As branch square-footage requirements shrink, community banks are reserving extra space for everything from community events to small-business meetings.
By Beth Mattson-Teig
As the rise of mobile and online banking drives a decline in customer visits to physical bank branches, community banks are being pushed to think of new ways to put idle space back to work.
Since 1992, the volume of branch transactions has dropped by more than 45 percent. That decline is continuing at a rate of 6 to 7 percent per year, according to a 2016 white paper published by Adrenaline, an experience design agency. This change in how, when and where customers choose to conduct banking transactions is resulting in excess space within banks.
Community banks’ challenge finds a parallel story in the retail sector. With e-commerce a major disruptor in the industry, traditional retailers like Macy’s and Best Buy are reimagining their brick-and-mortar footprints to include fewer and smaller stores. At the same time, retailers are developing new strategies to lure people away from computers and mobile devices and back into physical stores.
The challenge to both sectors isn’t going away any time soon. Some industry research predicts that there could be another 40 to 50 percent decline in the transaction volume within bank branches over the next decade. For example, a June 2017 research report published by the U.K. firm CACI is forecasting that consumer branch visits will drop from a current average of seven customer visits per year to just four by 2022.
“In most instances, the branch sizes of yesterday are too big for the services customers need today,” says Kevin Blair, president and CEO of NewGround, a design-build firm that creates custom financial, corporate and health care facilities.
Community banks are reconfiguring space to better fit the universal banker model gaining traction across the U.S. Some are removing the standard teller lines and replacing them with teller pods, booths and café-style lounges that give a more personal feel to customer meetings. “You don’t need a six-person teller line in many institutions, and in most institutions, you don’t need a teller line at all,” says Thomas Mooney, financial facilities business unit leader at St. Louis–based L. Keeley Construction.
Newly constructed banks feature smaller footprints than in decades past, while the renovation and redesign of existing branches is freeing up more space. Traditionally, bank branches have ranged in size from 4,000 to 6,000 square feet. Today, the average size of a new bank branch is about 2,500 square feet, Blair notes. “You can clearly see that the excess space feels very awkward when you only have four to six staff in a large 5,000-square-foot branch. It looks and feels like no one is there,” he says.
Yet physical locations still play a vital role in serving customers and generating new business. Statistically, 80 percent of all consumers prefer to walk into a physical branch to open up a new account, Blair says. “So, proximity to the physical branch is still very important, and it is one of the primary reasons why a consumer picks a bank,” he says. The challenge many community banks now face is how to better utilize space to create a better customer experience, provide additional services or generate new sources of revenue.
Community bank leaders are now looking at their bank branches less as places to conduct transactions, such as cashing a check or making a deposit, and more as service or help centers where they can engage customers and the broader community. “We 100 percent agree that banks have an opportunity to use their branches in more unique ways than we have used them historically,” says Teri Williams, president and chief operating officer at OneUnited Bank, a certified Community Development Financial Institution with $650 million in assets and locations in Los Angeles, Miami and Boston.
Community banks are finding ways to carve out meeting and event space that they can use both for their own purposes and as added-value resources for local business and community groups. OneUnited Bank took advantage of a 2015 renovation at its Crenshaw branch in Los Angeles to create a separate community room that it makes available to a variety of businesses and nonprofit groups. The room can accommodate up to 25 people and includes a restroom, small kitchen area, audio-visual capabilities and a separate entrance that allows groups to use the space when the bank is closed.
The Crenshaw branch primarily serves black and Latino customers, many of whom have low or moderate incomes. “Some of the people who come in and bank with us have never been in a bank before in their life and have never felt welcome in a bank,” Williams says. As a result, one of OneUnited’s main goals was to make its branches more inviting. “It really has been helpful for us in getting to know organizations and organizations getting to know us,” Williams says. “More importantly than that, it provides a service to the community.”
The nonprofit Fortitude Foundation has used OneUnited Bank’s facility for monthly meetings, workshop training and small fundraising events over the past three years. “Our budget is limited. Having a comfortable and welcoming environment to conduct business in at no cost is a godsend,” says foundation president Donna Smith. “It allows us to use our limited funds to support our public service efforts as opposed to rental fees.” The Fortitude Foundation provides services focusing on healthy lifestyles, literacy and civic participation.
