Modernizing Branches Strategically and At Scale

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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 have a great topic today and it’s about as broad and deep as the industry of banking itself because we’re talking about branches and what to do with them. And we know that after decades, literally decades, of closures and headlines and consolidations about how the branch channel was on the wane and digital channels were on the rise, a really astounding phenomenon happened. And that is that digital channels continued to be on the rise, but something really surprising occurred and that the resurgence around branches is not just something that we’re seeing in the headlines, it is actually happening and we’re able to track the data now. And more than a thousand branches have opened in just the last three years. Just this week at the end of August, openings exceeded closures and that came to us from reporting from American Banker.

And we get to talk about today why that is and what really smart institutions of all sizes are doing differently with their physical spaces now. It’s something we did a deep dive on and we called it Branch Refresh: A Playbook to Tier-Based Investment. And the clue to the content is right there in the name. The idea that the smartest institutions are not looking at their branch channel and their need to modernize as a monolith, but really taking a tier-based approach to what refresh renovation and modernization can look like so that change doesn’t become overwhelming, but can actually happen.

Gina, you talk to bank and credit union CEOs literally all the time. What are you hearing when they bring up their branches? Where’s the tone of their conversation right now? Are they anxious about change? Are they excited about opportunity? Are they confused about what steps to do? And I’m also curious, having had all those conversations with banking CEOs, why is the branch channel specifically so emotional? Why does it get so emotional, these kind of decisions in the boardroom almost more than any other capital decision? So what are you hearing and why so heated?

Gina Bleedorn (03:09): Well, I’d say there is no anxiety and not even a whole lot of confusion. Five years ago, that was not the case, but now there is more about urgency actually to capitalize on opportunities and there’s a lot of momentum. And I believe that’s because of the stats you already cited in addition to the fact that branch openings have just exceeded closings. That is after a decade long trend upwards that has now reached equilibrium of openings and closings and even exceeding. So the momentum is going the way of the branch.

What I hear more than anything is how do I get in market as fast as possible? And that’s compounded by some challenges around reconciling costs, particularly as construction costs and supplier costs have surged in some markets as much as 30%. It’s not the same across the country. There’s varying conditions, but it’s either holding steady, it’s not getting cheaper, or in some markets it’s getting significantly more expensive to do extensive major construction. So, it is about how fast can we go? How much can we do as soon as possible? And to answer the question about why so emotional, I think particularly now as we’re in our AI age, there is a counter movement back towards human and wanting to feel, see, touch real people, real things, and real spaces.

And that is also connected to at the core, what community banking and creditunioning, as we like to make it a word, that’s what it is, is people dealing with people. And so because of that, the branch and all that it represents, it’s housing humans. The app? There’s no humans in the app. And so that makes it personal. Then on top of that, physical locations, their legacy, their community placement, there’s a lot that can go with that, particularly if it’s an area or a location that’s been somewhere a really long time and is a fabric of the community, or it’s near where the chairman goes to church or has different relevant connections to different people at the bank, it becomes hard to be completely objective, particularly when it comes to needing to make decisions around closures.

Juliet D’Ambrosio (05:51): Yeah, I think there’s also a sense that what to do with branches and really branch investment overall, it’s all or nothing. So you either fully renovate your entire network or on the other hand, you don’t do anything and invest in other ways where the reality is that it’s really a spectrum and some of those decisions can get stuck because there are different capital priorities. There are different opinions of the stakeholders and whether they go to church right next to X, Y, or Z branch, for example, there’s that deep emotional attachment to locations often representing for community banks and credit unions: where we came from. But when we think about that spectrum of what can happen for modernization, it’s really refresh that’s middle path because it looks at some lower cost ways and places to invest that matter most to your sustainability and growth as a financial institution.

And so the branch investment needs to be able to connect really directly to your business strategy and to produce those measurable outcomes that we can see. And sometimes I think we get tripped up even when we are talking internally with our own teams and certainly with our clients around the difference between how we define a refresh and a renovation. How do you explain that so that people get it?

Gina Bleedorn (07:34): Yeah, I will. And before that, I want to reference, there’s kind of a story behind the story about the openings, which in and of itself just is proof of the relevance of the branch and the investment pouring into the channel. But the other story is about the resurgence of branch investment in modernizing what you have and making the most of that. And there is a white paper we co-published with Curinos called How De Novo Expansion is Reshaping Retail Banking. And the story there is that the de novo effect of these new branch openings, whether you are opening them or not, are going to affect you, especially because a lot of them are happening at scale with some of the larger national banks. And as they come into your market and they look fresh and new and shiny and modern, if they’re next to your branch that doesn’t, that starts to make your experience stand out in a bad way.

