The Whys and Hows of Strategic Network Planning

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 Believe in Banking podcast. 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, we are very lucky. It is both our privilege and our pleasure today to welcome one of our colleagues. So we typically, when we have a guest on the Believe in Banking podcast, we are speaking to someone outside of the Adrenaline bubble. But today there is such a great conversation that I’m looking forward to having with our Managing Director of Analytics, Nick Mentel.

Nick Mentel (01:02): Gina. Juliet, great to be here. Long time listener, first time caller.

Juliet D’Ambrosio (01:06): I do want to give you your proper bio and intro, but I’m curious even because this happened a little bit before I joined Adrenaline about six years ago. Gina, tell us how we got to our analytics offering and what drove you to determine that we needed to be able to create an in-house department that helped our clients to be able to tap into the world of data A and B, understand exactly what actions to take with it.

Gina Bleedorn (01:43): It was really the same impetus that brought us Believe in Banking, which was wanting clients to have the best possible information so that the advice we’re giving them about how when and where to spend their money is the most informed it can be. And because of course we have done branch everything for a really long period of time, there were opportunities coming up with clients where I’m not sure if they were spending their money in the right place. And so if I’m asking that question, we should be able to provide the right advice to them moving forward. So thus the need to have a market databased practice and consultation offering was born and we set out to find the best of the best, and we found Nick

Juliet D’Ambrosio (02:35): And lucky for us we did. So Nick, I’d love to give you your very professional bio, but then I want to hear it straight from you a little bit. So Nick is our lead, our head of our data department. And in that role he supports our bank and our credit union clients as they help determine what growth and smart growth looks like for them. And he taps into all the data sources and opens all the spreadsheets and is able to pull it all together in a cogent, cohesive, go forward set of recommendations for our clients that help them determine where to go and what to do as they optimize their network. And so he has 15 years of experience doing that and he comes to us with some significant financial experience at Lehman Brothers at Barclays. And Nick, what have I missed? Tell us a little bit about yourself, your professional background and how you got to Adrenaline.

Nick Mentel (03:46): I appreciate that you hit the high points. So graduated from North Carolina in 2005 and moved to New York to work for Lehman Brothers, fresh face, young kid moving to the big city and worked in a variety of roles at Lehman. Funny enough, looking at the calendar, it was 17 years ago to the day that Lehman lost 45% of its share price. So it’s an interesting anniversary of sorts. That was an interesting experience. A company, a stalwart of Wall Street collapse and the repercussions that had. You mentioned Wharton, that was my off-ramp out of Wall Street and that was a great experience, but it was time to pivot. And then I moved to Deloitte from there, moved to another agency in Atlanta and then gladly landed at Adrenaline about six and a half years ago with a background that I would phrase as a combination of finance consulting and marketing primarily B2C marketing experience.

Juliet D’Ambrosio (04:43): So you were in other words, custom made for Adrenaline and to lead our analytics practice to serve all the reasons that Gina had mentioned about what we were trying to achieve for our clients as they look to get smarter about their growth. And I know that we all keep our eye on the market and the trends that are underway, but Nick, I’d love for you to set us up for this discussion by giving us the outlook of what we are seeing at a macro level right now that both community banks, regional banks, super regionals, nationals are facing. What is the industry landscape at the moment?

Nick Mentel (05:24): I don’t think it would be a surprise to anyone to see branch closure numbers over the last few years, really the last five to 10. This is an undeniable trend and there are certainly silver linings to it. We’re seeing really institutions of all size continue to invest selectively, where as they’re pruning their branch network at the same time. And it really varies by institution size as well. Undeniably there have been closures, but nationals and super regionals and regional banks have accelerated those closures in larger markets, whereas super community and the community banks that you call out and many credit unions have been stable if not growing their branch network. We continue to see an investment in the power of the physical branch and I don’t expect that to disappear anytime soon.

Juliet D’Ambrosio (06:13): Yeah, it started out with a doom and gloom scenario that you gave us with all the branch closures, but you finished strong. And it’s interesting because we talk a lot about the myth busting reality that is the branch renaissance or the resurgence. Give us a little bit more, I think around what you’re seeing in terms of the industry that are driving factors around both closures and openings and growth in terms of consolidation and other factors that you see at work.