OneUnited also uses its community room for programs and events that help it connect with the community, reach potential new customers and strengthen existing relationships. For example, the bank has used the community room to host educational classes and Facebook Live events aimed at expanding its financial literacy efforts. It also uses the room to host recognition programs for some of its business customers, such as celebrating a milestone or an anniversary. “It is one of the tools that we have used to change how the community sees banking in general and OneUnited Bank in particular,” Williams says.
A lot of banks are just starting out on this journey, thinking of new ways to use their physical branch space, and there isn’t a “silver bullet” approach, notes Sean Keathley, president of Adrenaline. Every bank is dealing with a distinctly different community, whether it is urban, suburban or rural, he says. So, it is important for banks to consider solutions within the broader context of their local market and the wants and needs of that local community, he adds.
OneUnited is in the early stages of rolling out a new use for its branch location in Miami. The second floor of the bank is currently vacant, and OneUnited is in discussions with a nonprofit group that wants to create a coworking space. OneUnited would provide the space, and the nonprofit would be in charge of managing it.
Reconfiguring space is on many community banks’ wish lists these days. However, the challenge is often coming up with the capital and making strategic decisions on where to focus those dollars to enhance the branch experience.
Before investing in creating a community room, for example, make sure there is a need for that space in the local market. Some towns and cities already have plenty of free meeting options available at churches, libraries, senior centers and other public facilities, but there may be a need to provide tech-enabled space that has audio, visual and Wi-Fi.
Frost Bank in San Antonio, Texas, typically sets up shop in neighborhoods where there aren’t many options for group meeting spaces. The $31 billion-asset bank saw the opportunity to provide a venue for local groups like the Junior League of San Antonio. “We are really at our best when we are engaged in our communities … and the idea of providing a community room came out of that,” says Jimmy Stead, chief consumer banking officer at Frost Bank.
Those dedicated community meeting rooms are now a standard part of both new Frost Bank locations and bank redesigns. The meeting spaces typically feature seating for 15 to 20 people and a small space for drinks or catering that a group might bring in for an event. Some of the newer spaces have separate entrances with access to restrooms so that groups can use the space outside of bank business hours.
Whatever the format, community banks should actively invite groups to use the community space and welcome them into the bank when they arrive, Stead notes. “When people show up, that means being good hosts. Just like welcoming people into a meeting that you’re hosting for customers, you want to be good hosts for the community as well,” he says.
Banks that want to create a community room or community meeting space need to recognize that it is as much of a cultural challenge as it is a physical one. “I could have two banks that create a community room, and one says it was a complete waste of space and the other says it is the best thing it ever did,” Keathley says.
The success factor, he says, is the bank needs to not only create dedicated space but also create a dedicated program for that space, and have someone proactively managing and reaching out to groups that want to use the space.
As in all aspects of community banking, personal service is key.
Other ways to fill extra space
Some community banks take a more dollars-and-cents approach to repurposing extra space and look for ways to either downsize the footprint and reduce costs, or subdivide extra space and lease that space to other business users to generate income. There is also an opportunity for banks to bring in complementary tenants, such as a real estate or title company that help to drive demand for a bank’s mortgage business.
However, not all existing facilities are a good fit for carving up the existing footprint to accommodate new users. It is important to consider the expense along with the demand and rent that could be achieved before undertaking such a project. “Sometimes it is cost-prohibitive to split the space, and the return on investment is really what becomes the big driver for most bankers,” notes Kevin Blair of design-build firm NewGround.
Subdividing a space that was originally designed for a single tenant often requires adding a separate entrance, building new walls, modifying heating and ventilation, and potentially adding a separate restroom. It can get expensive to create that extra space. Banks also need to consider whether there is sufficient parking to serve the new tenants and how those changes will affect entrances, exits, signage and branding. In some cases, it is a better choice to sell the building and build something smaller, Blair says.
Although many banks are downsizing their physical footprints, there also are cases where banks are building bigger, multi-use finance centers. The bigger footprint can help to offset building or land costs. “You get a lot more bank for your buck when you’re putting in more square footage,” says Thomas Mooney of L. Keeley Construction. His company has built some new bank facilities recently where the institution has increased the size of a building to accommodate small office tenants, such as a financial advisor, an insurance company or an attorney. The added benefit of upsizing is that it creates a more flexible footprint that will allow the bank to expand or contract as business needs change over the long term, he adds.