Banks building new branches despite online age

July 27, 2009
MI Bank

M&I Bank’s newest branch, a 5,100-square-foot office, opened early last month in Noblesville’s Hamilton Town Center.

There, you’ll find the usual conveniences like drive-through lanes and ATMs, as well as space for a staff that includes a mortgage banker, an investment adviser, business bankers, management and, of course, tellers.

National Bank of Indianapolis is scheduled to add a new branch in Fishers later this year, a building CEO Morrie Maurer describes as “timeless, elegant.”

NBI’s copyrighted design for its branches features high ceilings, dark wood, marble and a canopy over the entryway similar to the one at downtown’s Hilbert Circle Theatre. It’s intended to send a message to customers and would-be clients that “we are banking like it used to be.”

If these additions to the central Indiana landscape sound impressive, even lavish, well, perhaps they are. They also seem to defy conventional wisdom.

Transaction counts—the number of people going into banks to make a deposit, cash a check or conduct some other form of business—have declined in recent years with the increased popularity of direct deposit, online banking and easy ATM accessibility. So why add branches, which can cost north of $2 million for land and construction?

“A lot of people are using online channels, mobile banking, ATMs and so forth, but they also can’t get away from the personal contact,” said Ken Hall, regional retail manager for M&I Bank. “Especially when they have a problem or when they are initiating their relationship with the bank—whether it’s just the basic checking account or to apply for a mortgage or just to sit down with an investment-consultation professional—they want to talk with somebody.”

Branches are still the preferred method of transacting business, but not by much, an American Bankers Association survey found. In 2008, 30 percent of consumers favored banking in branches, compared with 25 percent for ATMs and 22 percent for online.

The branch numbers are down by two percentage points from 2006; the figures for ATMs and online are relatively steady.

“We think people feel more comfortable with the face-to-face contact when handling important transactions,” association spokeswoman Carol Kaplan said in an e-mail.

Banks doing business in central Indiana clearly recognize this. Statistics compiled by Mike Renninger, principal of Renninger and Associates LLC, a Carmel-based bank consulting firm, show that 32 branches debuted in 2008, the most since 2005.

National Bank of Indianapolis’ Maurer said a cycle appears to be ending. In the 1990s, buoyed by a survey that found electronic banking to be the future, and far less expensive, “the thinking in the banking industry was that branches were this big nuisance. Several banks in this town couldn’t close their branches fast enough.”

But they soon discovered “it’s a lot harder to sell things to people when you can’t see them and talk to them,” said Maurer (a cousin of Mickey Maurer, co-owner of  IBJ). “It’s hard to deliver high levels of service in a faceless environment.”

That led to what he called a “frenzy” of construction.

So far this year, eight branches have opened in the Indianapolis market. And there are more to come.

M&I, in addition to the new Noblesville office, plans to open a branch at 116th Street and Brooks School Road in Fishers, and relocate an office in Brownsburg. National Bank of Indianapolis will continue its strategy of opening one branch a year—this one at 116th Street and Olio Road in Fishers. Forum Credit Union opened a location in the Kroger store at 146th Street and Hazel Dell Parkway in Carmel to see whether its members are comfortable with a smaller office.

Old National Bank, meanwhile, has no plans to open new branches. It added 65 locations (51 in greater Indianapolis) through its November acquisition of Charter One branches.

The increase in branches seems to follow several intersecting and related strategies:

• Banks are moving with the population. Renninger, the consultant, said areas such as 146th Street and Hazel Dell Parkway in Carmel and State Road 37 between 131st and 146th streets in Fishers are seeing banks “lined up like soldiers” following housing and business development.

M&I’s Hall said banks are operating like hospitals that have expanded from the center of the city to suburbs in order to bring services closer to clients.

• Branches indicate strength and stability. “The sign and the branch is a major piece of branding the whole bank,” Hall said. “The idea is, come in and check us out. Get out of the car, come into the branch. Then it’s up to myself and my management team to create that very positive experience for you.”

• Banks are competing for customers, so they need space to provide more services. At the 10 branches Old National opened prior to the Charter One acquisition, customers sit down and transact business instead of standing in a teller line.

“If the customer sits down,” said Randy Reichmann, president of the Indianapolis region for Old National, “it creates a more relaxed atmosphere and you can talk to them about their financial needs in a very private way.”

Those branches also provide conference rooms that are available for customers and area not-for-profit groups to use. The rooms have separate entrances from the bank, so they can be used after hours. They’re complete with restrooms, drinking water and even small libraries.

“It’s not just banking anymore,” said Reichmann, whose Geist branch is testing an Indiana Department of Motor Vehicles kiosk where customers can renew their license plates.

“We’re trying to add value to the community. We want people to see Old National Bank—we’re an Indiana bank, we’re headquartered in Evansville—and have them feel like, ‘Hey, we’re going to go in there and do our business.’ And, oh, by the way, when you’re in there, we’d love to show you around and we’d love for you to be a customer too. People have responded to that.”

Forum Credit Union tries to make its branches more accessible and spacious so that when customers walk in, the line for the tellers isn’t the first thing you see. Forum offers amenities like coin-counting machines for loose coins and a place for members to check their accounts online, said Andy Mattingly, senior vice president of strategy and marketing.

Those are the strategies for today. As for tomorrow, who knows? Maybe electronic banking becomes the standard. Maybe branches will become unaffordable luxuries. Maybe someone will figure out how banks can dispense money from a computer. (That one seems a long way off.)

For now, Old National’s Reichmann said people still like face-to-face contact.

 “Will that go on forever? No.” Reichmann said. “At some point I believe construction is going to stop. But I don’t know the date, nor the time.”•



Recent Articles by Marc D. Allan

Comments powered by Disqus