Balancing Digital and Physical Delivery in Banking

In this episode, Sean and Gina discuss post-COVID consumer trends and how banks are successfully balancing digital engagement with physical delivery. As consumers increase their online and mobile usage, banks are investing in those experiences. And while digital may have been banking’s roadmap pre-COVID, it has even more urgency now. As the industry shifts to meet these demands, the role of the branch remains critical for acquisition and growth, so banks must look at formats and optimization as they move toward a more ideal omnichannel state.

Text Transcript

Intro: This is Believe in Banking, a podcast series for decision makers, influencers, and leaders, featuring experts taking on the financial industry’s most pressing issues with insight and empathy. The podcast features information and conversations designed to enlighten and empower. Here are your Believe in Banking hosts, Sean Keathley and Gina Bleedorn.

Sean Keathley: This is our podcast for believe in banking. I am Sean Keathley, President and CEO of Adrenaline.

Gina Bleedorn: And I’m Gina Bleedorn, Chief Experience Officer at Adrenaline.

Sean Keathley: Excited to continue the discussion today. And we are continuing to track these trends and updating how people were thinking about channels as we’re now deep into this COVID environment, we’re coming up on the year mark and many of the experiences in financial services are being shaped by the consumer’s experiences and other industries. But one of the things that’s undeniable and Gina, you may want to dig into this a little bit, some of the statistics around the engagement levels that are going on with digital, and that is no surprise given the safety concerns and what we’ve all been forced to do, but you’ve got these two things to worry about now enhancing your digital experience and as we’ve been talking about, the branch is also a key part of the strategy. Do you want to talk about that, Gina?

Gina Bleedorn: Yeah. We’ve recently published on around up of some notable trends. They’re sourced from Financial Brand, McKinsey, MX, Capital Performance Group, and others brought together in a way that is focusing on some of the most relevant topics right now, this idea of digitized transactions certainly being one of them, also being one that’s not new, but a notable statistic. 78% of consumers have increased online and mobile banking usage. Again, not shocking, but significant. 8 of 10 are online banking and mobile banking more. And as a result, 80% of financial institutions are investing in digital and 58% of that specifically investing in mobile technology. So one of the things that now we ask where and how are they doing that? So, Sean, what are some of the things we’re hearing from clients as to the challenges and opportunities they face in accommodating more digital?

Sean Keathley: Well, it is just another layer of complexity. We’ve heard from a lot of the community sized organizations enhancing digital was on their roadmap coming into 2020. And now it has to go to the top of the list. I’m also excited to start to think about some of the biggest players in the space and we’ve actually, tease out, we’ve got some exciting guests we’re going to bring on. But the challenge does become, and we’ve talked to Brad Tidwell at VeraBank, how does a community organization compete with digital products that are becoming a necessity? And I think that balance is what people are looking for and trying to accomplish it, maybe through partners, through FinTech partners and other people that are helping white label products, as opposed to obviously community organization build a solution like a regional or national player might.

Gina Bleedorn: One of the other trends that was very surprising as far as the percentage of it higher than we expected, essentially a third of financial institutions are planning to merge or acquire this year 34%. What do we think about that?

Sean Keathley: Well, I feel like I was right. This is something I’ve been talking about. Two years ago is speaking to a group of community bankers, again, the average bank end of last year was around 300 million. And I told them, I thought that was too small to survive. It’s still may be an upsetting statement given so many are that size of an organization, but this is an example of what we’re talking about. It becomes very difficult to engage in digital channels, rationalized branches, worry about security, health, and safety, and have the resources. If you were 100-$200 million bank. One just the human capital component becomes very hard. So we’re going to see a trend. I think the statistic was 34% of organizations are thinking of merging, acquiring, that also includes branching networks because that is an output of M&A, or banks are shedding branches that are in overlap.

Sean Keathley: But the point is there’s going to be a lot of activity. And one of the big advantages to merging with someone is you’re increasing your resources and you’re able to apply more energy towards kind of this fight on multiple fronts to create the consumer experience. That’s right that is being spoiled by all the other consumer experiences. We’ve talked for years, Gina about you don’t get a day off when you talk about experience with your bank because the mobile app and the way they have customized their experience for everything they do in their life becomes more seamless.

Sean Keathley: And with money being so personal, it’s actually more important. So I think this is a kind of dual path trend we’re going to see in 2021 and beyond where there’s going to be a folding in digitization as part of your strategy, no matter the size of your organization and more and more organizations are going to be merging, and acquiring, and growing to fortify to deal with those challenges. And with that said, Gina, maybe you should talk a little bit about what has to change with the network, because, again, this is a dual front you’re facing the digital aspect and the physical aspect, and it is impossible to do so with the kind of legacy thinking of branches in terms of density, location, and size. So how are people going to balance physical network that matters with this increased focus on digital?

Gina Bleedorn: One stat that I am happy to see is that 11% are closing branches, but they’re doing so to reinvest in new formats. And those new formats certainly are many of them are going to be smaller with less operational cost in staffing and square footage, but 30% of institutions are focusing on growing new accounts. So there is as much if not more of a focus on growth as there is in reduction of cost in the network and that’s wonderful. Our fear was, especially at the beginning of pandemic, everything was going to just go to cut, cut, cut. And the fear with cut, cut, cut is that you’re cutting off lens and you’re losing your opportunity to grow. So that focus on growth is still there, but there’s just simply a massive, massive right sizing of the network. And you don’t need as many large locations and areas of lesser opportunity.

