5 Common Growth & Compliance Problems You Can Solve with a Better Branch Strategy
Now is the time to consider your growth goals and risk exposure, and develop strategies that will lead to your success. As we all know, good compliance is good business. But it's also true that good business can be good for compliance! Here, you'll learn five common growth and compliance related problems, and how a better branch strategy can help you solve them.
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It's the start of a new year, which means that now is a perfect time to reconnect with, reassess, and reevaluate the goals you've set for your bank or credit union in 2018 and 2019. If you're like many leaders of American financial institutions, your goals probably fall into at least one of these these categories:
- Increase your profitability.
- Attract new customers to increase sales.
- Cross-sell new products to your existing customers.
- Reduce operational costs and unnecessary expenditures.
- Improve marketing and outreach to the communities you serve.
- Reduce your risk exposure.
- Understand the inherent risks in your operations and market.
- Manage consumer compliance risk exposure, i.e. Fair Lending, CRA, and Redlining risk.
- Again, improve service to majority-minority, low- to moderate-income, and distressed and under-served communities.
- Eliminate inefficiencies.
- Decrease employee turnover.
- Fix inefficient policies, procedures, and practices.
- Ensure the efficiency of your branch and ATM network, and reduce redundancies.
It may surprise you that the solutions to these three goals are deeply interconnected.
In this post, we will illustrate how these three goals might intersect by explaining a common risk or growth problem and outlining how a better branch strategy can solve it.
In solving these problems, you may uncover unique synergies that fuel future growth.
Problem 1: We're worried about our profitability in 2018, and would like to have a better strategy for competing with other financial institutions in our market.
Many (even most) financial institutions are concerned about their profitability in 2018. The market is competitive; as new technologies and online-only banks gain market share, staying successful becomes even more challenging.
That said, there are still opportunities for traditional banks to win. For one thing, customers that use both physical and digital channels tend to be more loyal! Traditional banks are in a great position to provide the personal and digital, high-touch and low-touch service that consumers want - and expect.
To improve profitability, you need to increase revenue and reduce costs. Increasing revenue is closely tied to serving your customers better. Reducing costs is directly related to eliminating inefficiencies. Both of those goals can be achieved with a better, more efficient, and more customer-centric branch and ATM network strategy.
Building a better branch and ATM network will require a holistic approach to growth that considers customer service, product mix, branch operations, delivery channel efficiency and improvement, competitor performance, market opportunities, and compliance risk associated with changes.
One of the best solutions to this problem is Branch Network Optimization (BNO). Branch Network Optimization will take a holistic view and analyze your entire branch network both collectively and individually, and all delivery channels.
Conducting Branch Network Optimization will:
- Identify branches that are candidates for consolidation, relocation, closure or even replacement with a full-service ATM.
- Assess customer and transaction attrition rates, and determine the potential impact on other branches and channels.
- Evaluate Fair Lending, Redlining or CRA compliance impact associated with adjusting the branch network and delivery channels.
- Review the branch performance potential, and how that branch might meet or exceed that potential.
- Consider locations for new branches that will increase market share, enhance customer service and improve profitability.
- Review ATM placement and functionality, as well as branch location and functionality, to better serve customers.
After the analysis is conducted, expect a scorecard for each branch that will rank and score its performance relative to sister branches, peers and competitors. This analysis will develop a comprehensive view of the branch network and delivery channels. With this knowledge, a clear growth strategy emerges, and bank executives gain a clear road map to be implemented in the future.
Problem 2: Our bank wants to expand into new markets, but we're not sure how - or where - to start.
First, congratulations on your success, and your future growth. That's an exciting phase to be in! If you plan on opening new branches for your bank or credit union, you owe it to yourself to start preparing for success before you break ground.
Many financial institutions will start their expansion process by either talking to an architect or a real estate agent. However, taking that approach may open your institution up to unnecessary compliance risk. In particular, you branch network can directly impact your CRA, Fair Lending and Redlining compliance.
When you change your branch network by adding new branches, you are also changing your risk exposure, because you're changing the markets you serve.
Not only might your market area or Assessment Areas change, but your peers might also be altered. Another thing to remember is that changes to your branch network may also increase the risk of unintentionally appearing to redline against certain demographics you serve.
This is one of the main reasons why compliance needs to be involved in any growth planning. Compliance professionals at your financial institution have a more comprehensive and practical understanding of your institution's compliance risk, and can provide necessary insights and guidance.
This is also why we recommend starting with understanding the impact of any branch changes before you actually implement them. In some cases, certain branch locations can even reduce your existing compliance risk in addition to increasing your profitability potential (that's what we call a win-win)!
These risks may seem daunting, but the right solution makes it easy to navigate them and still achieve your profitability and growth goals.
TRUPOINT provides Site Location Analysis, which leverages our consumer compliance expertise to provide strategic, data-driven recommendations for the most profitable potential branch locations in your market.
