Despite a healthy economy, banks are closing branches at a record pace. According to a recent report from the Wall Street Journal, more than 1,700 branches closed in the last year. Data from the recent Cornerstone Performance Report for Banks supports this trend, with the average branch processing just three consumer loans per month. Can a bank making just three loans per month per branch justify the physical distribution of sales?
Big banks have been in the driver’s seat on growing their market share in retail, while paring down branch networks. Wells Fargo, Bank of America and Chase opened more new checking accounts in the last year than the next 17 largest banks combined and have more than 70 million total mobile users. Meanwhile, Wells plans to close 450 branches by 2019, BofA has closed 1,600 branches since 2009, and Chase closed 365 since 2015.
While this might all seem scary, it means bankers need to look at new ways to adapt and grow as customer expectations evolve with the times. This adaptation includes using mobile and digital channels, not just to provide the capabilities clients need and expect, but also to shift time and resources to other channels with more growth opportunities.
Digital: The New Must-Have
Much like a bank that over-concentrates itself on commercial real estate lending, banks that rely too heavily on physical channels for consumer and business customers risk attrition, lost revenue and increased expenses.
Consider these numbers from PwC’s 2017 Digital Banking Consumer Survey:
- 46% of consumers use ONLY digital channels today. This is a huge increase from the 27% share that was seen only four years ago.
- 60% of smartphone users use mobile banking in some way, up from 36% four years ago.
- 37% of branchless users say they would consider switching from their current bank to another bank’s app.
Similar trends also apply to business banking. Whether customers need to approve a positive pay, initiate a wire, or apply for a small business loan, digital has shifted from a nice-to-have capability to a must-have proficiency. Customers expect to be able to use their mobile devices to do all their day-to-day activities, and strong digital capabilities can attract and retain not just millennials, but all new customers.
Aligned and Future-Ready
Bank spending continues to skew heavily toward branch distribution while fewer than one in five dollars is allocated to new digital marketing initiatives. According to Cornerstone Advisors research, on average banks are spending 70-80% of their direct channel expenses on branching, 15-20% on contact centers, and roughly 5% each on ATMs and digital. At the same time, just 16% of banks’ marketing budgets are going to online channels and data, while nearly 45% goes to offline channels and direct mail and 27% to sponsorships and donations.
To be future ready, an institution must strategically align marketing spend with growth opportunities in terms of customer interactions.
The Transformation of Delivery
The lines are blurring between the way customers interact with a bank’s sales, marketing and service teams. Sellers are becoming marketers, marketers are becoming 
sellers, and the people in the contact center are becoming loan officers. Navigating this new world requires a strong commitment to both investment in terms of money, technology and talent, and transformational shifts in strategy and operations.
Throwing money at new technology without a change to strategy or operations is a fool’s errand based on wishful thinking. Simply offering a new capability without shifts in thinking will not drive different results.
Conversely, attempts to transform an organization without investment will force change to occur around the edges, constraining the effectiveness of the desired change.
Here are four key mandates that every banker must address to effectively respond to shifts in the market and proactively position their marketing and delivery channels for growth.
- Create visibility into cost, production and experience. A bank that doesn’t know where it is today will find it very difficult to make a rational business case with implications of where it will be tomorrow. Find out what’s really going on. How are sales occurring? What are the costs and investments being made in generating those sales? How are experiences and interactions driving retention? What is the value generated by each channel? What does all this mean for the bank as an organization?
- Candidly assess the customer journey. What are the bank’s pain points on the journey and how can they be fixed? Get gritty through the eyes of the customer and lay out a course of action.
- Attract, develop and reward transformational expertise. Having the right talent is key. Banks need to think about how they develop and reward the people that help the bank get where it wants to go. The essential skills needed to drive strategic change include deep knowledge of marketing technology, analytics, digital channel management and business integration.
- Create realistic roadmaps and scorecards. How does the bank judge success? How does it measure itself against peers? What bets are the bank willing to make? Simple and focused execution plans are an important part of any successful future growth strategy.
Behavior is changing and expectations are increasing. Successful banks will drive transformational shifts with their customers; the rest of them will simply hope they can enjoy the ride. What bet will you take?
Thank you to Sam Kilmer and Steve Williams for their contributions to this article.