In this episode of the Believe in Banking podcast, Gina and Juliet discuss the resurgence of investment in the bank branch and Adrenaline’s new report “The Branch Advantage: Essential Retail Strategies for Banking Industry Leaders.” Their conversation covers how major banks like PNC, Chase, Bank of America, and others are announcing significant investments in bank branch expansion and renovation, indicating a broader banking industry trend. They spotlight three examples of financial institutions featured in the report – VeraBank, Virginia Credit Union, and Guaranty Bank – and how successful branch transformation strategies helped each institution gain advantage out of this critical channel. Essential to this success was defining a “North Star” experience, which identifies a clear vision and purpose for the branches across the network. Finally, they discuss original industry data that finds that banks and credit unions that invest in branch transformation are seeing significant returns, including higher deposit growth relative to the market.
Text Transcription
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.
Gina Bleedorn (00:18): Welcome to our podcast for Believe in Banking. I’m Gina Bleedorn, President and CEO of Adrenaline.
Juliet D’Ambrosio (00:24): And I’m Juliet D’Ambrosio, Chief Experience Officer at Adrenaline.
So Gina, I know that you saw the really hot off the presses news that our team at Adrenaline has been buzzing about this week. It was just published a couple days ago, I believe on November 8, that PNC Bank has announced an additional $500 million in their branch investment. That is literally doubling their planned branch openings to 200 new branches over the next five years. This is in addition to the $1 billion that they had announced in February looking to both build new and renovate their entire network. And so there’s been a ton of buzz around this recent announcement and what we’re talking about. What it really seems like is there were so many announcements that all came at the beginning of the year. There was Chase, BOA, PNC, Huntington, TD Bank, all of whom made announcements of very significant investments in branch networks and branch openings, new branch openings as well as renovation.
And it was sort of a line in the sand or a flag on the moon or whatever the right metaphor is that the branch is back, baby. There’s a resurgence that’s happening, and I think the industry, at least we at Adrenaline, were sort of wondering, is this a blip? Is it real? But now with this additional news from PNC, this is not an aberration. It’s truly a trend, and I’m interested in how we’re going to continue to see this exact trend of the retail resurgence play out over the coming years as the trend moves from the biggies down to super regionals, regionals, and the community banking and credit union sector. And there’s a reason for this that the biggest and brightest are making this investment in the branch, and it is because this is from a very recent McKinsey report that 72%, nearly three quarters of new sales happen in the branch channel. So we’re seeing this investment because the banks and credit unions know it pays off.
Gina Bleedorn (2:53): And interestingly, we’re seeing it in all segments of the market from mass market to wealth to even now, underserved. Chase made a big announcement just a couple of weeks ago about a new branch investment opening 75 new community centers in underserved markets, and this is in addition to their JP Morgan branches targeting wealth. So, now it’s happening across all segments of the market. It’s also happening across all sizes of institutions. Even though the headlines are just the bested and brightest, as you mentioned, Juliet, the big guys we’ve got even just at Adrenaline, over 150 banks and credit unions we work with directly. And we’re seeing it across the board from institutions with a couple of branches to institutions with hundreds or thousands of branches.
And that is because of what you just said about all of the data is showing not just the national data, but the data at the individual institution levels that the sales are happening not just in the branch, but because of the branch and younger people are trending up with their use of the branch. All of that is ultimately because financial advice and problem resolution is hard to commoditize and it’s hard to do digitally. On top of that, when it comes to finances, that is at the root of people’s wellbeing and existence. So, it is foundational and people want people. That’s all the reasons why it’s happening. But beyond the big guys, and some of those are our clients, TD and PNC are both we’re partnering with them on branch transformation, but we have many community clients as well that are doing the same thing at smaller scale. And we wanted to talk about a few of those.
Juliet D’Ambrosio (04:44): Yeah, it’s interesting that you mentioned some of these examples of clients that we are working with directly of all different sizes. We highlight their stories in our latest report. It’s called The Branch Advantage: Essential retail strategies for banking industry leaders. In this report we cover this exact phenomenon that we are seeing across the industry, which is not only the resurgence of the retail channel, but really diving into the strategies that each of the financial institutions are looking to pursue and ultimately gain advantage out of. This is a critical channel that they have to leverage in a way that you just cannot get the same type of benefit from digital channels at all. And we’ve talked about the PNCs, we’ve talked about TD and Chase, some of the really big banks, but let’s scope into a smaller community bank, VeraBank out of Texas. Talk to us a little bit about how they have sought to transform their branches and therefore benefit their entire growth as an organization.