And so there is a big movement towards optimizing, enhancing, upgrading, and modernizing your existing network. That, however, combined with what Juliet just said about the refresh opportunity is why we chose to create the playbook Juliet mentioned, the branch refresh playbook, because we see so many clients come to us with just an all-or-nothing approach thinking, “Oh, I’ve got to gut and renovate the whole thing or open a new branch. Those are my two opportunities.” And in reality, there is a lot that can be done with just light finishes, paint, maybe some millwork, maybe select furniture, lighting, brand elements, wallpaper graphics, merchandising elements, digital signage, decluttering – all of those things can make a massive difference. And we have had clients go through refresh programs and the bang for the buck is more than you would think when it comes to customer and staff experience that you’re trying to affect.

Juliet D’Ambrosio (09:49): I mean, the power of some paint really, the power of some celebratory moments of the brand in uplifting the entire experience really can’t be underestimated. And of course I’m simplifying, it’s more than just a little paint, but the point is that there can be true transformation from a visual experience standpoint with less than you might think. And I would love to explore what this has looked like for our real clients that we have taken through refresh programs. So give an example of what you’re talking about, about how these refresh touch points have been able to be applied across a network in a tiered way to create real branch modernization and uplift the entire brand experience.

Gina Bleedorn (10:42): Yeah. There’s a number of drivers of opportunities for refresh. Some of our clients are going through full modernization plans. One bank, I will not cite their name as we are undergoing, finishing our planning right now and underway with the first renovations, but it’s a 75 branch bank and they have now a five-year transformation strategy that is a combination of just a few closures, refreshes, renovations, some new ATMs and some new locations. And five years from now, they’ll have about the same number of locations, but be completely optimized. So relocating, adding where needed, reducing where needed, but most importantly, facelifting across the board. But those facelifts come in all of these different tiers. And a great example of where the difference between refresh and renovation, which you asked me earlier, Juliet, and I haven’t really answered yet, is another driver, and this is an example of a credit union that acquired another credit union.

It’s Empeople based in Iowa. They were the former John Deere Employees Credit Union. They acquired a credit union in Maine, completely separate geography. They thought this was a great idea to pilot what a new North Star experience would look like, almost using Portland, Maine as a test market. And there were three sites identified, and all three of those sites needed different levels of spend as a combination of what the site just needed as far as square footage, existing conditions and architectural anomalies, and a combination of where it was in the market. So one site was highest priority, another wasn’t as much, and another wasn’t as much. And so the difference in a renovation for Empeople was truly redoing the complete operational flow of the space. Renovations involve moving walls, renovations involve changing how the branch operates. On the refresh side, that usually is much more visual.

It’s much more topical. It’s where you don’t need to or the money doesn’t warrant. You move walls, change offices, change flow. It’s good enough based on the opportunity or the market opportunity or the current experience that you have that you can put a layer on top to make it feel visually relevant for far less cost. But for Empeople, the end story, and actually we feature this in this refresh playbook, was these three different tiers in three different locations all came out looking very consistent and beautiful. And in particular too for Empeople, these were some pretty radical models shifting way away from transactions. So they are almost an afterthought. The volume wasn’t high enough that they needed umpteen teller lines. So it’s almost a pod in the corner. And then the rest of the space is all different levels of seating for all different types of community engagement and one-on-one, one-on-many or large group conversations to deepen dialogue, relationship and trust.

That’s ultimately the way you need to be thinking about modernizing is in this spectrum of tiers. Most notably, it’s am I refreshing or renovating? And then even within that, is it a major or minor refresh, a major or minor renovation?

Juliet D’Ambrosio (14:32): All right. I’m going to put you on the spot, Gina, because you are really expert at this, to dive one click deeper. And I think Empeople is a great example of this. Let’s talk about how to decide which branch gets what, where to invest most strategically with the greatest potential ROI. Talk us through that a bit.

