Change Your Mindset #4 - Branching is not always the most viable way to grow - Consider organic growth

According to a study released by BAI last November, the average community bank only considers about 24% of its customers “loyal.” For the average credit union that number gets a slight bump to 26%. Loosely interpreted, that means that by its own admission, the average small financial institution acknowledges that, at any moment, upwards of 70% of customers/members might walk out the door.

If we take a little more realistic approach, what that means is that financial institutions are doubtful that all of the time, effort and money that they’ve spent on recruiting new accounts will translate into sustainable, long term growth. This is a challenge to be addressed sooner rather than later.

But how?

In order to maximize the potential in a branch, an institution’s overall strategy must include elements targeted at organic growth. And, rather than an afterthought, those elements should be the primary focus of the strategy. For most institutions, this will be a major shift in mindset. Isn’t that a good thing, though? It seems hard to believe that the best customer loyalty rate this industry can achieve is an average of 26%. If we want different results in any walk of life, we need to change our approach, and the first step in doing so is changing our mindsets.

Consider this:

On average, 29 cents of every dollar is held in financial institutions. The other 71% is out there for the taking, if and only if, you can give consumers a worthwhile reason to move it to your institution.

Let’s assume that we have a financial institution with a few well executed branches. Let’s say that we’ve researched our existing markets, and discovered that the bulk of that extra 71 cents per dollar is investment money of some sort, be it stocks, IRAs, or 401K accounts. Convenience is a major player for high transaction volume accounts (i.e. retail banking). It does not seem to matter much when it comes to investments. Investments represent people’s future and livelihood in retirement, so driving a little further doesn’t seem to be quite as big of a hassle on the investment side. More branches simply aren’t going to get it done in this case.

An institution with a mind for organic growth would look at the marketplace and determine just exactly how high the demand for investments was. It would determine how many people and how many dollars that demand encompassed. It would then explore ways to meet the needs of the marketplace. It would make sure that the solutions added value from the customers’ perspective. And finally it would use this new focus to differentiate from the competition, and it would make sure that its key messages communicated what that difference means to the customer.


Unfortunately, organic growth seems to be lost in the seductive world of branching and quick returns. According to the American Bankers Association, over 75% of managers see branching as their number one avenue for growth this year. Branch network expansion is one piece of a strategy that can result in growth for a financial institution. There’s no denying the returns that can accompany a well-executed branch, but sometimes there are more profitable ways to grow. Where institutions run into trouble is when branching becomes the option, rather than one option.

We know that on average, each new account recruited costs an institution roughly $1,500. Frederick Reichheld, the author of “The Loyalty Effect” and “Loyalty Rules,” claims that the cost of acquiring a new customer can be 6-7 times as much as retaining a current one. Even at half of Reichheld’s claim - or a 3:1 new customer to existing customer expense ratio, it appears to be a sound strategy to concentrate the bulk of the effort on existing customers rather than on new customer acquisition. There are some obvious assumptions involved, but now we’re talking about a cost of $500 per customer (or less) as opposed to $1,500 per customer. What could you do with an extra $1,000 per customer?