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On this episode of the BAI Banking Strategies podcast, Lou Carlozo, Managing Editor, interviews   Jon Voorhees of Peak Performance Group about the closing, opening and evolution of bank branches. Voorhees also reveals how banks can close branches and still experience low customer attrition rates.


Lou Carlozo, BAI. Bank branches. Where the three key words before were always location, location, location – today they might as well be decisions, decisions, decisions.  Should branches be closed, should they be transformed, should they be re imagined. or should branches turn into something altogether different that uses the best world of customer satisfaction and automation.


To learn more about the current and future state of branches we will be talking with bank branch expert Jon Voorhees.


Welcome to BAI Banking Strategies, where each week we will focus on key issues facing financial services leaders.  We’ll bring you objective opinions and actionable insights that will help you power smart decisions. I’m your host, Lou Carlozo, Managing Editor of BAI. Come on in!


Thanks for tuning in. It is great to have you on the podcast today and we are at the end of Season 2 so we want to thank everyone who has tuned in so far. While we’re off you can check out the archive of podcasts at www.bai.org  and as always, our podcasts can be heard through Apple iTunes podcast app, Soundcloud and Google Play.


And today with us here we have Jon Voorhees, a Consultant/Adviser for Peak Performance Consulting Group. Most recently focused on the consumer banking industry, Jon has used his expertise in retailing, consumer goods and the automotive industry.  If you’ve read his posts on BAI Banking Strategies you know he is clear spoken and gets right to the heart of things.


Jon, great to have you on the program today.


Jon Voorhees, Peak Performance Consulting Group. Thank you, Lou. I appreciate the opportunity to talk. I like to talk!



Lou Carlozo, BAI.  Closing branches, right. That’s the big topic that makes bankers nervous. And yet there aren’t as many branch closings happening right now as people might think.


Jon Voorhees, Peak Performance Consulting Group. I think it’s a great way to open our conversation. It’s a topic I know a lot about. I probably closed more branches, myself or my team, than anyone else in the country.


I spent 17 years Bank of America and I led the retail distribution strategy function first and then the retail  distribution execution function – new store building, ATM deployment, branch transformation – and branch closures and consolidation. So over the course of my career just with the bank, because I’ve been doing this kind of work for over 40 years at this point, we closed about 2,000 branches and opened another 1,000.


Lou. Wow


Jon. So it is something that you read a lot about today. People talk about do we have too many branches, especially with the introduction of mobile and on-line banking.


Well, the reality is, most banks are afraid to close branches because of concern about how the customers are going to react.


So I think management need to get their head around do I have the right understanding of my network and how customers use it, and do I have the right analytic framework, and do I have a plan for how I want my network to either grow and evolve. The phrase today you’ll hear is everyone talking about branch transformation and I think that’s really where people don’t have a good idea yet of what they want to do.


Lou. If branches need to transform, what do they need to transform to?


Jon. That’s the $64 thousand dollar question.


Customer behavior associated with banks has changed a lot, especially in the last 10 years with the introduction of on-line and mobile banking.


You start looking at the traditional bank, the way you’d think about it is you’d take a box, you’d split it into thirds. On one side of the box you’d have the teller line, and all the teller capability. In the middle would be the lobby. And on the other side you’d have the platform where the sales people were. The boxes came in all shapes and sizes but basically that was the function.


Nowadays, with teller volume being off by as much as 50 or 60% from where it was 10 years ago, you’ve got this setup that doesn’t work anymore. It’s out of balance.


I think at this point I’ve visited in my career something like 14,000 or 15,000 branches. And you walk in and you see 10 teller windows. But you only see 2 tellers. If at your peak capacity you only need 2 or 3 windows, and customers standing in line see 10 windows, they think you’re understaffed, and they think you’re forcing them to wait too long. If you had the same experience and you only had 3 windows, and all 3 were staffed, customers wouldn’t feel that way.


So we begin to ask “what are the changes I need to make”. Well, you need to reconstruct your teller line, you need to re-think how you use the space, and the challenge becomes, to tear apart a teller line and to re-build it is about $100,000 because there’s under counter steel and all this infrastructure in place to protect the staff and the like. And if you’ve got teller lines that have BRG (Bullet Resistant Glass), which you see in many locations, they’re generally about $10,000 per window. So you start getting all the cost to shrink the space, and people will say “is it worth the incremental capital investment to be able to do it?”.


I think that is part of the challenge that’s going on.


And the second part is, as people continue to evolve and move the transaction side of the business, the platform side is not shrinking. That’s where people come in for face-to-face account servicing, they open up accounts, they ask questions about their bills, Those behaviors still go in the branch. So banks need to start looking at how do I invest in re-positioning the inside of the box. How do I redesign it so that I have more of the space dedicated to taking care of customers and less of it to being transnational.


