Hub and Spoke—the Future of Branch Banking?

BoA video teller "robo-branch".

American Banker recently published a report about a Bank of America initiative to expand into Indianapolis with a familiar (to us, at least) hub and spoke type strategy that combines larger central branches supported by smaller, agile offices.  The bank is placing large flagship branches in upscale neighborhoods, supplemented by a network of smaller, high-tech automated branches outfitted with video teller machines.  Its most recent foray into the Midwest sees a full-service retail branch sited in downtown Indianapolis’s newly renovated Cummins Tower following the development of locations in Minneapolis and Denver.  In addition, three “advanced centers” or “robo-branches” are being opened across the city where customers are greeted by a digital concierge that directs them to a private room where they can talk over a secure video feed with a banker.

Bank of America is employing a hub and spoke approach to their Midwestern branch network strategy.

Indianapolis’s Cummins Tower, site of Bank of America’s new full-service branch.

This approach has already been successful in Denver and Minneapolis, and BoA says it plans to open up to 60 new branches in prosperous markets in the region.  This is important news for smaller financial institutions that are reluctant to make changes for fear of disturbing the traditional way their customers do business in their branches.  If the large banks continue to adopt this strategy it will put massive pressure on those community banks and credit unions that are already sorely in need of modernization but are ‘waiting it out’ due to uncertainty.

The smaller offices—the so-called “advanced centers”—signal a new and ominous trend on the part of large banks.  Also known as “robo-branches”, these unstaffed, automated branches sited at convenient locations will appeal to the younger demographic and could obliterate any advantages smaller institutions enjoy by offering more personal service via video conference link, or by simply appearing more local in nature.

Bank of America branches with Merrill Lynch financial services are being supplemented by smaller "robo" branches, or spokes.

A Bank of America retail branch in Edina, Minnesota.

BoA Financial Center Executive Will Smayda said of the branches, “These centers will provide our existing banking, investment and commercial clients, as well as new customers, with access to Bank of America’s retail capabilities.  Seamlessly integrated with our digital offerings, the physical presence of these new locations will provide our clients with both the high-tech and high-touch experience that we always strive to create for them.”

BoA has closed around 1,600 branches since 2008, mostly in rural areas, including all their branches in Indiana. Unlike the older Bank of America branches that typically featured a long row of teller windows, the newer branches have modern furniture, and customers receive a greeting and check-in from a staffer holding an iPad, as in a Verizon or Apple store.  This is clearly what Smayda’s “high-touch experience” refers to, and is a scenario that smaller banks and credit unions should be taking note of, as they rely heavily on their community and personal engagement aspects as a differentiator against the big banks.  It is also eating into any gains smaller institutions might make were they to employ video teller technology in smaller, conveniently-located branches.

A video teller branch, which is only slightly larger than a kiosk.

A Bank of America video conferencing center .

BoA’s flagship branches operate on the same principles as the advanced centers, but with warm bodies present.  A banker greets customers by name when they enter; creating the kind of warm, welcoming atmosphere long considered the preserve of the community bank.  Could this incursion by a big bank into community bank territory be a threat to market share?

If your community bank or credit union has not at least begun investigating options for a hub-and-spoke branch network approach for full-service, universally-staffed branches in larger centers supported by small, automated branches fitted with ITMs or advanced terminals, it should be doing.  Simply put, these types of networks are the future.

Most people are familiar with the hub-and-spoke branch network model.  Before advanced terminals came along, the “spoke” branches were smaller, in part because they weren’t full-service (hubs are usually full-service), but today it’s possible to have a virtual full-service, small footprint spoke branch facilitated by an ITM, or advanced terminal.  Each branch on a spoke can also potentially be located in a different market, with a different customer demographic.  Working with a site selection specialist, it’s possible for financial institutions to determine who their best customers are, and where they are located.  They can then strategically expand their branch networks into markets with those same demographics.  The hub and spoke model is an effective way to achieve branch network growth using market analytics to ensure that new locations will succeed in hitting activity goals.

Bank of America has deployed a number of variously sized video teller centers in the Midwest.

Video conferencing facilities come in all shapes and sizes.

If BoA’s succeeds in marketing itself as a personable, modern entity with concierges and advanced “robo- branches” featuring ITMs/advanced terminals, it could spell a whole new breed of market competition for community banks and credit unions.  Bank of America has also announced plans to open full-service branches in the Pittsburgh metro area as part of its retail expansion into medium-size cities across the country.  The bank has already signed leases in the South Hills, East Side and Wexford neighborhoods, and is planning to site more robo-branches in the city.  Brian Ludwick, BoA’s Pittsburgh Market President said, “The decision to open financial centers here is an important demonstration of our commitment to Pittsburgh.  These centers will provide new customers and our existing banking, investment and commercial clients access to all the capabilities Bank of America Merrill Lynch have to offer.”

These flagship branch/robo-branch combinations in Denver, Minneapolis, Indianapolis, and now Pittsburgh, emphasize the importance of brick-and-mortar to our nation’s largest banks; JPMorgan Chase also announced last week that it plans to add as up to 400 new locations on the East Coast, in cities such as such as Washington and Philadelphia.

Smaller banks have a community advantage over the larger, impersonal banks, but for how long?

Will the big banks wrest away the community-oriented image from smaller banks and credit unions?

These large organizations are already winning the online battle for new accounts because their back-end development capabilities are many times that of the smaller banks, making their signup functionality infinitely easier.  If they’re now encroaching on the personal touch and hyper-locality of smaller institutions the battle will become a lot harder.

A Massachusetts community bank promoting its links to local history.

Currently, community banks are able to market themselves as being one with their community.

Community banks and credit unions now need to act on their understanding of where retail banking is going before the nationals establish this new aspect of their identity.  Smaller organizations still have the edge.  To keep it they now have to execute.  By designing and building custom branch offices that are tailored to specific demographics in each market.  By employing universal bankers with retail relationship experience and a working knowledge of customer data capture to learn as much as possible about everyone who enters the branch.  The danger is that big banks will continue this trend, and quickly craft a scalable template that is both customized to any market and truly “community-oriented” by hiring local people with retail experience to greet customers as they walk in the door.

New England's smaller financial institutions have strong links to their communities.

A New Hampshire credit union with community-themed marketing and environmental branding.

The Nationals are aware of how branches are transforming along with staffing models and footprints.  They have clearly been considering this for some time, and they’re not about to let the concept pass them by.  It’s the banking equivalent of Sam Adams cracking the formula for a locally-brewed craft beer, or a pizza chain capturing the qualities of a mom and pop shop.  The change may well be coming, and smaller banks and credit unions need to be ahead of the curve when it arrives in this region.