Inside Financial Services

Bleak Bank Benchmarks

A new study provides some numbers that should give retail bankers pause

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I was reminded yet again why Cornerstone Advisors of Scottsdale, Arizona is one of the most insightful banking consultants around when I read their new study on retail banking. It is a data nut’s dream-and particularly timely now, as the traditional branch network faces huge challenges. Cornerstone tends to work with banks with between $1 billion and $60 billion in assets, and occasionally surveys them for purpose of publishing benchmarking studies. Some of the results of this new study are eye-popping and, if you’re a retail banker, troubling.

You can order a copy at Cornerstone’s web site. If you work in the retail banking business, I urge you to.

Here are what struck me as Cornerstone’s three most important findings:

1. Very little actual selling activity takes place in the typical bank branch.

2. The amount of selling and servicing in the bank branches is declining.

3. By virtually any measure, the gap between the best-performing quartile of branches and the bottom quartile is huge.

Take a look, for example, at what goes on at the typical bank branch:

Per Branch per Month, on Average:

Retail Checking Accounts Opened 16.9

Business Checking Accounts Opened 3.2

Direct Consumer Loans Originated 4.2

Small Business Loans Originated 0.6

Total 24

Your eyes are not deceiving you! In any given month, the typical bank branch opens just 17 consumer checking accounts, on average (and also closes an average of 15!), and opens just three business checking accounts.

Second, servicing activity (i.e. teller transactions) and product sales in bank branches are in decline:

Per Branch per Month, on Average:

2007 2010 Change (%)

Retail Checking Accounts Opened 18.7 16.9 -10

Business Checking Accounts Opened 3.8 3.2 -16

Not a good trend! The study also rank-orders retail branch activity by quartile. As I mentioned, the differences can be huge. Take a look:

Per Branch per Month:

Bottom Top

25% Median 25%

Retail Checking Accounts Opened 11.3 16.9 25.0

Business Checking Accounts Opened 2.4 3.2 4.6

Direct Consumer Loans Originated 1.9 4.2 7.2

Small Business Loans Originated 0.3 0.6 1.0

Total 15.9 24.9 37.8

One looks at those bottom-quartile numbers and wonders what bank managements are thinking.

This Cornerstone study is important, in my view. Branch networks are operating under heavy fixed-cost pressures even as they face growing competition from cheaper, more convenient delivery channels. From what I can tell, at too many banks the default strategy for dealing with the problem is to hope for interest rates to rise. That won’t be enough. Benchmarking analyses such as the one Cornerstone provides can help bankers figure out which of their branches are underperforming, and why. The sooner banks start doing that, the better for their shareholders.

What do you think? Let me know!

9 Responses to “Bleak Bank Benchmarks”

  1. Anonymous

    A new monument style Key office was just opened not far from me. Threre are four established competitors within 200 yards of this office in a built out low growth area. How they justified the economics on this office is a mystery. The only way they can grow is to take market share from the other banks. Would seem to be doomed to be in the lowest end of the lowest quartile. If anyone can justify this to me I would love to hear it.

  2. herby325

    tables above do not show “retail branch activity” (e.g. teller transactions) … of course we can all agree that the trend is down and will continue to slide … the challenge for the retail banker will be to design a customer contact point that is both cost effective and customer service efficient. Some banks have been experimenting with Kiosk type outlets in e.g., department stores. The jury is out whether or not this will work.

  3. Bill Dunnell

    Interesting data. Thanks for sharing. On a side note I recently moved my business checking from BAC to WAFED in Seattle. The difference to me was that when I walk into the BAC branch I was always a stranger and needed pins and passwords. At the WAFED branch I walk in and am greeted by name. The transactions are simpler, faster and more secure due to the relationship with the tellers. Going to the bank is no longer a dread.

  4. sgr

    Unfortunately, human nature is such that management becomes more interested in defending the way they’ve always done things than in dealing with the new realities of our industry. Blaming the economy masks the fact that technology has altered customers’ preferences. Think Barnes and Noble, Blockbuster, etc. Their network of stores went from being their competitive advantage to their albatross within a decade.

  5. sgr

    Unfortunately, human nature is such that management becomes more interested in defending the way they’ve always done things than in dealing with the new realities of our industry. Blaming the economy masks the fact that technology has altered customers’ preferences. Think Barnes and Noble, Blockbuster, etc. Their network of stores went from being their competitive advantage to their albatross within a decade.

  6. SW Pilgrim

    Spot-on. Internet banking on the upper end and non-bank storefronts with commercial hours ,transactional pricing and flexible overhead for the working segment have left the “typical” branch a broken piñata whose real estate is far from highest and best use valuations.Even the AARP segment no longer visits a bank branch voluntarily. RIP, bricks-and mortar!

  7. Stavo Yepremian

    Even here in Yerevan one of oldest cities in the world I see this with bank shops. Now here in Armenia we do the bank work most on internet. Bank shops empty in the day if not for the old ladies. Thank you Mr. Thomas to you and to Mr. Matt Stichnoth for many good articles on the bankstocks.com

  8. rivvir

    Good points by your readers, no? Are there any figures available on the internet banking? It would be interesting to see the totals, including internet, for both the 2010 and 2007 periods, and then make the comparisons. I’m sure it could also be taken much further, such as where the highest % of internet customers are concentrated (perhaps in the areas which contain the bottom quartile branches). I’m nowhere near a marketing guru, not even a novice, but i think i can see some important facts that need to be uncovered and then used.

  9. TX Banker

    My bank is a small community bank of approximately $300 million in assets. I believe credit unions in our markets are directly responsible for our down trend in account openings. We are a C-corp effectively paying 34%, they pay no federal income taxes and don’t seem to have the same limitations on who can be a member as was the case in the past.

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