Gina Bleedorn (06:04): VeraBank is one of our favorite clients and stories because it goes back a long way, and we can really now prove out the true value of network transformation. It’s also run by incredible people. Their president and CEO, Brad Tidwell, has been on this podcast before and is the great friend. He has led this bank to make some hard decisions about where to spend their money and also where to go. They started in 2015 and they actually began with a renovation program for the purpose of getting more efficient with staff and integrating teller cash recyclers (TCR). They reduced FTEs by about one and a half per branch, and they went and did this across the network. Then they made an acquisition, expanded into Austin, actually had to change their name along the way. They were a Citizens National Bank of Texas. There were already many of those, and we rebranded them to VeraBank.
They have now a new North Star that was iterative of their previous renovation designs, but has now really taken it further. They have completed about 70% transformation of their 40 branch network, and they are on a great clip to continue transformation in an iterative cycle. What is most impressive about this journey over the past nine years is that they’ve actually achieved 154% ROI across the branch network. And this was largely because of efficiency plays with 93 of percent of transactions occurring without tellers because of the TCRs. But there’s also been an incredible growth play.
In this report Juliet just referenced, we’re really excited to unveil this to the market. We focused with these case studies on actually the bankers giving advice to other bankers about what they learned in their branch transformation process. And one of the things that VeraBank said, “The flexibility and the revelation of having tethered staff and the open design was really game changing and also that they realized the things they can do and the things they needed to partner to do.” Ultimately, what VeraBank has done so well over time is develop a North Star as we talk about, as best practice, and iterate it as they go both backwards and forwards, so forwards into new markets, new expansion while they go backwards into investing and optimizing what they have existing. So, they started with strategy, they’re executing and iterating, and they’re doing it in a textbook best practice way.
Juliet D’Ambrosio (08:52): Yeah. One of the great quotes that we have in our report that Woodie Tipps, he’s wonderful person, just like Brad, he’s their EVP and Chief Retail Officer at VeraBank. He said, “We really do believe that a well transformed branch is a billboard. It’s a beacon out there to attract new customers.” And what we see here that VeraBank deployed is this is really about putting a stake in the ground and using that North Star to celebrate VeraBank and its commitment to the community. And they become at that point, new customer acquisition magnets, if you will, with a really well executed North Star branch. And I think it’s interesting to see that application of strategy – how starting with the strategy first thinking through North Star and then how you will deploy it. With a very different part of the world, different type of institution. Virginia Credit Union, they’re about $7 billion [in assets]. They’re located obviously in Virginia, and how they took a strategy first approach to their branch transformation, but used it in a very different way. They have a different story to tell.
Gina Bleedorn (10:12): Virginia is an incredibly run credit union, wonderful leadership, and they’ve recently merged with Member One Credit Union out of Roanoke. So in total, they’re upwards of 50 branches that they can now benefit from, the same as VeraBank having a North Star. Several years ago, maybe five, six years ago, when we started working with them, they realized they needed to modernize. They have their North Star and they have it iterated and applied in multiple markets, in multiple formats, in urban, in suburban, in smaller, in larger. That then creates really a toolkit for transformation that they can apply across their network in varied tiers and in varied priorities of markets where they want to apply it. Also, like VeraBank, they transitioned to a universal staffing model that allowed them to optimize their staffing.
They started with test and learn pilots – that’s also what we absolutely say to everyone. Don’t begin with 10; begin with a couple, ideally, even with one, depending on how much time or what locations are at your disposal, because you will learn from every application, and once something is physical and done in the ground, it’s hard to redo it. So that’s why testing, learning and evolving is critical. What they have said is some of the advice they give is using data to make decisions, as of course we always preach. And also staff feedback. That’s huge, actually. Evaluating the experience you create once they are lived in and operated in gives you so much as well as member feedback for the same reason.
