As the total number of retail branches in the U.S. has declined in recent years and the role of the branch itself continues to evolve, financial institutions are taking a hard look at their branching strategies to determine the optimal delivery model. One of the more popular topics of discussion around branching these days is the concept of small footprint retail branches, often called “micro-branches” or “mini-branches”. We have also seen large banks such as Capital One and Wells Fargo pilot micro-branch prototypes, which has garnered a significant amount of attention within the industry. According to a survey by Bankography, the average branch footprint has dropped nearly a quarter since 2006. So, what is a “micro-branch” and is it right for your organization?
First, let’s put some definition around the term micro-branch. Regardless of the name one chooses, we are generally referring to a space that involves a much smaller footprint, equipped with smart technology and that is heavily branded. There are many variations of this concept, which sometimes might involve the use of a shipping container or modular unit that is customized for retail banking needs. In other cases, it might be a 1,200 square foot freestanding branch that is outfitted with ITM’s, VTM’s or a small number of universal bankers.
Next, let’s address the question of why financial institutions are evaluating this model. There are three primary factors that typically drive the interest in a micro-branching strategy:
- Speed to market. Organizations are looking to more quickly increase branch density in their market area.
- Minimize risk. Real estate in a given market might be extremely scarce or expensive, making a traditional branch investment more of a perceived risk.
- Lower Costs. In addition to lower land and construction costs, the micro-branch model offers the potential to provide banking services at lower operational costs.
While these are certainly attributes that make micro-branching appealing, it is by no means a branching model that fits every organization. At Momentum, we always recommend that our clients take a holistic view of their branching strategy to determine the best approach for everyone it will impact.
Some considerations to keep in mind:
- Is this type of branch model consistent with your brand promise?
- What is the right balance of staff and technology to meet the needs of your members while making the model effective? Do you have the staff and the enablement capabilities to support this model?
- Do you have the technology infrastructure to support a move to this model?
- How does this model and targeted locations position you against competing financial institutions?
- Does this model fit the needs of the community the branch will serve? Are the demographics of the community such that they prefer less technology and higher touch interactions, or is it highly tech savvy?
In addition to the above, we recommend that organizations inform these discussions with data, such as a market analysis, branch network analysis or a predictive market analysis.
In the end, the decision on whether micro-branching makes sense for your organization should include consultation with professionals who can provide objective guidance. Our team at Momentum would be happy to discuss your situation and provide insights to help you make the best decision for the future.