(By Thomas Brown) I was reminded yet again why
Cornerstone Advisors of Scottsdale, Arizona is one of the most insightful banking consultants around when I read their new study on retail banking. It is a data nut's dream—and particularly timely now, as the traditional branch network faces huge challenges. Cornerstone tends to work with banks with between $1 billion and $60 billion in assets, and occasionally surveys them for purpose of publishing benchmarking studies. Some of the results of this new study are eye-popping and, if you're a retail banker, troubling.
You can order a copy at Cornerstone's web site. If you work in the retail banking business, I urge you to.
Here are what struck me as Cornerstone's three most important findings:
1. Very little actual selling activity takes place in the typical bank branch.
2. The amount of selling and servicing in the bank branches is declining.
3. By virtually any measure, the gap between the best-performing quartile of branches and the bottom quartile is huge.
Take a look, for example, at what goes on at the typical bank branch:
Per Branch per Month, on Average:
Retail Checking Accounts Opened 16.9
Business Checking Accounts Opened 3.2
Direct Consumer Loans Originated 4.2
Small Business Loans Originated 0.6
Total 24
Your eyes are not deceiving you! In any given month, the typical bank branch opens just 17 consumer checking accounts, on average (and also closes an average of 15!), and opens just three business checking accounts.
Second, servicing activity (i.e. teller transactions) and product sales in bank branches are in decline:
Per Branch per Month, on Average:
2007 2010 Change (%)
Retail Checking Accounts Opened 18.7 16.9 -10
Business Checking Accounts Opened 3.8 3.2 -16
Not a good trend! The study also rank-orders retail branch activity by quartile. As I mentioned, the differences can be huge. Take a look:
Per Branch per Month:
Bottom Top
25% Median 25%
Retail Checking Accounts Opened 11.3 16.9 25.0
Business Checking Accounts Opened 2.4 3.2 4.6
Direct Consumer Loans Originated 1.9 4.2 7.2
Small Business Loans Originated 0.3 0.6 1.0
Total 15.9 24.9 37.8
One looks at those bottom-quartile numbers and wonders what bank managements are thinking.
This Cornerstone study is important, in my view. Branch networks are operating under heavy fixed-cost pressures even as they face growing competition from cheaper, more convenient delivery channels. From what I can tell, at too many banks the default strategy for dealing with the problem is to hope for interest rates to rise. That won't be enough. Benchmarking analyses such as the one Cornerstone provides can help bankers figure out which of their branches are underperforming, and why. The sooner banks start doing that, the better for their shareholders.