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It May Be Time To Reassess Your Thin Network

It was only a few years ago when banks began experimenting with thin network strategies as a way to pump up customer acquisition without making massive investments in physical branches. In fact, more than half of the network among banks below the top 25 is in thin or ultra-thin markets today.

But many of these efforts just aren’t generating sufficient return for the bank. This has come to light especially as a result of the pandemic, which has accelerated the branch’s decline.

The decision about whether and how to compete in certain markets is particularly important as the nation emerges from the pandemic and banks consider the prospect of higher rates. (See Is Your Bank Ready For Higher Rates?)

It may be the time for some banks to reconsider the thin network playbook.


Most regional banks are in a similar position as they were when the pandemic began, albeit with an increased cushion of liquidity. National banks have the established brands, reach and scale that are needed to invest in digital marketing capabilities and expand into new markets. And then there are the fintechs that are capturing share with select segments by delivering distinctive products and experiences.

Regional banks are trying to compete against both, typically using three or four different archetypes. (See Figure 1.) Dense metro markets are typically hometown cities and towns where the bank holds established market share and strong brand recognition. Regional banks also often capture a strong position in community markets that have a population of fewer than 500,000 and have a smaller presence from national banks.

The final two categories for regional banks are metro markets, where they either have a thin presence (less than 6% branch share) or an ultra-thin presence (less than 3%). These markets are much more competitive, with strong positions held by national banks and hometown regional banks. It’s in these markets where many regional banks struggle. (See Figure 2.)

Figure 1: The next rising-rate cycle will look different than the last one


Figure 2: Three-Year Fair Share Of Deposit Growth Trends


Note: Metro areas are CBSAs with populations above 500k; Ultra Thin branch less than 3% branch share; Thin branch networks between 3-6% branch share


Source: Curinos BranchScape — FDIC June 30, 2020, Curinos Analysis; adjusted to normalize for the impact of M&A and divestiture actions

A Curinos analysis has found that most regional banks haven’t matched market-level growth in their thin and ultra-thin markets over the last three years. (The one bright spot is in ultra-thin markets for banks ranked #26-50, but this is driven by a few high-performing regional banks that are often niche players and doesn’t reflect the performance of most banks in the group.) There are several reasons these regional banks have found themselves in this predicament. In some cases, they were looking to get a piece of high-growth urban markets, wrongly assuming that the bank can achieve the same level of success using the same operating model as in hometown markets. Other banks have landed in this spot as the result of acquisitions, often of smaller competitors that have less density in their markets.

Regardless of how the banks landed there, they need to address this underperformance now. That is especially the case because branches in thin markets may only represent 20% of the locations but can easily exceed 25% of the bank’s branch operating expense. And this doesn’t even take into account the relatively higher overhead expenses of local market management or the typical lower revenues per location compared with other markets. Collectively, this leads to thin markets, on average, having efficiency ratios that are considerably higher than well-established and more dense metro and community markets.


Because banks are flush with deposits, they are in a better position to take actions today than just a few years ago when the risk of deposit loss limited their ability to sell branches or exit markets. Now, they must determine how to allocate scarce investment dollars across the footprint in markets that will provide the best opportunity for return. In many instances, that won’t be the thin markets.

Strategic alternatives include:

  1. Pull Back — reduce investment in non-strategic thin markets, using the window of excess liquidity to consolidate branches, exit outright or sell the branches (despite low deposit premiums).
  2. Accept Lower Performance — maintain presence in thin markets and accept lower performance, hoping a strategic acquisition or other options like a branch swap can help build scale or a future operating model pivot. (See #4 below.)
  3. Selectively Invest — select strategic thin markets for investment, focused on a particular customer segment and/or differentiated offering and experiences. This could result in a more focused operating model than in legacy dense markets.
  4. Transform the Operating Model — pivot the bank toward a particular customer segment and/or differentiated offering that work across both dense and thin markets.

If a bank wants to compete across multiple market archetypes, it needs to assess each model differently. A one-size-fits-all strategy just won’t work here. Notably, we are finding that both boards, investors and executive management teams are receptive to having these difficult discussions.

Target Customer: Thin-market players don’t have the density to be able to be all things to all people. Therefore, it is imperative to focus on a target customer segment. Many successful thin market players have focused on more affluent consumers and/or businesses and business owners. These models are typically led by a salesforce and other support (like local underwriting) that allow them to be successful with fewer branches. Furthermore, a mass market/mass affluent play may be available for a bank that can capture a multiple of fair share by delivering a truly distinctive experience.

Value Proposition: It is critical to deliver on a distinctive value proposition the meets the needs of the target customer segment. This should essentially be a concise answer to the question, “Why should I have my main banking relationship with you?” Brute salesforce alone won’t alone drive success without proof points that align with the stated value proposition. And a strategy that just focuses on the best price isn’t sufficient. While this has supported growth for some banks in thin markets, it isn’t sustainable through the cycle.

Leverage Branch Network: By definition, thin market players have fewer branches and must get the best bang for the buck with their locations. This includes higher-visibility locations with effective signage to drive higher levels of brand awareness and consideration. Additionally, branches should be staffed with the right mix of workforce to meet the needs of the target customer segment. Banks that effectively partner sales specialists with their retail branch teams seem to get the best leverage here.

Targeted Marketing Investments: Marketing is a necessary complement to the salesforce in thin markets. At many banks, thin markets are starved of marketing, which further inhibits their ability to succeed. Well-targeted marketing in select places that is aligned with the target segment and value proposition messaging can provide strong leverage for the salesforce. This often takes the form of content marketing to arm the bankers and reinforce the distinctiveness of the bank’s services.

Execution: Effective execution discipline is even more critical in thin markets. This includes maintaining focus on investments in the right target segment. This also requires collaboration across the market, including hunting in teams and a willingness to share credit and incentives. Finally, it requires ruthless simplification, both within the branch and across other channels. Some of the top performers in thin-market organization offer tangible examples of the focus on consistent execution, underpinned by notable organic customer growth.

This last year caused most banks to reassess their branch network plans, with many aggressively closing a material portion of their branches in their denser markets. This, combined with the observation that more than 50% percent of many banks’ existing markets are already in thin markets means that a thin network may soon be table stakes. Success, however, is far from guaranteed.

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