If your bank is opening branches – get worried

In my recent book Bank 2.0 I posited that I wasn’t against branches and that rather than advocating the wholesale closure or departure from branch networks, that I was interested in seeing branch focus/form change. The reality is though, the more and more I look at what is wrong with the whole retail banking business in respect to innovation and change, the more that branch-led distribution thinking is killing the ability to innovate because of bloated legacy cost structures.

Branch networks have to shrink
Let me put this out there on the table right now. The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I’m not talking 10 years out here… I’m talking in the next 2-3 years. Which is why I was bemused by the following piece of news a couple of weeks ago in the WSJ:

The New York bank, No. 3 in U.S. deposits as measured by the Federal Deposit Insurance Corp., wants to expand the Chase name. Some expected an acquisition. Instead, Charlie Scharf, the head of retail operations, said J.P. Morgan would build 1,500 to 2,000 new branches over the next five years–an expansion equivalent to the entire branch network of a large regional bank.
Wall Street Journal: JP Morgan Sees Long-Term Payoff In Huge Branch Expansion, David Benoit (Dow Jones Newswires), Feb 16, 2011

JP Morgan is hoping to add $2Bn dollars in pre-tax earnings by 2025 off the back of this move. Are they serious??

Let’s just look at a few of the facts:

The action is all in channels, not in branches.

Bank visitation and utilization is in decline, cross-sell effectiveness has leveled off, and there is massive debate over what the branch should look like? Bank’s aren’t building deeper, richer customer relationships through branches – despite what they might wish. Branch usage is in decline, costs of branch distribution infrastructure is increasing and ROI is decreasing, the skill mix of staff required is changing and the new resources required to differentiate are expensive and difficult to find and train. The future of branch looks pretty bleak.

Citi's new "Apple Store" - A better branch won't solve your problems...

Why are big banks slow to change?
The bigger the bank brand, the more they already have invested in physical real-estate. The most powerful individual in the retail bank, besides potentially the Head of Retail, is going to be the guy with the biggest bucket – the Head of Branch Distribution. In this environment, strategy is led by those with the most power and leverage internally and much of that is still down to P&L.

In this environment, the instinct of the banker is to fall back on old established habits and to lead with a branch distribution strategy when there is spare cash for growth, rather than experiment on something new like Mobile or Social Media. It’s why a bank like JP Morgan Chase, HSBC or Bank of America will spend 90-95% of their “channels” budget on branches still today, flying in the face of all logic to diversify channel expenditure in a major way. It’s why very few of the bigger banks still are yet to appoint a head of mobile or a head of social media.

Sure digital channels are cheaper to run, and you can’t just close half your branch network overnight, but the mix of investment is simply wrong. If you don’t start by reinventing the engagement of customers across every channel, then one day you are going to be stuck with an irrelevant business.

One positive example of adaptation is the recent appointment by TD Bank of Brian Haier to the role of Head of Direct Channels and Distribution Strategy. Brian’s background was leading the Retail Distribution business for TD Canada Trust with a salesforce of 25,000 frontline staff. I guess TD figured out the best way to solve the budget problems was to take one of the Branch guys with the biggest buckets and simply put him in charge of Direct Channels so there would no longer be any argument about where the future of the bank lies.

For JP Morgan Chase, on the other hand – if I was a shareholder, I’d be offloading stock, quickly…


  1. Mike Bartoo says:

    You, as well as the sources quoted, make numerous great arguments against expanding the branch network. Unfortunately, there is one very powerful argument in favor of it within the banking world. Simply put: “that’s the way we’ve always done it”.

  2. bank2book says:


    I get that this is the instinct of bankers – I just think that instinct has to change…


  3. David Goll says:

    The public instinct also needs to change Brett. Many customers see branch networks as symbols of commitment to customers, even though they may rarely use them in today’e e-Banking dominated world.

  4. bank2book says:


    Agree, but my take is that from a behavioral perspective that’s already happening and there are just some holdover segments who need incentivizing to take the step. In most of the European market, for example, checks have already disappeared – this was a matter of some simple steps 1. improving the interbank payments capability, and 2. levying fees on check processing. Within a very short-time adoption was rapidly shrinking.

    The view that is propagated by bankers that customers still love to visit branches, is actually not the reality in most developed markets. In most cases if adequately supported customers would actually use digital channels with more frequency, but they can’t because either the usability of their current internet banking channel is so poor, or their bank doesn’t even offer a mobile app!

    Branch networks might be seen as a symbol of commitment – but they also might just be about places where the branding is evident. Perhaps stronger branding through other means might have a similar effect, without requiring physical real-estate. Given the number of direct banks who are in the Top 50 banks globally today without branches, I just don’t think that argument has long left to run…


  5. David Goll says:

    Interesting view Brett (the branding aspect on the bricks and mortar network). Myself personally, I have only been to a branch once in the last 8 years, to apply for a mortgage (online request for a mobile banker to visit us went unanswered/unacknowledged!).

    But still in the Australian market there are many pressures on banks to retain physical branch networks even in major cities. Part of this may be for business services (eg: cash handling) since the value proposition for the elimination of physical cash in its last remaining stronghold (small value payments < $10) still has not been realized. Mondex came and went but was a good decade ahead of its time (fantastic scheme!).

    I am very bullish on NFC for retail payments in the physical world, but we need to ensure we support small/micro payments and not just use NFC as a channel extension for traditional CR & DR payments where the fee structure is unsuited (from both merchant and cardholder perspective) for transactions typically achieved with notes and coins.

    Looking forward to reading Bank2.0 which I've just ordered from Amazon.

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