Nick Mentel (06:44): So let’s start with the bad news. The closures themselves in branch teller transactions are down. Utilization of the branch itself has declined and that certainly varies by market, it varies by institution, but that certainly is an undeniable trend. And given that personnel and occupancy expenses are by far the two largest non-interest expenses for any institution, that’s where the money is spent and that’s where an institution can save if they’re not getting the utilization out of that branch. However, for all the hand wringing over a drastically evolving business model, the network effect is still an undeniable predictor of market level success. And let me take a step back and really explain the network effect. It is perceived convenience as an institution, perceived brand and branch ubiquity when a customer or a member or more importantly a prospective customer is considering their options, they will lean into convenience wherever there is an institution that has convenience and access in terms of physical outlets will psychologically play an important role in that decision making process. Really, this research has not wavered much in decades. We do tend to see outsized marginal returns from a deposit share perspective when that institution achieves typically six to 8% branch share. And we are fond of saying that no one wants to use a branch, but everyone wants one nearby.

Juliet D’Ambrosio (08:11): Nick, it’s so great to hear you mention the line about no one wants to go into the bank branch, everyone wants that nearby. Gina says that on stages and everyone in the audience’s ears pick up because they know that to be true. Gina, I’d love for you to talk a little bit about the role that you see of perceived convenience, especially when we think about fintechs, neobanks, there is the promise of convenience built in. What role do you see that playing and why is that network effect still so powerful now in 2025?

Gina Bleedorn (08:48): What Nick said about maximizing perceived convenience, minimizing capital outlay at the same, that’s the name of the game. How do we look as big and everywhere as possible and spend as little as possible? That’s tricky because I have to maximize every square foot. How do I make sure wherever I’m projecting my brand, it’s projecting as much as possible but not overspend on real estate? And that is some of the magic of the recommendations that Nick will give clients to help answer that very question. But when it comes to the heart of why perceived convenience is still a thing, it’s at the heart of why money matters and the psychological impact of money on people. It’s very much equated with safety and security. It’s kind of at the root of so many foundational human needs. And so for that reason, people want access to their money.

Jamie Dimon has famously said the nature of branches change, but people still go there because people want to see and visit their money even if they do that once every five years. And for that reason, a physical presence of some sort still has incredible weight. Now, as technology has sophisticated up relating different pieces of the banking experience from certainly just different deposit products, mortgage, certain types of investment accounts, and of course just money movement with the Venmos and PayPals, et cetera, that has enabled fintechs to get a hold of different parts of the financial market piece by piece. And that hold is increasing particularly around origination of new accounts.

That said, what also comes with that is a quick degradation of some of those new accounts. It’s kind of quick money, surface money. It’s often rate driven, but the longevity isn’t there and the quality of relationships isn’t there. And that’s where the physical presence and traditional institutions power comes in to combat that. But all that said, it is a threat because fintech’s share on the market keeps increasing with these little bites they’re taking and bigger bites that they’re taking. And so the need for traditional institutions to combat that is also increasing. And Nick, I’d love for you to share some of the recent data. What is happening with fintechs that we see right now?

Nick Mentel (11:31): Yeah, that growth is also undeniable. Our partner, Curinos, published a research study earlier this year indicating the dramatic growth of FinTech players in terms of checking account openings. So keep in mind these aren’t just deposits, but these are core deposits. In 2021, fintech’s accounted for 35% of checking account openings in 2024, that was all the way up to 47%, so nearly half chime, PayPal cash app, the names you’d expect have driven a lot of that increase. And this is the good news, to your point about degradation, the quality of those relationships isn’t there, even if the quantity is. So this same study demonstrated that a year into a relationship, a branch-based account checking account has retained about 73% of new checking accounts a year into that relationship. Whereas the digital account openings have accounted for just 38% a year later. So nearly a two to one ratio in terms of retention leading us to believe that those branch booked account openings are just stronger, stickier relationships.

Juliet D’Ambrosio (12:36): There’s something interesting in what you’re both saying, which is a play between quantitative factors and qualitative factors that drive growth. On the quantitative side, we have all of the financial considerations on the qualitative side, just the emotion and the focus on relationships that continue to show that the branch originated accounts last longer and are more valuable and enduring. And I am curious, Nick, I have heard you say that the kind of analysis that we do for our clients to help them unlock both from the quantitative side and the qualitative side, what that growth looks like for them. You’ve said it’s not rocket science. How do you begin to consider and solve all of the possible factors that could go into answering our client’s questions?

