Trends in Branch Service Delivery

thePoint
July 28, 2005

The death knell for the branch delivery network has tolled in the past, only to be proven false by consumers' ongoing desire to use the branch as a service delivery channel. Several new trends are emerging across the country in the branch delivery system, according to Bancology, a quarterly newsletter from financial services industry consultant Bancography.

1. Branch-based distribution of formerly centralized lines of business. In an effort to improve convenience, many financial institutions are migrating traditionally centralized services into their branch networks in markets with corresponding consumer demographics. Some of these services include wealth management, commercial banking, and mortgage banking.

As more households live and work beyond central business districts, consumers are no longer willing to "drive downtown" for occasional transactions, such as mortgage or brokerage accounts, according to Bancology. Rather, financial institutions are distributing these lines of business in key locales to increase their drawing power to convenience-driven consumers.

2. Mass in-store deployments in addition to branches. In-store banking has long been a component of branch delivery systems, but in many major U.S. markets, large regional/national banks are now using in-store banking at an unprecedented level. Instead of deploying in-store branches as replacements for stand-alone branches, large national banks are using market-wide in-store partnerships to insure consumer convenience across the marketplace, including the use of extended hours, reports Bancology.

In the process, this has crowded many smaller financial institutions out of places, such as grocery stores, in some large markets. In fact, some large financial institutions have opened a broad network (30-plus) of in-store branches in major markets where they already operate significant stand-alone branch networks.

3. Credit union branching. As more credit unions convert to community charters, they're adding branches to attract members in these new communities. Although many of these credit unions are starting from a much smaller branch base than their bank competitors, Bancology explains, their branching pace is comparable to leading banks. This trend will make deposit growth more competitive, increasing the premium on well-located branches.

4. The eroding middle-market tier. Nearly every retail industry has moved toward an alignment that features a small number of major players controlling a large portion of the market, and a large number of "boutique" or specialty competitors picking at the most profitable market segments. This has led to the precipitous decline of the mid-size provider.

The remaining mid-size financial institutions face a difficult environment because they lack the scale to compete on price/efficiency, but they might have grown too large to offer the personal service and local decision-making authority of community financial institutions. The long-term success of the organizations could depend on whether they can provide exceptional service at a reasonable cost while building the structures to deliver the convenience so important to consumers.

This article was prepared by the staff at the Point for Credit Union Research and Advice and is published online at http://thepoint.cuna.org/. Reprinted with permission.