Note: The focus of this article is on current trends in branch banking. This article features information and findings from an interview with subject matter expert Steven Reider, president and founder of Bancography.*
Picking Up Steam: The “Hub-and-Spoke” Branching Model
If your institution is to survive and thrive in today’s market, you’ll need to stay privy to the trends that are shaping the industry.
So, we asked: What trends are you seeing most prominently in branch banking?
“A smaller footprint, the ITM (Interactive Teller Machine) … but if there’s one that I see most prominently it’s hub-and-spoke branching,” Bancography President Steven Reider said. “It’s been talked about for a long time, but this is the first time I’ve seen it get true operational momentum.”
“We talk about the hub-and-spoke model, and bankers have historically thought about that as large branch, small branch. But that’s not really it … that’s more consequence than cause. Hub-and-spoke is a model of operation where not every function is offered at every branch with on-site staff.”
For example, certain “spoke” branches may only have on-site staff capable of carrying out basic functions such as opening routine accounts, taking a business deposit and perhaps making a car loan. However, if an in-branch consumer needs something more complex, like a mortgage or a HELOC, the on-site staff can’t provide that.
Reider added that taking this approach enables an institution to centralize its wealth management, commercial banking, mortgage banking and business lending at the “hubs” with those services being available at the “spokes” by appointment.
While having a centralized location for your highest income-producing products and services has its benefits, the optimization of the hub-and-spoke model is fully realized when you take your top branch managers out of the spoke and put them in the hub, according to Reider.
“This does a couple of things,” Reider said. “It obviously reduces our costs. You say, ‘Wait a minute … how can I operate a branch without a manager?’ If somebody walks in and wants to see the manager, we take a senior CSR (customer service representative) and give them the title of client service manager. Now, ‘I want to see the manager’ converts to … ‘Hi, I’m Steve. I’m your client service manager.’”
Reider added that doing this allows an institution to leverage its most effective branch managers, giving them management responsibility for multiple branches in a close geographic proximity.
“In doing that, you’ve made your hiring burden easier, and you’ve created a career path for your high performing employees,” Reider said.
Wouldn’t this approach give the institution less sales power by having one manager divided between three branches? On the contrary, Reider suggests.
“In our industry, we only tend to reward you when you have more people under you,” Reider said. “And that means if you’re a branch manager, the only way you can make more money is if you come to headquarters. Which means what we’ve done is given an incentive to take our absolute best salespeople and get them off of the sales floor. In any other industry we’d think that’s crazy. So now we’re saying we’re going to take our best salespeople and give you broader sales authority. You get these other two branches.”
Findings from Bancography’s latest branch survey conducted in October 2022 further reflect growth in the hub-and-spoke model.
The 2022 survey found that average branch staffing expectations declined for both freestanding and inline (i.e. strip mall branches) from its 2019 survey, suggesting greater efficiencies in branch operations, or at least attempts thereon. For freestanding branches, respondents reported an average starting staff of 5.4 full-time-equivalent employees (FTEs), with 70 percent of responses falling in the 4 to 6 FTE range. This is a drop from the 5.9 FTE average that Bancography found in 2019. For inline branches, respondents reported an average starting staff of 4 FTEs, versus 4.9 in 2019.
In addition to the declining staff counts in both models, the 2022 study revealed greater divergence in freestanding versus inline models. This suggests an increased emphasis on technology and reduced-cost operations at the inline branches, and perhaps a more defined boundary between complex sales at freestanding branches versus simple service interactions at inline branches, matching the typical facility assignments in a hub-and-spoke branching model.
“The true realization of hub-and-spoke, I think, is something we’re going to see institutions pursue more and more,” Reider said. “It creates efficiencies, reduces expenses, gives a career path for top performers, and really leverages their expertise.”
*About Steven Reider: Steven Reider is the president and founder of Bancography, a Birmingham, Alabama-based consulting firm that provides software tools and marketing research to financial institutions to support their branch, product and brand positioning strategies. He holds a bachelor’s in Economics and an MBA in Finance from Tulane University. A former banker, Reider had taken great interest in branch planning, analytics and the demography of America early in his career, which led to him taking a leap of faith to start Bancography in 2001. Reider’s also been an instructor at the American Bankers Association’s Stonier Graduate School of Banking at the University of Pennsylvania in Philadelphia for 20 years. In addition to his professional role, Steve serves on the board of directors of several arts and civic organizations.