Bye-bye brick and mortar

The trend to log in vs. walk in continues to shift how banks do business

Posted on May 1, 2016 :: Banking , Insight On
Andrew Schaick
Posted by , Insight on Business Staff Writer

Across Wisconsin people are going to ATMs, online or using their mobile phones for banking transactions. This is leading bankers to close some branches, reduce staffing, try to figure out what to do with excess space in existing branches and build new ones that are smaller.

But bank branches are not going away.

“Branches will play a role in the future,” says Kim Weekley, senior vice president in charge of retail for Bank Mutual, based in Milwaukee. Bank Mutual CEO Dave Baumgarten says it’s an industry-wide issue.

“One of the challenges the industry has is that the traditional branch is large and we are all trying to figure out how we downsize the brick and mortar because we have a lot of dollars invested,” Baumgarten says. “That is an industry problem right now. New branches are much smaller facilities and they are staffed much differently than the traditional branch.”

The bank has shut 11 branches in 14 months while retaining more than 90 percent of the customers of those branches. The bank has spent a considerable amount on technology in the last 18 months, he added.

“We have consolidated, but we haven’t gotten out of any communities.”

The trend is definitely toward fewer branches, says Mark Meloy, CEO of First Business Bank. As a business, rather than a consumer bank, its limited number of branches makes sense; its bankers often go out to meet customers at their businesses.

“It is just a natural part of how we do business,” Meloy says.

Customers with First Business do much of their interaction through online services and depositing checks with remote deposit capture — photographing checks on smart phones and sending the electronic image to the bank.

Meloy expects continued consolidation in Wisconsin’s banking “given there is limited, very low economic growth going on,” he explains. “It’s a challenge for banks as the cost of operations — much of it driven by increased regulation — has raised the bar.”

Many community banks that are closely held and lack a next generation or an internally developed succession of managers will look for an opportunity to sell, he says.

Bank Mutual’s Baumgarten has a similar outlook on Wisconsin’s economy, which is growing at 2 percent while the bank wants to grow at 8 to 10 percent. In the commercial banking market, where Bank Mutual competes with national firms like Chase and U.S. Bank, it promotes its local decision-making.

“Our decisions are made locally by very senior commercial bankers, and we have quick turnaround on decisions.”

Damon DelMonte, an analyst at KBW in New York who covers First Business Bank and Bank Mutual, says local banks serve an important purpose as part of the community.

“They want to partner with small businesses, be the lender of choice and support economic growth,” Del Monte says.

A relationship with a local lender provides value, he adds. “Every economy goes through cycles and there’s something to be said for the local banks that work with business and consumers.”

PNC, based in Pittsburgh, has moved into Wisconsin through a series of acquisitions, says Chris Goller, regional president of PNC Bank in Wisconsin, who sees two directions in banking.

“Mobile and remote are a growing trend where people aren’t using branches as much. On the flip side people still associate relationships with the brick-and-mortar experience.” PNC reports that about 55 percent of customers use non-branch channels such as online, mobile and ATM, up from 38 percent two years ago. Deposits through ATMs and mobile phones are now at 46 percent, up from 38 percent at the end of 2014.

While PNC continues to build branches, they tend to be smaller, around 2,000 to 2,500 square feet rather than 3,500 in the past.

The bank has built 12 new branches around southeast Wisconsin and renovated another 22, spending $70 million on its physical presence.

“While most banks are shutting branches, we have continued to build,” Goller says. “Clients want to see us and interact with us. And we are also building very robust online systems.”

Banks are experimenting with video, some of them offering video kiosks in branches where customers can chat with specialists such as wealth managers or mortgage bankers.

“We have cashless branches in Milwaukee, super ATMs with people to help. We have also developed products for universities, tailored for people of that age,” Goller says. “That will change with technology. I am not sure we know where this is going, but we do know we have to be nimble.”

In Madison, Associated Bank is launching a new branch that fits a view of the future — its “efficient, new 700-square-foot Associated branch in the Galaxie, a 670,000-square-foot, mixed-use development on Madison’s East Washington Avenue that will eventually include residential units, offices, a restaurant, parking and retail locations,” according to its press announcement.

“The number of customers who interact without setting foot in the branch continues to grow,” says David Stein, executive vice president and head of Consumer and Commercial Banking for Associated. “We have continued to invest heavily in alternative channels within the bank. We have a lot of different ways in which consumers and businesses access the bank that are no longer branch centric.”

The branch will showcase the bank’s digital channels from mobile to ATMs which most people use — but not everyone, he explains.

He counts 15 different channels, from phone to in-person conversations, that the bank uses with customers.

“Branches are still critically important for our customers,” Stein says. “Even though consumers use branches less for routine transactions, they still make decisions about switching banks based on what kind of presence the bank has in terms of physical distribution. People will often research products online and still go to the branch for the ratification of their purchase intention.”