Brett King and the Death of the Branch: Part 3
There has been some great analysis done on branch profitability over the last few years, and in markets like the US the data means we can very precisely predict when a specific branch is likely to close in the near-term. It turns out there are some fairly predictable pain points or metrics that are warning bells for heads of distribution. The first is simply number of deposits.
If you have a branch that has less than $15 million in deposits your costs are 10 times those of a larger branch. This means that 18% of branches in the U.S. today (or around 15,000 branches) are on the verge of collapse. On average these branches are losing around $50,000 to $75,000 a quarter. You can see a detailed analysis here from the team at Optirate.
The argument that the branch enables better cross selling and up selling of products to existing customers is also a myth. Here’s a great quote on this from Bancology:
Ten years ago the average cross-sell ratio in U.S. retail branches was 2.2 products per household. Today, after years of investments in sales training and incentive programs, the average cross-sell ratio in US retail branches is… submit your guesses… 2.2 products per household! Yes, you read that correctly: 10 years of sales management programs, zero change in the depth of the relationships we’re establishing. Across the industry, half of all relationships still include only a single product – Bancology Quarterly Report September 2011
For the bookstore it was eBooks and the Kindle emerging after the successful introduction of the new category of bookstore – Amazon’s online bookstore. For music it was iTunes and the iPod, accentuated by the loss of the “Album” as the primary product. In video rental it was the destruction of the DVD and the VCR by movie downloads and streaming services like iTunes, Netflix and Hulu. For film it was the emergence of the digital camera and the smartphone camera. What will it be for banking?