Nick Mentel (13:39): When we think about growth, the network effect is certainly the overarching principle we need to keep in mind. And so we’ll start there. I’ve talked about what that means, and again, this is a concept that is familiar in the industry. The CEO of Fifth Third, Tim Spence recently said, “we’re going to be way more successful building 350 branches in a single region in the US than we would be if we built three or four branches in the hundred largest cities in the US.” So this is a known path to success, but keeping that in mind, critical mass, which is really the output of unlocking the benefits of the network effect is that overarching goal so as to maximize the chance of de novo success. Now you said this is a rocket science and it’s true. The fundamentals of a market need to make sense for investment from a demographic perspective, we need to see household growth.

Ideally a younger demographic, as every FI is trying to get younger segment alignment in a market with the FI’s goals demonstrated deposit growth in concert with that household growth, healthy macroeconomic indicators, unemployment rates, household saturation, et cetera, and a lack of competitive oversaturation. It’s tough to grow where there are established players and minimal household growth. So aggregate all of those various pieces. And to your point, we’re just speaking from a quantitative perspective here. First, it allows us to model for future demand, not looking at just where deposit and loan opportunity exists today, but where it will in five years and not just at a high level, but within individual product lines by income bans, so we can really get hyper-specific in terms of that opportunity.

Gina Bleedorn (15:17): Nick, we’ve spoken publicly a few months back with some new research also from the FDIC and from our partner Curinos, about nearly half of all de novos technically fail and they fail to reach targeted profitability or even profitability at all within three years. And also that same research said, if you don’t reach your benchmark in three years, your chance of ever reaching it is very, very slim. So how do we approach giving the best chance of success from a data perspective? And then as you said, there’s the data part, the market analytics on where to go, but there’s also what to be when you’re there, what line of businesses are you targeting, what branch format do you deploy? And then there’s the design of that to maximize, as mentioned before every square foot to make it as halo peacock out to have maximum perceived presence. But what are some of the ways we do this analytically to increase that chance of success?

Nick Mentel (16:23): It’s a good question. We work big to small, so we’ll ask several questions. What are the MSAs with opportunity? What submarkets within those metropolitan areas demonstrate opportunity indicators at what sites within those submarkets hold the highest potential? So we get fairly granular from a real estate perspective as well. We’ll look at population migration trends, commute patterns, mobility data, et cetera. And then at a micro level, a thorough understanding of real estate nuances, design implications, both from a zoning and other construction perspective, but also from a peacocking perspective, a really a brand expression perspective. Ultimately with the goal of bringing this roadmap to life with appropriate hiring, marketing, design, all of the other elements that are admittedly just as important as picking the right market to grow.

Juliet D’Ambrosio (17:15): Nick, you are a stone cold expert in this topic and our clients are very fortunate to work with you. I’m curious about the challenges that you see most often these days from our clients and we serve both smaller institutions, larger institutions, banks, credit unions, community banks. Talk about what are some of the big pressing questions that they all share?

Nick Mentel (17:43): Yeah, it’s funny, regardless of institution size, how frequent many of those same concerns are, and there are several that do pop. One is unnecessary physical space due to evolving needs a line of business focus, fewer in branch teller transactions, et cetera. And our primary approach is around very selective consolidation. We’re cognizant to not abandon a community in any way or abandon that perceived brand or branch convenience, but through something like selective two for ones. So it’s all about maximizing growth potential. Sometimes this simply comes down to an AB analysis to identify what the higher upside is, so maximizing that growth potential while ensuring that alignment and keeping an eye toward perceived ubiquity, which more and more comes in the form of varied formats. We certainly are seeing smaller square footage, more micro branches, points of convenience, points of presence in a market, but certainly less capital investment per site.

And another one is remote assets can certainly be a polarizing topic depending on who you’re speaking to. But remote assets, remote ATMs, ITMs can really be highly branded assets to compliment the traditional branch presence. So ensuring alignment with our clients about the strategic goal of offsite ATMs and ITMs really how they should be used from a marketing perspective versus an operational one. And then assessing placement options to maximize visibility. Highly trafficked corridors, again, highly branded work that Adrenaline has done in spades. And then patients that make sense. A remote asset is really a complimentary feature and should not stand on its own in a market.

Juliet D’Ambrosio (19:28): Nick, I’m interested in hearing you talk about all of this, the notion of perceived convenience, the notion of ROI on capital investment. We know that growth looks different for different size institutions. We know that for some it’s about achieving density in a market. We also know that sometimes it’s about market expansion and all institutions are asking themselves that question, what is the right place to go and the right way to grow? How does the big elephant in the room around industry consolidation and M&A play into how we are answering these questions for our clients or play into the industry dynamics? We do know that M&A is slower maybe than expected, but certainly has ticked up from 2024. I’d love your perspective.

