bank (November 2009), and Retail Banking: Winning Strategies and Business Models Revisited (January 2010). Notes: 1 See these BCG White Papers: Come Out a Winner in Retail Banking (September 2009), The Near-Perfect Retail Bank (November 2009), and Retail Banking: Winning Strategies and Business Models Revisited (January 2010). . In this paper, we turn to the concrete measures that financial institutions can adopt to take the performance of their branch networks to the next level. Of course, such an endeavor must first acknowledge the present state of the retail banking industry—which, by any standard, remains one of crisis.

Acknowledgments

The authors would like to thank Philip Crawford for his editorial guidance during the preparation of this paper.