Gina Bleedorn (14:58): Yes. One of my favorite topics. We do market analytics to help clients with this very thing. And really, this is probably the most important output of any analytical approach to your network and what you need to look for. You should be prioritizing sites that are underperforming in high opportunity markets. What we often see too much is an overemphasis on sites that are performing well in potentially legacy markets. That’s where you have often a misaligned spend. I’ll mention also, if it is a high growing market and it’s high performing, you need to keep investing in it because that means competitive pressure is all around you. So you need to defend what you have as well as continue to fight for the existing market share. And usually in those high opportunity markets, there is enough to capture even though there is a lot of competitors. But the sleeper sites are the ones that you think might not be doing well, yet they sit in a market that either because of the market conditions or lack of competitive density or both should be doing well.

Those are your underperformers in high opportunity. Those are where you need to dig in first to figure out what’s wrong with the branch. Now, it could be many things. It could need to be relocated. It could just have a massive facility problem with ingress and egress, and it’s just a dog site and you have to relocate it. That should become a priority. Or it could be staffing issues, branch manager weak, sales week where they need to be strong. But oftentimes there’s a situation that the branch, even as it exists, can simply be enhanced for greater visibility, for improved customer experience or member experience. And then what you also find, by the way, is when you have nicer looking branches, you can recruit better staff because better people want to work in better spaces. Customers want to spend more time in spaces that feel like they’re for them.

And so that’s how you need to be thinking about it. Ultimately, there are many ways of quantifying, but you need to look at what are my deposit gains, my fair share gains that I think I can get in this market over usually a five-year projected period and what’s the ROI on that and how much can I spend? And that will help tell you, okay, could I afford a complete relocation here or a complete gut major renovation or do I need to do something lighter?

Juliet D’Ambrosio (17:43): Gina, I loved that in talking through that, you combine two things, which is the quantitative, the data that goes into the decision making, but also the qualitative, which is how a branch looks and feels, what is the vibe that it creates? And I think that that’s an important distinction, but it’s also something that we see from the brand experience side that it is not just enough to have the brand logo or the name front and center, but there’s really an opportunity cost that happens when a branch just sits there aging, whether or not there’s hot and heavy competition coming in, but we know that more and more there will be from the branch side. The idea that there is an entire experience that is created through the visual touchpoints, through the merchandising, through the way that the elements of the brand come together to create an experience both for staff and for customers or members is enormous.

And we also know that the way that a branch feels for both staff recruitment and retention and for younger audiences, and if you’re not thinking about your Gen Z audiences, you should be, and you should also be thinking about who’s coming right after them, the Gen Alpha audiences, that whose experiences from the branch side aren’t just shaped by the Chase Bank across the street, they’re shaped by the leaders in customer experience, by the Starbucks and the Trader Joe’s of the world. And so the idea that branch has to create a brand experience, and again, it doesn’t mean full renovation necessarily, but it does mean the idea that this is a refreshed space that signals trust, it signals welcome, it signals sophistication, it signals a place that a modern experience for banking is offered and is delivered there. And that’s exactly becomes that magnet that is so important for both acquisition and also retention and cross sell.

So if you were listening and wondering whether this is your network, that you really need to begin thinking about refresh and renovation at scale, there are three signs to look for. And this is something that we talk about in the branch refresh playbook to tier-based investment. So we go over this in detail, but you can really boil it down to three things, performance, people, and physical location. We can’t help but love alliteration as you know. So the three signs, performance, you’re looking at underperformance relative to your peers in an otherwise healthy market. Is the market strong? Is your branch underperforming based on peers? If so, that’s a strong indication. Your people, this is rising attrition for staff or requests for experiences that the branch can’t support. Is there an opportunity to serve a mass affluent audience, for example, there? How do we draw those people in from a customer or member perspective and how do we staff the branch accordingly?

And then physical, and this is where questions around renovation potentially could come up, again, if the market and its potential supports it. Do we have layouts that do not support relationship-based conversations?

Are we cutting ourselves off at the pass because we’re not able to serve the people that we want to serve in the ways they need to be served? Does our environment no longer reflect our brand or its standards? Does it no longer signal where the brand itself is moving or headed? So again, performance, people or physical locations, if we have any indication there that we’re not meeting or really exceeding standards, that’s a great sign that you need to be looking at refresh and renovation as a potential way to modernize. And I think a lot of this comes down to data. We know that if banks and credit unions are great at anything, they are great at data. They’re great at gathering and supporting data. Of course, it’s numbers based. They’re often swimming if not drowning in it. So Gina, why do some of these really critical decisions stall out?