Gina Bleedorn: And when you start to look at hub-and-spoke clustering, because you can’t make decisions about any single location in isolation, when you look at that and you start to say, “Well, in this cluster of geographic area and market similarity, I can maybe downsize two of these branches. One could go to a micro location, one could turn to just and ITM or drive through format only. And suddenly I have great operational savings. I’m still getting most of the presence that a larger branch would be providing. And thus, the halo effect of what we have often talked about and the network effect of perceived presence, but I’m doing so at much less of a cost and something notable in the network effect is that the general threshold of critical mass seems to have reduced. And I’ll explain what that means. So as a reminder, the idea of the network effect is that you want your market share percentage to outweigh or outrank your outlet share or your branch share.

Gina Bleedorn: So if you have 5% of branches in the market, you want more than 5% market share in the market. What is typically been the case over the last many decades is that there is this critical mass that previously had hovered around 8-10% of the branch share that was required for the S-curve to turn positive for you. In other words, you need about 8-10% or so of branch share in your market to have your market share exceed. It seems that percentage has reduced to about 6% in markets of many different sizes. So that’s good. It means you need less actual locations and it is a combination of less actual locations and that perception, and that’s the big change in the network effect is that you can achieve perceived presence through smaller formats if they are clustered in a hub and spoke fashion in a way that strategically makes sense, again, based on market opportunity.

Sean Keathley: And it’s that balance we’re looking for, Gina. One of the things that we witnessed last year is the proof that this does make sense. There are countless examples of community banks and credit unions and smaller markets that they found ways through ITM, drive up, later into the year safe branch, maybe appointment-based meetings that were saying, a lot of times the people that branch into that area, maybe larger organizations had had their branches closed. And in every case, the people that were open one net new accounts and business by being open, it was that simple. The banks that closed, lost business. So that is kind of the thing you cannot do. Go into a neighborhood and expect to protect and grow your business with closed branches. You don’t however, to your point you’re making have to branch to the extent you did previously. Finding that balance for people is going to be the key. And as you talk about using analytics, using the right formats is going to be part of the solution.

Gina Bleedorn: Now, there’s best practices from retail and other industries that support this. Some people call it kind of a flag shipping model where you over invest in hubs, essentially, and under-invest in spokes, but as an essential service banking sits in in a pretty good position. And to think of like a Carvana they’re building towers of real cars that are theoretically virtual in markets to just signify their presence, even though their model is that you’ll never ever go there and they’ll give you a loan virtually and you’ll get your car virtually. And they’re doing that to do exactly what you said, Sean, to just be present in as big a way as possible.

Sean Keathley: The Carvana example, Gina is interesting right here in Atlanta. There’s two things that have opened recently. One is a Carvana on 75/85, as you’re coming up from the airport going through downtown and you head through the big neighborhoods, Midtown into Buckhead. And there it is right on the interstate and it is doing what you say, the network effect, it’s a big TV commercial, and that will absolutely drive more online car sales for them. If you were to get off on the Buckhead exit and go through the heart of Buckhead across from the W Hotel, what is not even open yet is a beautifully designed billboard. That is a branch for Chase. And one of the things I noticed as soon as they sign the released, three back lit blue logos went up before the construction even started. And it is the same idea.

Sean Keathley: They are looking to get more business in the heart of Buckhead by putting a location right, dead in the center. And they above all people know how important digital is and they’ve invested in technology. But as we talk about their ability to put branches in environments, they want business continues. And as you say, Gina, there’s other industry verticals that have been doing it forever and continue to do so. And COVID is accelerating the ways to do so. But for financial services is going to have to be a key part of the balance about digital and locations to continue to grow and prosper.

Gina Bleedorn: You mentioned commercials, and even though TV commercials are the kind of old way, although they still have a place, but in a quite more complex ecosystem of marketing and advertising, that is very much what every branch location is and we want the industry to think about them as such. They are investments in a commercial or a billboard. That said there is the necessity of marketing. That is also a factor. Branch presence alone, no matter how big or a big glass tower of cars, although that that’ll get you a lot of impressions, but the branch alone is not enough to get you the market share you need. We have seen another stat, 37% of financial institutions are expanding their reach through increased marketing investment.

Gina Bleedorn: So over a third are increasing their spend in marketing. We hope that they are doing it intelligently. We want to assume that they are, but a bit of advice we want to give is to be as a localized as possible in your approach to think about location based marketing as much as you can with as much mobile data and local data about customers. So you can even create lookalike audiences in and around your branches. As much as you can leverage the power of your physical branch by marketing in and around it, as much as you can. And that way each are building on one another.

Sean Keathley: Well, I think this is a good setup for what we’re going to talk about in our next episode. And that’s this idea of using data and intelligence to make smart decisions and this notion of looking for ways to have the network effect, have digital savviness, perhaps even save money or save enough to reinvest at the same time, think about the experience in the markets you serve so you can leverage your physical locations for growth.

Outro: You’ve been listening to Believe in Banking, a podcast series created to empower decision makers, influencers, and industry leaders in financial services. Be sure to also join us on our flagship site,