Nick Mentel (20:25): Yeah, you mentioned things have been a little slower and there have been some macro-economic reasons for that, but activity is picking back up. Just this week P&C announced their acquisition of First Bank, and we are certainly in favor of moderately sized institutions continuing to survey that competitive landscape for opportunities in organic growth. The upside is obvious. You immediately acquire facilities and customers are members without having to grow that over time. And that’s tricky certainly in terms of maintaining those relationships. But it is the FastPass toward growth. There are obvious scale operational efficiency, new market entry benefits and so on. And not to mention, look, your competitors are going to continue to consolidate, thereby raising their own brand share profile and potentially boxing you out on that network effect curve. So it’s something every institution’s considering in all likelihood, but it certainly needs to make sense from a price and from an alignment perspective for over a year.

Now, Adrenaline has partnered with the aforementioned Curinos, an institution that is second to none in terms of market opportunity and research. We lean on their Curinos Optimizer Platform as part of our network optimization and expansion studies. And that platform itself is an aggregation of more than 200 primary data sources married with a proprietary product demand model that allows for evaluation of the relative appeal of various markets. And we’ve worked with several clients post-acquisition in order to identify what sort of rightsizing should take place. M&A is rarely clean where there is no footprint overlap. And so identifying if there are markets of overlap from a branch performance and opportunity and distance perspective, which of those branches should be consolidated in order to create a lean future state network.

Juliet D’Ambrosio (22:16): Nick, I’d like to ask you a question that is something that we talk about a lot on believe in banking and sort of tongue in cheek about the idea of us being futurists. Are we futurists? Are we not futurists? It’s sort of a silly title, but I would love to ask you to put on your futurist hat and tell us a little bit about what you see as the big next trends that all of our listeners need to consider over the next year or so.

Nick Mentel (22:48): The future is the past all over again, Juliet. We have expressed our belief in traditional banking on this podcast. I continue to believe that will be the case despite the threat of fintechs, despite buy now, pay later, stable coins, whatever else is shaking up in the industry. Our clients have thrived through continued expertise and relationship building with their customers and members. Of course, this traditional model needs to be complimented by superior digital assets, website, app, et cetera. They are complimentary functions, but they are important ones. And keeping an eye out for artificial intelligence, we have a quota to reach and I am legally obligated to mention AI because this is a podcast after all. But we’re finding applicability in-house and I expect our clients to do the same in terms of customer or member targeting from marketing perspective or a market opportunity perspective.

Gina Bleedorn (23:44): Money line, Nick, “the past is the future,” which leads us to our favorite and final question we ask all our guests would love to hear your answer. Why do you believe in banking?

Nick Mentel (23:59): An excellent question. It’s been part of my life for decades. I remember going with mom and dad to open my first savings account, small community bank in St. Louis in the late eighties. More than anything, and this makes me sound very old. I believe in the tangible benefits of shaking the hand of someone you’re working with, meeting them in person, the physical element of a world and an industry that is very intangible at times because it’s zeros and ones on a screen now. In fact, my wife Susie, went to the bank last week to get pennies for our kids. Given that the treasury is ending production early next year, she wanted a memento of a type of coin that they may not be able to easily access in the future. And there’s an education that’s a part of that as well that we perhaps don’t emphasize enough as I do have kids who are getting to an age where they understand money. At this point, I would love to see that financial education be more baked into their general education, whether that’s in school or at home, and having these physical outlets in our world where we can see how that world operates and how important personal finances is. Perhaps why I believe in banking more than I ever did before I had children.

Gina Bleedorn (25:20): I love that answer.

Juliet D’Ambrosio (25:21): Nick. I always learn from you not only what you see in the numbers and the very, very sound financial perspective on how you help our clients see the best ways to grow, but just generally a real wisdom in the approach that you have to everything. So I so appreciate this and how you are able to seamlessly connect so many dots in a way that seems effortless and just makes sense and it’s a privilege to work with you and a privilege to have this conversation. So thank you.

Nick Mentel (25:59): You are far too kind, but I love the work we do and the clients we work with and the industry itself. So it’s a pleasure to have this conversation and to frankly do this work every day.

Outro: You’ve been listening to Believe in Banking, a podcast series created to empower decision makers, influencers, and industry leaders in financial services.

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