Juliet D’Ambrosio (11:59): Yeah, Virginia is such a great story, and Gina, nobody paints a picture with words quite like you do, but it occurs to me that these reports, in addition to some of these really juicy insights that we’re giving around these case studies, there are also images. We can also see what the results look like. So anyone who’s interested in these stories, I would urge you to check out the report. I’d love for us to talk next about Guaranty Bank. One of the greats, Hue Townsend, the CEO of Guaranty Bank from Mississippi, and how their story around North Star design around a strategy first approach to transformation has played out over time. They’re sort of in between a VeraBank and a Virginia Credit Union.
Gina Bleedorn (12:51): Guaranty is also a favorite story because of the way Hue and that bank has done things in the right way, in our opinion. They began in the Delta of Mississippi and really grew up interstate 55 North because that’s where the growth was, and they grew market by market. They would find bankers in each market and establish a presence there. Then they jumped into Memphis and that’s their growth area. They made an acquisition to get into Memphis, and they have had incredible success with very much a hub-and-spoke model, specifically using ITMs and small format, using smaller branches versus larger branches based on opportunity. And they have grown by also iterating as they go.
They have about 20% of their branch network today as an advice center model, and that’s because that’s what they believe they need. They have a lot of legacy markets as well, and they have optimized as they have grown, consolidating in markets and even reducing footprint in markets where opportunity wasn’t as great, while still continuing to serve those markets.
One of their biggest points of advice, and it’s a great one, is that culture does take time to shift, but the longer you put things off, the harder it will be to catch up. So, make sure going in, especially of course when you’re making changes to existing branches, that culture and behavior change takes some time. But once they get it, they get it, and they love it. And they’ve had success in rural Mississippi with adoption of standalone ITMs because of the rigor they put into bringing their staff along, bringing their communities and customers along. So if it can be done in rural Mississippi, it can be done anywhere in the U.S., and we’re excited, see how Guaranty will continue their growth in the way they have to date.
Juliet D’Ambrosio (14:55): What I love, based on your point about rural Mississippi, Hue Townsend, great quote. He said, “Our updated branding and our branches took us from a hometown bank to something everyone wanted to be part of, something cool.” And just the fact that you’re calling a bank branch cool and that it gives this organization a cool factor, I really can’t think of any higher praise. We often talk about the power of brand and brand experiences as creating just a gut feeling. It’s something that the customer, the community, the passerby doesn’t stop and think about, oh, that’s a freestanding ITM or their staff are tethered from the teller station, and so I can have a more. It’s a more organic advisory experience.
That’s not what’s going through the customers or the prospect’s minds. What’s going through their minds is that that’s cool. I want to be a part of that. I feel welcome. This feels good. This gives me a sense of trust, all of which are levers that can be very intentionally pulled or pushed, whatever the right word is through design and through thinking through it strategically. So, kudos to all of our clients that are undertaking this work and doubling down on what you said, Gina, that Hue mentioned that culture takes time to change. Any change requires an investment in really thinking and time in bringing people along with the change. But once you do, it’s utterly worth it. And as Hue says, “The cost takes care of itself once you get it done.”
I’d love to take that idea and talk a little bit. Maybe we can drop a few hints and sneak peeks about what our research found around some of that ROI of investing in the branch.
Gina Bleedorn (16:55): We did the first ever study longitudinally of client branch transformation over time and banks and credit unions of varying sizes over a five-year period, quantitatively and qualitatively and a 10 year period quantitatively only. And banks and credit unions that were actively investing grew more and grew faster than the financial services sector at large.
Juliet D’Ambrosio (17:22): Gina, just because I know that we have bankers listening to this podcast and they will have questions about the math and the methodology, I’d love for you to talk a little bit about how we arrived at, just what our methods were for the data analysis and how we arrived at our findings.
Gina Bleedorn (17:41): We looked most notably at deposit growth, but we leveled it against growth of the market. So, it was all about relative deposit growth related to the market. We also know we’ve been in a high-deposit growth environment at some periods during the last 5- 10 years that we’ve looked at. So we have adjusted it, and that adjusted number ends up showing a 2.3% return on investment, which is extremely high. If you unadjust it, because we probably were overly conservative for Covid and a number of other factors, those projections actually increased to above 13%. So even looking very conservatively, we’ve got some significant ROI here.
