ABA Banking Journal - January 2010 - (Page 22)
Retail report Time for branch optimization More than site analysis, design, acquisition, or divestiture alone, you need to analyze your branch network from the viewpoint of its ROI now and for the next seven years everal industry trends—the down economy, looming restrictions on fee income, new consumer growth opportunities, and changes in market dynamics—suggest that banks need to make a significant shift in branch planning. Yet, over the past ten years, few banks have given much consideration to optimizing the performance and effi- S ciency of the branches and networks they currently have in place. This blind spot costs banks millions in operating costs and lost opportunities. The term “branching” itself suggests adding more branches, rather than reassessing existing branch locations or reengineering existing networks to enhance profitability or better position an insti- tution to maximize performance. In the recent past, network growth and profitability was fueled primarily by geographic expansion or acquisition of new branch networks. While expansion by acquisition may currently be very attractive for banks with good capital in this economic environment, most banks need to look to their existing branch networks to increase efficiency, productivity, and return on investment. Many banks are currently being forced to reengineer their branch networks to counter economic and regulatory adversity, but they should also think about doing it to enhance their ROI. Bank of America announced last year that it will close 10% of its branches. If done correctly, it could be a godsend to the institution, and it could serve as a model for other institutions as well. Even if a bank is planning to expand its branch network, it ought to study its network efficiency and productivity to ensure that the entire branch platform is making the most of market potential. No longer is it sufficient to understand By Paul Seibert, CMC, vice-president financial services EHS Design pseibet@ ehs-design.com. The Seattle-based firm provides strategic planning, branch network optimization, branding, and branch business modeling and prototype development. Subscribe at www.ababj.com ”The purpose of branch network optimization is to enhance overall network profitability rather than just looking at the potential of one site,” as Paul Seibert states in this article. This chart illustrates that when “branch convenience radii” overlap, they create enhanced market penetration zones that can increase market share by up to 50% based on branch proximity to one another and alignment of pricing, products, and services with overlapped market characteristics. High market productivity is then produced by overlapping branch convenience in markets with the strongest target market characteristics or scores to generate the highest possible ROI. 22 january 2010/ABA BANKING JOURNAL
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