- After years of thinning branch networks, many banks are now building them up, because they remain a reliable source of core customer growth.
- But branch networks are shifting from a model of “convenience” to “access” as the need for everyday banking continues to decline and branch visits become “occasional.”
- Curinos is now able to map a “blue sky” design for a market that can reveal where branches could be added, where others could be relocated or combined and which should be renovated or remain unchanged.
This past year, we’ve seen a flurry of announcements from banks that they’re investing in their networks, and, more specifically, building de novo branches in both “thinly” branched and new markets. But after years of thinning, why are they once again building? Simply put, their need for core customer growth.
Over the past five years, banks have reduced their networks by 2% per year, with super regional banks doubling the pace of the industry at large, at 4% per year. That’s been a whopping 20% fewer branches through which to acquire new customers. At the same time, bank branches are becoming less productive, with new-to-bank checking sales, the source of most new customer growth, having declined between 25-35% (Figure 1).
Figure 1
Source(s): Curinos BranchScape, FDIC Jun 30, 2024 | Curinos Distribution Analyzer
For many institutions, the shift toward digital customer acquisition was meant to fill the gap, and to a certain extent it has. The quantity’s been there but the quality has been woefully subpar. Compared to branch-generated activity, average relationship balances via digital are 6-8x lower by the end of the first year and retention is about 35% lower (Figure 2).
Figure 2
Source(s): Curinos Digital Benchmarking 1-mo/6-mos/12-mos based on 4Q2024, 2Q2024 and 4Q2023
The result of these shifts is that most banks are struggling to drive net growth in checking account relationships. The average regional and super regional bank is growing at less than one percent per year, while many institutions are shrinking (Figure 3).
Figure 3
Net Checking Account Growth (Regional & Super Regional) | Apr. ’24 – Mar. ’25
Source(s): Curinos Deposit Analyzer, Curinos Analysis
It’s clear that despite the accelerated network optimization over the last few years, many branches are still not delivering enough new-to-bank customers to outrun the national attrition of the larger back books they’ve gained through consolidation. In Curinos’ benchmark of super regional banks, nearly 75% of them achieve fewer than one new-to-bank checking sale per day. Even with an increased focus on more affluent customers, roughly half of all branches are delivering fewer than one $10k new-to-bank checking account per month.
In short, many of the existing branch networks are not fit to drive sufficient growth within targeted segments, nor can they provide the savings to support investment in new locations to drive growth. To reverse the trend, banks will need to tap into new pools for customer growth, funded by continued optimization of their legacy network. The industry has been harvesting for years and now needs to begin planting seeds again to ensure future growth.
Taking a “Blue Sky” Approach to the Network
Over the last five to 10 years, banks have largely closed branch locations and consolidated customers into nearby branches. As a result, the shape of a network in any market has been constrained by, among other factors, their customers’ proximity to nearby branches, lease end dates and capital amortization schedules. In many cases, the character of the very neighborhoods where the branches were originally built have changed dramatically. As such, Curinos believes it’s time to take a “blue sky” approach to network planning.
As the need for everyday banking continues to decline and branch visits become “occasional,” branch networks are shifting from a model of “convenience” to “access.” That means banks may not have to aspire to the level of branch density they’ve targeted in the past. At the same time, networks still serve the important role of driving unaided awareness, so their branches need to be placed in the high “billboard value” locations where they can be seen. In some cases, a branch performing in the top quintile is seen by 9x more consumers than those in the middle quintile (Figure 4). The other important factor in branch placement is its alignment with the populations of target segments.
Figure 4
Sample Bank “Visits Near” by Branch Quintile
Source(s): Curinos Analysis, Curinos NovaLocation
Note: Visits Near represent cell phone devices visiting retailers nearby to bank branch
Through the combination of potential high-billboard-value site locations and access to target consumer and business customer data, Curinos is now able to develop a map of a blue-sky design for a market. Yes, transitioning from an existing network to blue sky might be inordinately expensive, but the exercise can nonetheless be revealing. It can provide a point of comparison for determining where additional branches could be added, where others could be relocated or combined in a 2-for-1, which branches should be renovated and where others should remain unchanged. Each potential branch action can be evaluated for its expected impact on growth to customers, deposits and revenue.
Branch Formats Matter
In addition to site locations, it’s important for banks to understand the branch formats necessary to support future customer growth. As transaction processing gives way to more advice-giving, branches should deemphasize the teller counter while creating dedicated space for private conversations. At the same time, branch design needs to recognize that customer expectations still favor transaction services, even as some banks have experimented with branches that are “cash-less” or “teller-less.”
For banks focusing on more affluent and small business segments, branches should include space for specialists where there’s enough market opportunity to support them. And even though the recent trend has been toward “‘micro branches,” Curinos suggests that the right evolutionary path forward may be hubs that are fewer in number but highly visible, full-service and cross-segment.
To achieve their growth objectives, many banks will choose M&A in the year ahead, to be sure, but we believe the recipe for long-term success is in sustained core customer growth. And that, in many cases, will require the discipline that goes beyond harvesting branches to planting and nurturing new ones.
