Academic journal article ABA Banking Journal

Rethinking the Branch

Academic journal article ABA Banking Journal

Rethinking the Branch

Article excerpt

In rural Otsego County, New York, 120 miles north of New York City, Robert Moyer struggles to define the purpose of traditional branches in his market. Moyer is vice-chairman and CEO of Wilber National Bank, Oneonta, with $380 million in assets. Going into the summer, the bank had 11 branches, but was negotiating the acquisition of five more.

"Customers here want provision of typical banking services from a friendly employee who has been with the bank a long time," says Moyer. Such customers, he adds, do not take to automation as rapidly as their urban counterparts.

"The struggle is to deliver those services economically," says Moyer, adding that this is increasingly difficult to do in an environment where rural banks are retaining the small-dollar accounts and losing the large-dollar accounts to higher-yielding investment products.

"Some say you can't make any money in branches of $10 million or $15 million in deposits," Moyer continues. "We do make money on them," but the fight is uphill. The branch serves mainly as an access point to the payments mechanism--the ability to cash checks and make deposits--rather than a retail distribution center for nontraditional bank products, like mutual funds or annuities, where the industry clearly is heading.

"But how many people in a rural branch will buy annuities?" asks Moyer. "Even if you market the heck out of these products, some branches are in towns of 300 people," he notes, "and you still need to deliver the payments mechanism."

Moyer's quandary is hardly unique. Now that they've been successful getting people to stop coming into the banking office for routine transactions, banks around the country are wondering how they can get them back to sell them new products and services, like mutual funds, or should these, too, be sold by phone or computer?

The heart of the matter, of course, is the more fundamental question of what business banking is in, and where banks fit in the financial services picture. As James McDermott, president of Keefe, Bruyette & Woods observed in a recent speech, "The issue of franchise obsolescence is a real one for the banking industry over the next ten years."

The questions regarding branches are whether existing facilities are a good means to help keep the franchise alive, or whether they are a drain on banks' resources. As the remainder of this article demonstrates, there are numerous and varied opinions on the subject, which, taken together, may assist bank CEOs to shape their own strategies.

DELIVERY OPTIONS. For his part, Moyer is mulling options for delivering bank services in the future, including franchising branches, similar to convenience store franchises. In such a scenario, a bank would supply the banking resources and technical expertise, and the franchise operator would maintain the physical presence in the community but from a leaner, more efficient outlet than the traditional full-service branch.

Another thought is to combine rural bank facilities with those of other service providers, such as the post office. The operations would be run separately, of course, suggests Moyer, but the general-store approach to providing banking and other services under one roof may be worth looking at.

BRANCHES HERE TO STAY. "There's always going to be a place for a branch," believes Robert R. Mauldin, CEO of Centura Bank, a $3 billion-asset institution in Rocky Mount, N.C. "There's always going to be some need to sit down and do business face to face. But routine transactions don't necessarily have to be handled by an individual or in a branch."

Centura's market surveys indicate that upper-scale customers tend to use the branch less for routine banking transactions. "Instead, they're using electronic means, whether that's an automated teller machine, a credit card, drive-up windows, or something else," says Mauldin.

David Cates, chairman of Washington, D. …

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