By Brian Abner
Today’s reduction in real estate demand has caused builders to suffer nationwide. Approximately four years ago, the housing market was booming and national builders could not keep up with the demand. Banks rode the construction wave and enjoyed the prosperity of a booming economy. Now, margins are compressed and the idea of expanded real estate lending, or a new branch, is almost blasphemy to many bank executives dedicated to cutting cost.
It will take more than a tight wallet for banks to flourish during this economic downturn. Unfortunately, the economy and fear of the unknown is slowing down banks that otherwise would expand and build new branches to better serve customers. Banks must invest in convenience and customer service to keep their business in today’s environment of heightened financial competition, discerning customers and fluctuating gas prices. Branching continues to expand nationally and financial institutions are continually engaging new territories. Take this to heart – if your branch does not cater to the neighborhood of its target market, a competitor will.
The current economy leaves no room for error. Bank executives cannot afford to be hasty and make poor investments, nor can they delay and make no decision at all. A solid strategy is necessary to maintain and increase customers and sales. As the Troubled Asset Relief Program (TARP) makes capital available for a variety of purposes, including bolstering financial strength and/or supporting acquisitions, the big question for financial institutions remains: “how do I make best use of my capital resources?”
A bank’s strategy must begin with a balance of both quantitative (demographic, economic, competitive and customer data) and qualitative (market research, staff interview, field visits, etc.) research. After the initial research, banks must regularly reassess demographic and lifestyle trends that affect the purchase of financial products.
The current real estate environment is no reason to stop investing in branches; rather, it holds significant opportunities for banks. Now is the best time to invest because deals and discounts are abundant. As always, banks should conduct detailed research before purchasing land for a new branch to maximize its value and avoid premiums. The past year has presented a great number of real estate values, and experts predict this market will last for at least another year.
This does not mean that all financial institutions should invest in mega-branches. On the contrary, “chic shacks”, or smaller, boutique branches with an intimate atmosphere, are gaining popularity as an option that reduces costs while better serving customers. The key is opening the lines of communication with customers.
Branches need to be more than a transaction mill. They must serve as a multi-channel sales environment; a concept that can still be accomplished for a reasonable price. Branches must have a welcoming design and customer-oriented attributes that cater to community values. As an example, offering a small meeting room for customers to use for their business endeavors has gained popularity. The design could include a place to discuss investment accounts while handling a routine transaction. Ultimately, the successful design creates a place where people want to conduct business – no matter what the square footage or grandeur of the building.
Dialogue delivery is proving to be a better method to promote sales. In contrast to traditional teller lines, a dialogue delivery system uses teller pods – pieces of cabinetry that enclose cash dispensers or recyclers – that allow the bank’s employees to focus on conversations with the customer while the machinery handles the routine transaction. The employee still performs the transaction; however, taking advantage of the automation allows the conversation to focus on the customers’ needs and the bank’s ability to meet them. This concept literally brings employees closer to the customer and fosters customer relationships while identifying various cross-selling opportunities.
The financial leaders of tomorrow will be the institutions that leverage the soft economy today. Customers are looking for value under compressed economic conditions and banks must meet those needs, or risk losing their business. Financial institutions that have a good growth strategy and value customer service can find extensive opportunities in their marketplace. The key is the development and correct execution of a sound strategy – as well as a timely implementation.
Brian Abner is director of market strategies for LEVEL5, a consulting and facilities development firm specializing in financial institutions. For more information about LEVEL5, call 404.761.0008 or visit the Web site at www.LEVEL5.com