Maintaining Branch Profitability in a Changing Environment
The debate continues to rage in the blog-o-sphere. "Branches are obsolete. . . ." "Branches are critical to market share. . . ." "Branches will be extinct in our lifetime. . . ." "Branches are still where most account relationships begin and grow. . . ." "No one needs a branch for any transaction. . . ." "Millennials and Gen-Yers think branches are important. . . ." . . . . and so on. This article is not about that debate.
There are some facts that all sides agree on. Monetary transaction activity in branches is declining. The total number of branches in the U.S. for banks and credit unions is flat or beginning to decline. The average number of employees per branch has declined. Alternative channels to conduct financial transactions are expanding and evolving rapidly.
No matter which side of the debate you are on, it is more difficult for branches to be profitable today than it was even a few years ago. If a branch is going to be open then it better be as efficient as it can be. This article is not about branch transformation. It is about making existing branch operations more efficient so they can be viable while branch transformation shakes itself out.
As recently as 10 years ago, servicing transactions was a primary activity for branches at most financial institutions. Because the average number of tellers per branch was significantly higher than it is today, optimizing teller schedules and performance was worth a lot in real dollar savings. In today’s environment branches may or may not be the dominant transaction generator, and dedicated tellers have been pared to minimum levels. The low-hanging fruit is simply no longer available.
Maintaining or improving branch profitability requires serious effort across a broad front.
- Everything has to be up for consideration: people, processes, procedures, procurement, planning and performance. Most employees are comfortable with inertia. They do not like change. While change can be incremental, it must be an accepted part of any effort to increase efficiency.
- There are only two ways an existing branch can be more profitable. Generate more revenue or reduce expense. On the expense side there are only a couple of ways for efficiency to translate to an actual reduction in expense. Reduce staff or reduce out-of-pocket expense. Reduction does not necessarily mean reducing headcount or expenses in the branch. It means a reduction in total expense for the institution. Branch capture is an example of this. If anything, branch capture meant an increase in equipment and workload for branches, but it was more efficient and cost-effective for institutions.
- The logistical cost of implementing anything in a branch network is significant. The short term cost will outweigh the short term benefit most of the time. Increasing operational efficiency in a branch network requires a perspective measured in years, not months.
- There is no one right answer for every issue in every institution. There are solutions that are appropriate for your institution, your employees, your market, your management and your budget.
- Many small improvements really can add up to a significant positive impact on profitability. However, it must be coordinated and planned. Improvements rolled out piecemeal will have higher implementation and training costs, will not create synergy with each other, and will have less impact on the total operation.
Improving efficiency in a way that has a material impact on profitability will be made up of many different initiatives. To succeed it needs to look, feel and actually be one effort. Employees should perceive it as a continuous process where being more efficient becomes part of their daily business practices.
One way to help the project feel like and be one continuous effort, is to limit the number of different programs, websites or tools used to implement changes. If one initiative is a spreadsheet, another is an email form, another is a web page and another is a program, it will be difficult to achieve continuity technically or from employees’ perspective.
No matter whether you think branch transformation will occur in five years or fifty, it makes sense to maximize the contribution of the existing branch network to the institution’s success. Projects to improve efficiency enough to have a measurable effect are not easy. Given that total costs for the branch network are one of the largest line items in the budget, “easy” should not be the deciding factor.
We invite you to take a look at the StaffPro® Branch Resource Management system. In addition to a comprehensive set of features to optimize normal branch operations, StaffPro is a solid infrastructure on which to base a long term efficiency project. It includes analytics, process automation, forms, performance measurement and much more. In addition, the system was created so that custom modules can be added efficiently to perform and integrate almost any task. StaffPro provides a consistent user interface and environment to deliver and manage many different efficiency initiatives.