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SECOND QUARTER SURVEY RESULTSThe aggressive branching strategies and multi-million dollar marketing budgets of national banks are undoubtedly reshaping the competitive landscape of the financial services industry. Increased competitive pressures have forced executives across the country to seek innovative ways to gather deposits, differentiate themselves and ultimately grow their institutions. Whether through the traditional expansionary means of building branches, or through the organic strategy of deepening relationships within the current branch footprint, Market Insights wanted executives to weigh in on the issues they consider when defining a strategy for growth. To accomplish this, we issued an online survey on June 8th and collected responses until June 23rd, 2006; the following is a brief summary and analysis of our findings. Some highlights include:
In addition, profiles of the following groups of respondents will be highlighted:
Who is very likely to build a branch in the next 24 months?
As branching continues to be a focal point for many growth strategies, we asked survey participants how likely they were to build a new branch in the next 24 months; 67% of respondents are very likely to build a branch in the next two years. The results reveal that institutions with assets between $100-500 million are the most likely to build a new branch in the next 24 months. In addition, most of the respondents planning to build a branch in the near future have less than 6 branches, are operating in urban markets and competing for market share. This group identified the following as the most important overall issues facing their organizations:
Specifically, when deciding whether or not to build a new branch, this group identified the following as the most important issues:
These findings show that smaller institutions (in terms of assets and number of branches) are more likely to build a new branch in the next two years than the larger institutions that participated in the survey. In addition, the high level of importance placed on the issue of deposit gathering suggests that these institutions may be building branches to as part of a deposit gathering strategy. While aggressive branching may lead to gathering new deposits, this costly strategy must be carefully planned to avoid the risk of costly mistakes*. The capital investment required to build new braches is substantial, as a result financial institutions are focusing their efforts on organic, rather than strictly expansionary growth. The focus of such a strategy involves developing more valuable relationships with customers within the current branch footprint, and will often times position an institution for more long-term sustainable growth. Who has recently built a new branch that is performing to expectations? Perhaps the most interesting finding from the group that has recently built a branch that is performing to expectations, is that they all consider organic growth, in some capacity, to be the most viable growth strategy for their institution. None of these respondents feel as though a strictly expansionary strategy alone is the most viable for growth. Most of those that have built a new branch in the last 36 months that is performing to expectations, are very likely to build another new branch in the next 24 months (86% of respondents.) The most important overall issues with this group are gathering deposits and condensing margins; the most important issues regarding whether or not to build a branch, however is the opportunity to gather new deposits (71%.)** In addition, the information that these respondents feel is the most valuable in supporting decisions relative to building new branches are:
Competitive information was considered to be the least valuable information in supporting decisions to build a new branch by 86% of this group. Who has recently built a new branch that is not performing to expectations?
The institutions which have built a branch in the last 36 months that is not performing to expectations are generally smaller, most with assets between $100-500 million and with more limited branch networks. The main difference between those that have built branches that are not performing to expectations, and those that are performing to expectations is the views regarding expansionary growth as the most viable. 14% of respondents in this group feel as though a strictly expansionary strategy is the most viable for their institution – even with a new branch that is not performing to expectations. While these respondents have recently built new branches that are underperforming, 40% plan to build another new branch in the next 24 months. Once again, we see smaller institutions relying on branching as the means to grow their organizations, while organic growth may be a more viable solution.*** Conclusion
While financial institutions continue to build branches as a means to accomplish growth objectives, the determining factor to success is finding the optimal mix of organic and expansionary strategies. The selection of the best market and site will not guarantee success; however, when paired with the organic elements of: a differentiation strategy, consistent messages, and the leadership necessary to execute, institutions will undoubtedly be positioned to surpass the growth of those that limit the focus to expansionary alone. Solutions from Market Insights
We are very familiar with the issues identified in this survey, as many of our clients have engaged us to support their efforts in gathering deposits, addressing condensing margins, and developing effective growth strategies. Call us today to find out more about how the following services can provide the support your institution needs in today’s market:
For more information on these topics, refer to the following articles, written by members of the Market Insights team:
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