Branching Trends: Anybody want a bank branch?

This branch of TD Bank in North Massapequa, N.Y., just opened. The market it serves already had a branch just 2.5 miles north of it, and another just about the same distance to the south. What are such players aiming for? "Saturation," says Joe Brady of Jones Lang LaSalle. While aggressive branch openings tie into such players' strategy, the sun is rapidly setting on large legacy branch networks.

Back in  the 1980s Simon Bond wrote and illustrated the gallows humor 101 Uses For A Dead Cat, to the consternation of cat lovers everywhere and the chuckles of those not as fond of furry felines. Will someone like Bond someday come up with a cartoon book like 101 Uses For A Former Bank Branch?
 
Perhaps not. Joe Brady, managing director at Jones Lang LaSalle, an international real estate consultancy and commercial real estate brokerage, says former traditional bank branches can be put to numerous uses--what the real estate trade calls "adaptive re-use."
 
Now, everyone's seen those former banks in big cities and picturesque hamlets that have been turned into restaurants, complete with a dining room in the vault for special parties. But Brady says that, more practically, a common use for former bank buildings is the insurance office, with Blue Cross/Blue Shield and other providers fitting administrative staff into banking shells quite nicely.
 
Indeed, continues Brady, another common conversion for former bank offices is the "doc in a box," as he calls it--the walk-in medical center. Bank offices features good parking, prime locations, and much else that lends itself to conversion.
 
Why such concern about former bank branches? Because if Brady and his firm are correct, there will be lots and lots of them.

 
Goodbye to Greek temples

"The age of the big branch legacy network in developed world countries is drawing to a close," the study's executive summary states. Because many banks have huge amounts invested in the status quo, the study maintains, they won't dispose of branches radically, but as leases expire. And some new players, and aggressive players on a mission, will continue to open branches of some form. Overall, the footprint of branches will shrink.
 
Waiting until leases expire will likely fade, as well, as the decade progresses. "We will see an accelerated closure program over the second half of the decade once mobile banking really gets a hold on consumer behaviors and further asset depreciation leads to a ramping up of the disposal strategy," the study says.
 
"Banks are taking a more disciplined strategic look at real estate than they ever have before," says Brady. In some cases, already, where institutions haven't disposed of properties, they have opted for sale-leasebacks, which keep the location in the bank's portfolio and which free up capital for deployment in something besides physical locations.
 
Driving the change is the increasing amount of banking transactions being performed through mobile and online banking channels. "The internet will be the disruptive force to the banking sector over the decade," the report states.
 
Jones Lang projects that branches that remain will evolve away from transactions to a role of relationship building, service, and sales. Wealth management issues will tend to focus customers' attention on bank offices for such purposes, rather than merely for routine matters easily handled remotely. Hub offices where all forms of expertise will be available will serve spoke offices that provide basic banking services.

	Joe Brady

Joe Brady, whose firm predicts that changing usage will render half of bank branches obsolete, recently visited Dallas, where drive-through stations with more than a dozen slots aren't unusual. "Does that make sense in today's environment?" asks Brady rhetorically. "Probably not."

Full-service hubs, says Brady, tend to build confidence in a company's brand, by providing depth and breadth of expertise, without having to replicate that in every office.
 
These trends will accelerate, the firm predicted, as banks get better at the electronic formats that have already meant so much change. 
 
"On the whole, banks' websites tend to be clunky and often represent no more than a direct translation of their offline services onto the internet," the study maintains. "Insufficient thought has been given to making full use of this channel's capacities."

What game are contrarians playing?
The firm makes a convincing case in its study, drawing on numerous research projects. But while many signs in the market in this country support the firm's predictions, certain players have been contrarians.
 
The report acknowledges this: "Not all developed country banks will be downsizing. We will see some brave banks investing to build their bank network. Part of the logic of this will be to drive higher account penetration by having a larger network of much smaller branches in a state like California. Some financial modeling sees incremental deposit and revenue opportunities in this ‘coverage' approach."
 
"The contrarians are looking for saturation, in order to build their brand," says Brady.
 
Brady notes that this is a trend in other aspects of retail services,  as well, not just in financial services. In some parts of the country pharmacy chains such as CVS and Walgreens have been filling out their networks--sometimes adding departments as well, and thus expanding their footprints.
 
But while Brady says he understands what's driving Chase, TD Bank, and others who keep building new branches, "our thesis is that the evolution of the branch experience has to continue apace."
 
Along the way, there will be more of a melding of "bricks and clicks," where institutions can't dispose of locations, Brady predicts, with more and more branch business migrating to electronic channel, both outbound and inbound, through such techniques as remote deposit capture.
 
If Chase were merely planting more flags around America, says Brady, the strategy would be highly limiting and ineffective. However, he says, "Chase's bricks and clicks combination is robust."
 
Community banks, he says, may lean more on bricks for a time, but everyone will come along, Brady predicts. Ultimately, he says, "banks need to embrace technological evolution, and give customers what they want."
 
You can download the Jones Lang LaSalle report here.