You have the data, what’s happening between getting the data, interpreting it, and making the right decisions that you see happening time and again with our clients?

Gina Bleedorn (23:46): I think it’s two things. We all have heard of analysis paralysis and depending on where you’re getting your data, who you’re getting it from, it may not be actionable. It should result in action recommendations relative to either a budget you have already allocated to spend in a capital budget or other metrics of success that you’ve already set forth for your institution. If the data does not lead intuitively and systematically to actions, then it’s not helpful. Th’s breakdown one. Breakdown two is maybe it does, and maybe you’ve got something from consultants that say, “Okay, refresh, reno here, relocate here, et cetera.” If you do not have a design playbook to do that, then you’re going to be stalled again. So if you have not undergone lots of refreshes and renovations, you probably don’t have standards and playbooks, or maybe you do, but are they flexible enough to expand different formats?

Are they flexible enough to have lower cost options where you need them? And so between those two breakdowns, I think that’s why we see a gap between data and action.

Juliet D’Ambrosio (25:27): Yeah. And I think that qualitative signals also, they’re looking at those and understanding that there sometimes are things that data can’t show you. It doesn’t show up because it can’t. I think that the branch, sorry, I think that the banks and credit unions that are getting it right are doing a really good job of tracking the idea of relevance overall. Is this branch and brand relevant for the people that matter? And when we talk about relevance, we really mean the idea of meaning. Is it meaningful to you? Is it doing the job that you want it to do? Does it show up in the way that you need it to? I think a good place to start getting our arms around those intangibles are the idea of looking at your employee feedback. That’s an incredibly rich source of some of those qualitative signals that we’re looking at for branch experience.

Customer data that often banks or credit unions are not tracking but could, which is simply their reason for visiting a branch at any given time. I think the financial institutions we work with do an exceptional job at tracking NPS. What they don’t do very often is really digging one or two clicks deeper into understanding the experience drivers that bring people into the branch, why or why not? And then those live alongside the brand perception. So how do we experience or feel this brand through the branch experience? And so there are some ways that we can track that through research that you pull it all together to get a real 360 degree view of that experiential factor that leads to better and stronger decision making. And so we want to make sure that, again, performance is tracking, the people are tracking, and the physical spaces are tracking well, and that we have both the data and that qualitative sense that allow us to make great decisions across the board there.

We’ve talked about a lot. There’s a lot to the subject and a lot to keep in mind. And I should also mention, this is a really exciting place to be right now. It’s an exciting topic. This is something that comes up with our clients, literally with every conversation we have with clients who are wrestling with this idea of refresh, of renovation, of what to do with the branch.

This is a tall ask, Gina, and I wouldn’t ask you this if I didn’t think you were up for it, but if you could boil all of this down and a listener needed to take one thing away from this episode, what would you say it is?

Gina Bleedorn (29:04): You need to prepare for scale. That is the underpinning of really the whole point of, well, having even a refresh option, but most of what we’re talking about today as M&A keeps increasing, obviously with banks, it’s been going on a while. We’re really seeing a lot more merger of equals with banks and with credit unions. You are scaling up to sizes you’ve never been before. And when it comes to physical capital spend, you need to be maximizing every square foot and every capital dollar. And you have to do that by preparing for scale through constant evolution. If you are not evolving particularly In this channel, you will be wasting money and you will be left behind. Physical is hard to change. And once you design it, it’s many, many months or a year or more before it even hits the ground. Imagine what can change in a year.

So if you are not in a constant future thinking stage of evolution, and if you are not thinking about how to do things at scale, you won’t be able to efficiently, effectively, or ultimately succeed with leveraging that every square dollar and that every square foot and every capital dollar. And so that’s really the point of having standards, a playbook, different tiers. That is how you scale through consistent and constant evolution so you can grow effectively and efficiently.

Juliet D’Ambrosio (31:01):  As Jack Welch, former CEO and chairman and business guru extraordinaire once said, “Change before you have to.” And that’s really what we’re talking about here when we’re talking about preparation for scale. It is that constant evolution that you need to be thinking about today of where you’re going tomorrow and you change before you have to, to get in front and to not only get in front of the competition, but to set yourself up for growth and transformation that is a constant. And it’s what makes banking so exciting and also what makes us believe in banking because we have seen in our time serving this industry how they have sometimes slowly, but always, always evolved and taken on that mantle and that rally cry of change.

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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