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As consumers rethink day-to-day activities in response to the COVID-19 pandemic, financial institutions are also evaluating how their customers use brick-and-mortar branches. Such behaviors can be traced to a fundamental shift in how banks do business to accommodate physical distancing and other safety protocols. While many financial institutions conduct branch rationalization studies annually to evaluate their branch footprint, the pandemic—along with merger and acquisition (M&A) activity and capital and liquidity pressures—has pushed this business consideration to the forefront. Furthermore, loan demand has decreased, and interest rates are at historical lows, compressing net interest margins.

Financial institutions are looking for ways to improve their efficiency ratio during these challenging times. To prepare for future opportunities, financial institutions should re-examine their customer service strategy as it relates to branch optimization decisions and assess how to best adopt and utilize digital service delivery channels to meet the needs of their customers. Emerging strong through these crucial challenges means leaning in to a digital environment using data analytics technology, allowing institutions to make important data-driven decisions to best meet the needs of their customers, as well as balance overall operations costs to provide optimal capital planning.

Current Implications for Branch Locations

The COVID-19 pandemic has created macro and micro economic conditions, causing divergent impacts on various sectors of the economy. As such, the financial institution industry will need to carefully analyze these differences based on geographic location, asset concentration and quality and customer base.

M&A Activity

M&A activity generally results in consolidation to optimize cost structure and the ability to develop scalable service platforms to deliver convenience and customer outreach. A natural outcome of consolidation activity is evaluating branch locations, presenting reputational risk as well as attrition risk.

Digital Options

Digital banking options continue to be favorable among many consumers, meaning less people are visiting branch locations to handle transactional activities. Instead, many financial institutions are rethinking the purpose of branch activity to move toward more value-added and consultation services (e.g., financial planning and insurance services). This requires a reassessment of branch management modeling and layout, potentially with less teller space and more private space for face-to-face engagement. Rather than becoming the sole option for customer support, the physical branch location becomes a supportive extension of digital service offerings.

Branch Closures

Financial institutions could also see an acceleration of branch closures to preserve capital and decrease operating costs. Branch closures are a common occurrence among large institutions. Community and regional banks, with significantly fewer branch locations, can also benefit from assessing their geographic footprint.

Branch Optimization Considerations
Technology Improvements

To help enable physical branch locations to operate at peak efficiency while still providing  superior customer experience, utilizing a modern information technology (IT) infrastructure will become essential, including wireless connectivity, cloud capability and data solutions. Many financial institutions already engage a third-party network services provider to help manage the IT infrastructure while also focusing on preventing potential cybersecurity threats. Artificial intelligence (AI) and machine learning (ML) will help to improve back-office functionality and agility, automate certain operational functions, and provide insight for more personalized, strategic market and product niche campaigns.

Data-Driven Decisions

Financial institutions should also consider a robust analytical framework to evaluate their branch footprint resulting in an enhanced customer experience and limiting operating cost, attrition and reputational risk. Such a framework can help to identify and understand market trends and changes and provide foresight for future opportunities. It also allows for qualitative risk assessments to be performed at a granular geographic level, allowing banks to make the required data-driven decisions for the future of their physical branch locations.

DHG has developed a branch optimization framework that looks at various facets of physical service and product delivery channels to help banks of all sizes optimize their branch footprint for a continued return on investment. This involves working with the institution's IT professionals and management team to procure, transform and blend data sources for relevant analysis. The framework evaluates certain regulatory, competitive and strategic considerations to help financial institutions determine if a potential branch closure is the right option, or if other options may be considered.  

DHG is positioned to help you with data-driven decisions regarding branch optimization. For more information, reach out to us at

About DHG Financial Services

DHG Financial Services professionals provide you with in-depth industry knowledge and a wide range of advisory, assurance and tax services to address issues facing your industry in today's challenging environment.

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