Lou. Great point, because a bank space is not something you can paint with a broad brush and say all branches are alike. What types of innovations are you seeing right now that really intrigue or delight you in terms of where branches are going?


Jon. I’ve seen a lot of different designs over the last couple of years where people are experimenting with things. PNC has this little pop-up branch which is essentially built in cargo container, and they ship around and drop off in the city for a few weeks.


Lou. A tiny branch. Yes. We featured that on the program a few weeks ago.


Jon. Right. I mean, it’s really not a long term play but I certainly can see it being used at events and things like that. At Bank of America we had a couple of mobile branches that were built into RVs that were used for emergency situations like power outages or floods, and they can literally be driven and opened up on site in a supermarket parking lot and help out for emergency services and emergency cash needs and things like that.


But things like CapitalOne with its’ Café. I’ve visited several of them. It’s essentially a coffee shop and they have some bank staff there that can open up accounts, and they can also do account servicing, and they can take you into one of these universal offices  to be able to help you out. But generally its’ primarily a coffee shop, and that’s almost the wrong way to think about it.If you’re doing that, what’s predominant? Well, people sitting around, drinking coffee, and using your free WiFi. I can’t imagine they do a lot of banking business in those places.  And, from my sources, they’re more expensive than a traditional branch.


Lou.  Location is one of those topics that’s beaten to death in the branch debate, Yet, with so much concentration on the closing or consolidation of branches, it seems that there’s a very poignant question about which locations to keep, and which locations to re purpose, close, condense?


Jon. We created an analytics platform for retail distribution that focused on gathering as much information about our customers, our locations, and geographies that they all sat in. So, every year we would screen the entire footprint of all branches and say, “Is it one we want to keep, close, or move?”.


And then you start looking at the customer behaviors.


Which branches have those characteristics that say we’re not going to get a lot of growth, but where the customer base is already using several other locations and other channels. So, if the customers aren’t really wedded to that one site, you can close it and run a very limited risk of them leaving. They’ll simply start going to the place they use 2nd or 3rd in line. And in fact, we were able to prove that time and time again.


We did a 4-year sprint of about 800 closures and about 200 divestitures. And in the closures, we averaged less than 5% incremental attrition, and that was because the customers weren’t that upset that we were closing their branch.


Lou. They just have to have a knowledge, it sounds like, or a build in behavior, that tells them what Plan B is.


Jon. They’re already executing Plan B. You know, they may bank at one branch near where they live, but they may also bank at a branch near where they work. And as long as you leave them some options locally, customers will be OK with that.


Lou. When you look at what seems to be right ahead of us on the horizon, how might the whole branch game be changing?


Jon. It’s going to hard to do all the conversions people are talking about doing. They’re not all going to be small, but they’ll be appropriately sized for their market. But they’re going to have a much greater emphasis on sales and servicing. In fact, I would say you’ll see a transaction zone that might have machines, and it may still have a teller or two, but they’re going to look more like a Fidelity office. More like an investment office than a branch office, because banks will want to deepen relationships with their customers.


One of the big strategies we were implementing at Bank of America, they are still implementing today, they talked about it recently in some articles, is to embed a small business, an investment, and a mortgage specialist onto the platform in their top 1,500 to 3,000 branches and by doing that all a sudden they can bring the power of Merrill Lynch, and the mortgage business and small business expertise to the customers, where the customers are already at.


I think it’s that kind of evolution that’s going to be much more on the platform side. You’re going to see these offices become more advisory in focus.


Lou. Branches still have an important role to play, and so do you.


Jon, we’re delighted to have you here today, and thank you for making the time.


Jon. Hey, I appreciate the opportunity


Lou. Jon Voorhees is a Consultant/Adviser with Peak Performance Consulting Group and he is based in Bellingham, Washington. Look for Jon on LinkedIn.


And here are three key takeaways from today’s podcast:

  1. Bank branches are significantly changing in shape and form. PNC has its’ tiny branch that fits on the back of a trailer and goes from town to town. Bank of America has branches that are mobile and drive out to communities in the midst of emergencies to give cash where needed. But not all concepts of rethinking the branch are equal. For example, a bank branch and coffee house may encourage people to sip the mocha’s and surf the internet but it doesn’t necessarily promote interaction with bank employees that is profitable and productive.
  2. Contrary to popular myth, it is possible to close branches with less than 5% customer attrition. Look at customers, volume and geography in one united consideration. Customers in fact do their banking in almost all cases at multiple branches: the ones close to where they live, where they work, and where they have other activities during the day.
  3. Expect the biggest changes in bank branches to occur on the platform side. Bank branches will resemble more financial adviser offices than the branches we’ve come to know. It will all be about deepening the relationship between banks and their customers in areas such as investments, small business loans, and mortgages.

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