On Groundhog Day, Did the Branches See Their Shadow?

After watching the groundhog come out this year to assess the environmental landscape and let us know there are six more weeks of winter, it struck me that we have had our nose to the ground dealing with some pretty important issues as of late, but it looks like we’ve been neglecting the basics out there in our branch networks. Mirroring the plight of Bill Murray in Groundhog Day, we’ve spent the last few years re-living the same issues over and over again. “Well we mustn’t keep our public waiting, huh? It’s Showtime, Phil.”

With all of the recent focus on online delivery, acquisitions, lending and ever-increasing regulations, there has been a lack of attention on the true efficiency of the retail branch network. We went through a booming growth period and then an unprecedented financial crisis, and now we see many banks with a retail footprint that is somewhat scattered and lacking a strong revenue-producing focus. Let’s face it; the branch network constitutes anywhere from 35% to 50% of a bank’s entire staff. The amount of resources invested and the potential savings and efficiency gains cannot be overlooked any longer with today’s mandate to improve shareholder value.

In addition, the economic landscape isn’t poised to change dramatically in the near term. Revenues are going to remain flat, and with the recent pledge by the Fed to keep interest rates low until 2014, margins are likely to continue shrinking. So, where do banks need to look to free up capital for future endeavors and ensure they are operating as lean as possible? That’s right – “don’t mess with me pork-chop” – the branch network.

There are two key watch words to guide branch strategic reviews: staffing and efficiency. Staffing models themselves haven’t really changed since the release of Groundhog Day back in 1993. Yes, it’s been that long, and yes, we GonzoBankers are getting that old. Banks have developed some degree of discipline in determining the number of people needed to run a branch based on the days/hours open, transactions processed and accounts supported all while following a framework of specific policies and procedures. Best practice banks tend to use a blend of both peer benchmarks and internal measurements to guide these staffing models. Regardless of whether a bank has 100 branches or five branches, retail bankers owe it to their CEOs to provide detailed branch staffing models. There’s no excuse for not knowing at any given time how the branches should be staffed and how they are performing compared to that target.

As consolidation has occurred and branches have been added to the mix from acquisitions, policies and procedures have been blurred, along with the supervisory “chain of command.” Clear direction from management and enforcement of standardized policies and procedures that are consistent across the organization are imperative for efficiency. Banks simply cannot afford to allow pockets of the organization to operate in their “own little world” and not expect to feel the impact of this inefficiency in the back office.

In addition, the service provided to the branches is waning as the number of branches and branch staff outweighs the retail admin support staff. Is your organization out of shape? Banks typically have about 60 branch staff per retail admin FTE and about 10 branches supported per regional manager. Anyone outside this has likely experienced acquisition activities that created an imbalance therefore impeding the efficiency of the branches. Another indicator here of staff productivity is the ratio of part-time to full-time teller staff. A good measure should be about one quarter to one third of total teller staff allocated as part-time or seasonal help to allow for flexibility in scheduling and accommodating peak-time processing without having to staff full-time, which is obviously more expensive.

Once a bank knows where its staffing levels should be, it is likely to be faced with the question of “how do I do more with less?” In order to right-size its branch network, a bank must be able to realize the gains from some process efficiency efforts. In addition to the more strategic topics mentioned above, below are some steps at an operational level to ensure branches are being leveraged as efficiently as possible.

• Make sure the core system is being utilized as efficiently as possible for processing both teller transactions and opening new accounts. On the new accounts side, the system should be well integrated into the various ancillary systems to keep staff from having to re-key data to order checks, run ChexSystems, pull credit, etc. A large majority of the functionality in the core system is set, with all roadblocks being well documented with the local sales rep, but it’s a rare sight when I don’t see a client who is not taking advantage of some piece of functionality in its systems simply due to a lack of due diligence in the latest release or deciding three years ago to not flip the switch on something where it makes sense to flip the switch ON today.
• Formalize the sales and referral process. In keeping with the theme above, if the core or ancillary systems allow for automation and real-time prompting to staff for sales and referral opportunities with customers, make sure it has been turned on and everyone is actively using it. The sales and referral process should not be initiated by a teller passing a Post-It note to a manager, which kicks off a chain reaction of manual Excel tracking that works its way through the branch managers and regional managers to the executive suites. Its 2012 – the world’s not ending but there are better proven sales tracking methods these days.
• Progressively work toward a company-wide CRM solution. And no, making a comment in the “Notes” section of an account doesn’t count. Banks that deploy one system to document every major customer contact – from the failed attempt by the contact center rep to sell a credit card, to the mortgage rep noting that a current copy of tax returns is needed – consistently find greater efficiency and fewer errors in the service delivery process.
• Strive for paperless processing at the teller, new accounts and loan desk. It’s time to quit stuffing Iron Mountain’s trash can at the end of the retention period. Paperless processing not only allows the branch to kick off efficient processes throughout the rest of the organization in an image-enabled environment, but also to realize quicker processing times on some teller transactions, account openings and loan closings. Think about how cool a bank’s brand is becoming when employees whip out an iPad and have the customer digitally sign all their documents, and then see these signed electronic copies waiting in their email inbox at home. Imaging is also a home run in mundane processes such as account maintenance, card ordering, hot carding and research requests. Ultimately, this makes for a happier customer while cutting down branch costs at the same time – a dramatic improvement over populating the Operations Department’s Outlook inbox with task requests.

While this picture of retail best practice may seem obvious, the gap between this vision and the reality of most branches operating today is truly shocking. Most financial institutions do a few of these processes well, but only a few GonzoBankers have all of them up and running today. This year, GonzoBankers need to shake off the branch legacy model of the past.

From Gonzo-land I’m sounding off. “I would love to stand here and talk to you, but I’m not going to,” I’m going to go “say a prayer and drink to world-peace.”
-dj

 
Achieve Disciplined Growth Through Performance Benchmarks

A Benchmarking and Best Practices Assessment from Cornerstone Advisors will help your institution develop a sound foundation for higher performance levels and future growth. Among the benefits:

• Identification of functions where your organization operates “at peer” or “below peer” and where it is a “high performer”;
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• Improved productivity and processes to avoid future cost increases as the institution grows; and
• Improved quality and consistency of sales and service delivery

Contact Cornerstone Advisors today to get on the path to disciplined growth and expansion.