In search of core customer growth, many banks have announced investments in de novo branches to provide them with access to new pools of customers. Along with harvesting network operating expense in densely branched markets, this strategy of investing in more thinly branched (or new) markets is appropriate. For many banks in today’s increasingly competitive environment, net customer growth through network optimization without reinvestment has proven to be a challenge.
We support investment in de novo branches, but with one huge caveat: it’s worked for very few banks. For one anonymized institution, whose behavior mirrors that of many evaluated by Curinos’ Distribution Optimizer, de novo deposit growth has been a mixed bag (see chart). That’s because achieving consistent customer and deposit growth through de novo branching requires an understanding of the right “recipe” for each institution in each market.
Because there’s no one recipe for all banks, each bank needs to take into account the availability and quality of many of the critical ingredients. These include market opportunity, competition, target segments, site placement, signage, network interdependencies, value proposition, marketing support and cross-LOB coordination. Getting the recipe right can reduce the likelihood of big misses for a bank’s de novo investment.
Example Bank – 2020, 2021 & 2022 Vintages
Notes: *Branches with any YoY growth >= $100M excluded | Sources: Curinos Analysis, Curinos BranchScape