After identifying a site for a new branch, and the potential profitability in that new location, we'll also help you estimate the impact on sister branches. Finally, Site Location Analysis will also provide valuable insights into how to use your delivery channel network to improve customer service.
Problem 3: We know that we have Fair Lending, CRA, and/or Redlining risk exposure, and we would like to reduce it.
You may have identified disparities or other risks in your data, and be working to improve it. Perhaps you received a complaint alleging discrimination that you are taking seriously, and investigating. Or, you may have heard from a regulator that you need to conduct a Market or Residential Needs Assessment.
If so, you may be looking for an efficient way to understand your markets and your community's needs. A good Needs Assessment will provide
- Strategies to improve marketing and outreach, especially in high-minority areas.
- Tips for how to improve your relationship with your community's residential and business leaders.
- Opportunities to provide financial education and services to under-served communities.
- Insights about how to manage and reduce your Fair Lending and Redlining risk.
That's just one way that your branch strategy can impact your Fair Lending, CRA, and/or Redlining risk. However, each of these areas of consumer compliance has unique risks and requirements. For more information on how to manage your risk, here are a few compliance-focused resources you may enjoy:
- CRA Exam Info Kit
- How to Prepare for Fair Lending Exams in a HMDA Plus World
- 3 Steps of Redlining Compliance Analysis
Problem 4: Our bank or credit union has a merger or acquisition in the future, and we want to ensure that the partnership is approved by the regulators and successful in the years to come.
Mergers and acquisitions are now the norm in the banking industry. In 2007, there were 8,534 commercial banks and savings institutions insured by the FDIC. As of March 2016, there were only 5,913 commercial banks and savings institutions. That's a decrease of approximately 30 percent. To compare, from 1997 to 2007, the decrease was only 20 percent. Those numbers show us that, even though we always expect some consolidation, the pace of consolidation is increasing.
Another facet of this important discussion is that the number of new reporters has dropped from 181 in 2007 to 0 in 2016.
Did you know that CRA, Fair Lending, or Redlining risk can negatively impact merger and/or acquisition plans? The regulators have to approve M&A activity, and if there is unchecked consumer compliance risk, they may not approve your merger or acquisition.
That's why M&A Due Diligence is such an important step in any growth plans. With M&A Due Diligence from TRUPOINT, we'll analyze the individual and combined risk of all institutions involved, and build a strategic plan to reduce it and ensure healthy growth.
Often, this process results in having multiple branch locations that serve the same consumers. As a result, you should identify inefficiencies in your branch and ATM network after a merger or acquisition.With TRUPOINT, we will analyze your data to find such redundancies, and help you decide how to resolve them with an understanding of your growth potential and compliance risk.
Problem 5: We want to attract new customers and do a better job of retaining our existing customers.
To grow and retain your customer base, you have to know what they want. A few statistics can provide some insight into what your consumers want - and how you can provide it:
- In a recent study, 38 percent of consumers ranked "good online banking services" as the top reason they stay with their bank.
- To stay competitive, your bank needs to offer online banking and ideally, a mobile app. In addition, since these channels are so important to consumers, it's essential that your digital banking channels are easy-to-use and reliable.
- It's also a myth that older consumers wouldn't or don't use your online and mobile banking options. Another recent study found that approximately 43% of consumers 55 and older prefer the online channel to the branch.
- Only 30 percent of that group prefer to bank at the branch.
- That said, Millennials are an important demographic. In 2015, they overtook Baby Boomers as the largest living generation, and banks need to consider how to connect with them.
- Millennials spend more than $600 billion every year. They are also the most likely demographic to say that they will stay with their current provider if the online services are good.
- In the future, many customers plan to use the bank branch just as much as they use today, though differently. In 2020, 66% of consumers expect to use the branch as often as or more than they do today.
- The purpose of the branch in the banking relationship needs to evolve to meet consumers' needs and attract new customers. Let Blockbuster be a warning to be proactive in adjusting your business to meet your consumers' needs and expectations.
As you consider your customers, it's absolutely critical to consider your branch network and delivery channels. In addition to evaluating the physical location of your branches, you should also consider the square footage of each branch, the operational hours, the services offered, the support and personal guidance you provide, the deliver channel efficiency, and other customer-experience related factors. You still need branches, but it's imperative that your branch network meets your consumers' needs.
TRUPOINT does offer custom Branch Strategy solutions designed to help you meet unique goals like this. We can help you analyze your current customer base and build a strategy to help you serve them better. Contact us to learn more about a better branch strategy here, and make sure to share your unique goals.
Ncontracts Viewpoint: Banks and credit unions face a branch strategy revolution. Changes in consumer behavior, delivery channels, technological innovation, and compliance requirements are forcing American financial institutions to reconsider their strategies to meet their compliance and growth goals. For many, this means adjusting their branch networks and improving their branch strategy in order to remain competitive.