Branch Network Optimization

Electronic Payments Exceed Check Payments

Industry Conferences

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Home > On Payments Issue #8

Banks across the country have rediscovered the value of their retail franchises, and are reinvesting in branches. Branches - or offices or stores - represent one of the most expensive yet one of the most effective channels for acquiring and growing customer relationships.

Maximizing this investment requires balancing a 'bank-out' approach (utilizing trade area analysis to identify under- or over-penetrated geographies) with a 'market-in' approach focused on current and potential customers. Furthermore, various operational and implementation considerations need to be addressed to ensure the bank's branches are achieving their potential.

In this issue of On Payments we explore the factors banks need to consider when optimizing their distribution networks.

To sign up for an online subscription to On Payments, please click here.

Branch Network Optimization

As consumers' demand for convenience has increased over the past decade, banks have made significant investments in their distribution channels - particularly in online and telephone banking. To fund these additional channels, many banks have sought to reduce their expenses by consolidating branch locations and implementing programs that steer customers toward lower-cost channels. The implicit objective of these programs was, in effect, to reduce customer traffic in branch locations.

Today, however, most bankers are recognizing that, despite the increasing popularity of self-service channels, branches continue to play a critical role in the acquisition of new customers and new accounts. Branch locations are a key component of an institution's brand image, and the location of a branch facility near one's home or business is a primary factor for selecting a bank—even for customers who are primarily self-service oriented and rarely visit a branch. Banks are also coming to recognize that customers with a higher degree of branch usage tend to be among their most profitable customers.

As a result, branch construction across the United States has surged over the past few years. A number of major metropolitan areas have seen a significant increase in branch locations, with branch growth far exceeding household growth.

This growth is likely to continue, with many larger banks implementing aggressive branch expansion programs: Washington Mutual is planning to add 250 new branches per year; Bank of America's expansion plan calls for 550 new branches; and Commerce Bank plans to add 350-400 branches over the next five years.

To design and manage a multi-channel network that centers around robust sales capabilities, banks need strong distribution analysis and implementation competencies. In this article, we focus on the branch side of distribution, and offer our perspective on how banks can optimize their branch networks from a planning and operational aspect.

To read the full article (PDF), please click here.

Electronic Payments Exceed Check Payments

According to the 2004 Federal Reserve Payment Study, 81.2 billion non-cash payments were made in the U.S. in 2003 – and 55% of them were made using electronic payment methods (using credit cards, debit cards, and the ACH), up from 42% in 2000.

The Electronic Payment Instrument Study, which Dove conducted on behalf of the Federal Reserve, estimates that 44.5 electronic payments—valued at $27.4 trillion—were made in 2003.

 Debit cards continue to be the fastest growing electronic payment method, at 23.5% annually

ACH transactions increased by 13.4% per year
Credit card volume grew at an average rate of 6.7% year-over-year

The other component of the Federal Reserve Payment Study, The Study of Depository Instruments, estimates that 36.7 billion checks were paid in 2003—representing an annual decline of 4.3%.

To read the Federal Reserve’s announcement, please click here. The complete reports are available at http://www.frbservices.org.

Our next issue of On Payments will discuss the Payments Study in more detail, together with the implications and opportunities these trends offer financial institutions.

Industry Conferences

Dove Consultants discuss the changing face of the payments industry at two industry events:

NAFCU hosted its annual Chief Executive Officers Conference in Orlando, FL last week, which provided credit union CEOs with an update on industry trends and developments. Melissa Fox presented the “Changing Face of Payments”, which included an overview of the changes taking place in the payments landscape, as well as the strategic implications of those changes for credit unions.

TechMecca 2005 will take place from February 14-16 in New Orleans, hosted by PULSE EFT Association, the Independent Bankers Association of Texas, and the Texas Credit Union League. The conference will highlight new technological developments in financial services and ways in which financial institutions can maximize their technology investments. To help financial institutions keep the end user in mind, Tony Hayes will be speaking on new insights and trends in consumer payment preferences.