Juliet D’Ambrosio (18:30): What’s interesting to me in thinking about the financial institutions that have invested in branch transformation and some of the very real gains that they are seeing that you just discussed, Gina, is really a recognition around the evolving purpose of the branch. We’ve talked about this before, but I think it’s important to dive into how that purpose has evolved both for consumers and for the institutions themselves. For consumers, they’re looking for we talked about that billboard, that beacon of welcome. They’re looking for the front door to come in to then have more advisory conversations. In other words, just talk to experts about money, which they are seeking to do. And they have a unique sense of trust in banks to deliver banks and credit unions to deliver that kind of advice. They’re looking for human service, eye-to-eye, person-to-person conversations that are about one of the most critical and emotional parts of our lives, which is our money. Then the basic transactions that there is still a role for the branch to play there, but one that is supported by technology in the ways that it can be.
So, the purpose itself has evolved and then banks and credit unions see a purpose around, and this is very much borne out by the anecdotal conversations we have with our clients, they are looking at their branches as acquisition, playing a true role in acquisition of both new customers, new deposits, cross-selling, and having those deeper relationships with their customers. They’re looking to build loyalty and then ultimately create an efficient channel for both their members or customers, but also for their own staff and driving efficiency. This is a big change. It’s almost a complete reversal almost of how the branch purpose grew up. And I am curious to hear a little bit about how we have seen that purpose be reflected in the strategy of the North Star. We’ve talked about it a lot on this podcast. We talk about it a lot with our clients. Gina. How would you define the North Star?
Gina Bleedorn (20:59): Yeah, the North Star is really a vision for what retail branches should be for your institution. And that vision is both aspirational and also practical. It’s based on what you just described, Juliet, as what is the purpose for consumers for branches, and how does that ladder to the purpose for you? So basic transactions for consumers, there’s a purpose and an opportunity for serving those efficiently, only when virtual channels can’t [work]. For human service, it’s about generating loyalty and really attrition mitigation for you. For getting advice, that’s an opportunity for cross-sell and what consumers see as the front door is an opportunity and a billboard and really awareness that’s acquisition for you. And so the trick is to figure out what levels of each purpose should be applied to which markets that you have and what overarching purpose you want to drive to.
So what’s current state versus future state and whatever that is, is probably going to change not just over time, but change within markets within your institution. And so few today really have solidified a purpose, a strategy, a vision just for retail that then needs to ladder into what are the types of formats we are designing. What are the experience we’re creating within those formats, but how does it ladder to business purpose? That then is ultimately manifested in design in the pretty pictures in the things that we see as your North Star iteration, your latest version of your North Star, a flagship here, a new micro branch there. But all of that needs to ladder up to a bigger strategy and purpose. And creating that for retail is of critical importance right now more than it ever has been because everything has changed, and it’s going to change even more and even faster. So, if you have not thought about solidifying a North Star today, you are already behind and need to do that as fast as you can.
Juliet D’Ambrosio (23:13): Yeah, and Gina, you use the word change a lot, and the only constant as we know is change. What we’re seeing, and I think the meta takeaway from the report, but also from the broader industry that the report is just reflecting and reporting on, is that branch change ultimately will deliver a very significant edge for both the financial institution’s efficiency and also customer service. And just a few of those changes, the physical space can unlock more opportunities to engage with more members or more customers. It also sends a signal that the bank is invested in the community when there are updates or changes happening to the branch. The staffing will become not only more efficient, but it really becomes a better place to work. If you have a new or refreshed environment that is designed around a new purpose that helps to empower you as staff, it reduces attrition. It just makes for a happier work environment.
There’s a great benefit of going through this process and especially having that North Star, which becomes a framework that’s going to expedite decision making – you know the framework, the right questions to ask, and you know how to make decisions in a way that is most strategic. And ultimately it gives real clear communication about the branch markets and the priorities that the bank has. And so the benefits we can keep enumerating them. Those are just a few of the benefits of change, but what we’re seeing overall and what the industry is reflecting goes back to how we started this conversation with PNC and the other big banks announcement is that the retail channel and the investment in branch transformation and branch change is a key to unlocking success.
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, believeinbanking.com.