De Novo Branch Sizing - The Tool for better retail banking profitability

In addition to conventional branches, majority of retail banking groups are currently working with other delivery channels such as ATM networks, call centers, home banking, and Internet banking. The incorporation of these alternative channels is affecting the practices of conventional branches. As a result many conventional branches are converted into new concept, high-performance banking centers known as De Novo branches. It could be said that electronic banking transactions are transforming traditional retail banking centers into New Age banking centers. The estimated cost of opening a De Novo branch is dramatically lower than the cost of opening a traditional branch. (One time fixed cost of opening a De Novo branch is approximately a million dollars and variable cost of $1 million per year). This lower opening cost is one of the reasons for the new trend of major banks expanding the De Novo branch networks. Since 1998 the number of branches in the U.S has increased by 15%. Wells Fargo, Washington Mutual, Sun Trust and Citizens Financial are some of the major banks rapidly expanding their networks. Most banks expect payback on De Novo branches in three to four years. Yet due to marketing and delivery system innovations and rapidly fluctuating market conditions, it is possible that De Novo objectives may change within next five years. Considering such possibilities, the De Novo payback period should be minimized 4 years or less. We believe that the following factors play important roles in the De Novo branch performance and it's payback period: Selection of proper demographics Convenient hours of branch operation Stream lining the customer and process flows Employing well trained staff Benchmarking aggressive sales goals

A De Novo branch as a high-tech retail banking unit is a compact branch consisting of few employees and providing banking products in high traffic commercial centers. Ideally, De Novo branches are located in areas of rapid economic growth. A De Novo branch combines retail banking product delivery system and customer service experience to create an environment that resembles a friendly storefront or a restaurant. It offers a complete package with products similar to those offered in a traditional branch. A De Novo branch can be a stand-alone or an in-store branch. Prior to choosing a new branch location, detailed market research describing the competition and market segment is very important. A De Novo branch in a shopping center or a Supermarket can open up new banking opportunities, which draw the customers of other banks. Ideally, it also ought to become convenient for the existing customers of the bank. The main strategy of banking groups seems to be to open De Novo branches at an accelerated rate within a short duration, as this approach is helpful in gaining market share at a faster rate. In order to accelerate De Novo branch openings, a discretely planned strategy needs to be in place. De Novo branch network is based on the concept of Hub and Spoke model used in any customer service delivery system. The "hub" or core branch would act like a surge tank that could support the surrounding De Novo branches during drastic changes in staffing needs. In addition, the core branch can absorb the customized services that are initiated by De Novo branches. A successful reengineering of the Hub and Spoke concept would yield an efficient and cost effective De Novo network. The streamlining of processes improves retail banking efficiency and enhances customer service quality. In order to achieve an efficient process flow, the branch activities have to be discretely defined. The scalable processes based on new technologies should segue with back office functions seamlessly. All branch personnel need to understand the end to end process flows on which banking activities are

based. Acquiring such in depth knowledge of processes is essential for the reduction of cost of repair work, which amounts to 10-15% of the total branch operating cost. De Novo branches need to maintain a smooth order to customer flow within a limited branch space. Usually, the customer demand pattern at a De Novo branch differs from a traditional branch. For example, the arrival rates of a De Novo branch situated in a shopping center would be dependent on the shopping cycle dictated by the other retail stores. Due to abrupt fluctuations in customer arrivals, the branch-staffing plan becomes a challenge to the branch manager. Branch managers usually rely on parttime tellers during peak hours. The Hub and Spoke approach is also a solution. The complexities of processes involved in product delivery make it difficult to be certain that all delivery channels will function without overlap, therefore, De Novo branch process flows need to be analyzed to avoid redundancies. A privately held cloud based database would be an ideal tool for conducting De Novo Branch Banking infra structure. The main branch (hub) ultimately controls database affiliated with the retail banking activities that are critical to the associated De Novo branches. The database information is used in finding solutions for branch staffing and customer service quality. De Novo branche is usually located to facilitate customer convenience and at the same time it works with simplified process flows that focus on superior customer service quality. The branch sizing of a De Novo branch would take into consideration the assessment of customer demand for staffing and physical area layout. The main criteria for De Novo branch sizing would be: to operate as an independent branch yielding high productivity level To support process flows based on the Hub and Spoke concept To accommodate the varying needs dictated by demography A branch's area layout is a main factor relating to its customer's banking experience. Branch area layout design depends mainly on customer demand. De Novo branch area layout is critical to the streamlining of customer flow through the branch. At times, a scarcity of real estate that meets De Novo branch requirements can make finding a suitable branch location difficult. A flexible area layout design then becomes important in developing the branch in what may be the only location available. Considering the branch area constraints and the customer demand, a flexible area layout, which addresses customer, teller and platform areas is designed using ergonomic principles. The layout needs to include a private space or back office, which is separated from the rest of the branch. The back office is the space where the branch staff can perform non- customer related functions without any interruptions.