Branches evolve, retain relevance with rise of e-banking

With online and mobile banking’s increased popularity — a trend accelerated by the COVID-19 pandemic — it’s fair to question the future of the physical bank branch.

But even with the rise of e-banking, the branch remains a key industry feature. In fact, at least a half-dozen new branches have opened in the Boulder Valley and Northern Colorado in the past year. 

So how do bank leaders decide where to locate their branches? 

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“It’s really more of an art than science,” Bank of Colorado president Shawn Osthoff said. 

For banks with a retail focus, customer convenience is king, he said — “good access in and out with good visibility.”

Site selection for consumer banks is “driven by demographics and traffic counts,” Skye Commercial Real Estate Inc. managing broker Geoffery Keys said.

Growth potential is another important consideration.

“Is the market going to grow? Is there where traffic routes will continue to be strung?” Osthoff said.

He cited Bank of Colorado’s branch in Johnstown’s 2534 development, opened about a decade and a half ago — as an example of getting the site selection process right. 

“We were one of the first buildings out there,” Osthoff said. “We might even have been a little ahead of our time,” opening before much of the existing development was complete. 

“But it’s been a tremendous location for us in terms of brand awareness, visibility and accessibility,” he said. “It’s served as sort of a billboard.”

For commercial banks, the site-selection calculus is a bit different.

“We don’t think about branch site selection the way that a lot of national banks do that are more retail oriented and have to think about driving traffic to their branches,” InBank president Ed Francis said. 

“With a commercial client, 95% of the time we’re going to see them, they’re not coming here to see us,” he said. “… We think more about ingress and egress for our bankers and their ability to get to their clients.”

Regardless of whether their clients are newlyweds opening a joint savings account or a restaurant chain in search of financing to open a new ramen shop, longevity is critical for banking industry site section. 

“There’s a lot of infrastructure that’s required to put in a branch in terms of security, vaults, safety deposit boxes. There’s a big front-end cost to establish a branch,” Keys said. “… When we’re doing a search for a branch, we’re typically looking for a minimum of a 10-year lease. They will typically stay in their space for a lot longer than that.”

Because of the expense and the desire to remain in place for an extended period, some banks focus their expansion efforts on real estate they can own rather than lease. 

“When you’re building out bank branches and nice offices, it gets kind of expensive. So we try to think about places where we can own. If we can’t own them, then we think about places with long-term lease options,” Francis said. “Once you establish a location, it doesn’t make much sense to move it every year.”

In general, Francis said he adheres to the “philosophy that we want to be in big markets with lots of growth where you can pick up market share or we want to be a dominant player in smaller markets.”

A market ripe for Bank of Colorado expansion has been west Greeley. 

“The city of Greeley continues to grow to the west, and we wanted to be in the middle of the growth path,” Osthoff said of the decision to place a branch on West 20th Street. 

“For the most part, we’re looking toward new and growing markets that haven’t been served by banks so we’re early to get there,” he said.

While bankers are quick to defend the importance of the branch, they recognize that the industry has changed. 

“The size of these branches has changed significantly,” Osthoff said. “The days of a 10,000-square-foot branch are behind us. Most of the locations we’re looking at are more 3,000 to 4,000-square-foot at a maximum and sometimes less than that.”

Francis said he doesn’t “think that branch banking is going to go away. I think there will always be customers who need to see bankers and interact on a personal basis. But the industry is changing and financial technology companies are leading a lot of that. So we have to evolve and serve customers how they want to be served.”