Curinos Perspective: What Other Banks Can Learn From Chase’s Branch Expansion

Much has been said and written recently regarding The Wall Street Journal’s article about Chase’s investment program in branches. We at Curinos wanted to offer our thoughts as well, with particular emphasis on the implications for regional and community banks across the country. 

First, as the article indicates, if not prominently, Chase has closed more branches than it has opened in the last 10 years. Only this past year did Chase see a net increase in branches. Simply put, Chase is expanding into new markets while harvesting in dense legacy markets – where it has more than 10% branch share and where it will continue to offer a sufficient level of convenience for existing customers and prospects. 

Second, this is not new news. Since its first experiment in market expansion – in Jacksonville, Fla., nearly a decade ago – Chase has been refining its strategy. In Jacksonville, Chase opened 20 locations and eventually achieved an 8% branch share, most of which included Chase Private Client sales teams and were supported by significant investments in marketing. The bank complemented the branch network with a branded ATM partnership to expand perceived convenience. In more recent market entries, Chase has been building to a lower level of branch share and relying less on ATM partnerships. 

Third, the branch investment is relevant only when viewed in the context of marketing support it’s provided to drive growth. As highlighted in Chase’s investor day last year, the Consumer and Community Banking unit’s planned 2023 investment of $1.4 billion in its branch network was less than its $2.5 billion investment in marketing. (The bank’s total marketing spend was around $8 billion.)  

One advantage for Chase is its high levels of unaided awareness, a luxury only a handful of national bank brands enjoy. Indeed, even where it doesn’t have branches, Chase’s unaided awareness is roughly 30%, comparable to that of regionals in markets where those banks have branches. In addition, the bank can market a full suite of banking services to its roughly 150 million credit card customers across the country, who by definition reside in all the markets into which Chase is extending its branching. According to Chase, half of new checking relationships in expansion markets are existing credit card customers. 

Finally, Chase has used cash offers of up to $3,000 to drive account and deposit acquisition and to spur consumer behaviors that lead to primacy. These offers are a more attractive way of gathering deposits because they allow the bank to maintain a relatively low cost of funds by avoiding using rate and repricing existing customers. 

To be sure, Chase is Chase. But what are the implications for regional and community banks, which don’t have Chase’s brand strength and financial heft? 

• Entering new markets is hard. Other than banks named Chase and Bank of America, few have been able to consistently drive high levels of deposit acquisition growth over the last five years through de novo branching, much less new market entry. The “gravity model” – the notion that a new location will naturally attract nearby prospects – is dead. De novo branches can no longer be expected to capture their fair share of local deposits over time simply by being there. 
• A strategic approach is necessary. To make de novo branches or market entry successful, banks need to pull several investment levers. These can include elements of the Chase playbook like marketing, offers, a specialty salesforce and ATMs. Although absent in Chase’s playbook, pricing can also be used, as shown in PNC’s entry into Kansas City during the rate cycle prior to the pandemic. 
• The branch isn’t what it used to be. Customer attitudes and behaviors continue to migrate away from branches toward digital. This isn’t to say that branches aren’t important – it’s just that they’re quickly becoming table stakes. In a delivery system serving most target segments, their level of density isn’t as important as it once was. The U.S. banking industry is over-banked and over-branched. Consolidations should continue only where banks can be on the right side of the trade-off between the operating-expense savings of closure and the foregone sales from losing the branch. Chase is considering these trade-offs every day as it thins its legacy dense markets. 

The upshot: Curinos continues to believe that network planning requires a market-by-market approach, so copying Chase directly could be a fool’s errand. The bank’s playbook, however, does contain lessons that might be applied to any bank’s growth plans. No matter what a bank’s size or ambitions, market expansion needs to weigh not just the physical branch network but also the complementary investments in marketing, offers, specialty salesforce, ATMs and pricing.