Is Branch Banking a Luxury or a Necessity?


According to a recent Bloomberg News article, JPMorgan Chase (JPMC) is focused on growing their share of wallet with their most affluent customers. This strategy is in response to recent regulations like the Durbin Amendment that have reduced banks’ fee income and thus endangered the profitability of their non-affluent DDA customers. Indeed, JPMC predicts that due to new regulations 70% of its customers with less than $100,000 in deposits and investments are now unprofitable.

According to JPMC, a core component of their strategy for creating deeper relationships with their affluent customers is branch banking. This comes as a bit of a surprise given that virtually all industry observers are predicting the death of branch banking. So why is it that JPMC thinks braches are “invaluable” to their affluent customer strategy? Why are they planning to potentially open 900 new branch buildings in 2012? I’ll let Todd Maclin, chief executive officer of consumer and business banking at JPMC, explain their reasoning:

“Branches are not that expensive relative to all the opportunity and the other expenses that we have in running this place, given our scale. We would acknowledge with everybody else out there that it is entirely possible that they could go away one day. If they do, we will make a lot more money than we’re making right now. Until they do, we’re going to make sure we’ve got them so no one else can take our location.”

Essentially what Mr. Maclin is saying is that, given JPMC’s scale and current cost structure, it makes sense to embrace the opportunities provided by branch banking for connecting with affluent customers. I have a theory about why JPMC sees its branches as an “invaluable” part of its affluent customer strategy.

I think it’s for the same reason that Steve Jobs thought that retail stores were a critical component of Apple’s business strategy. According to Walter Isaacson’s biography, Steve Jobs had to fight with the board of Apple Computer in 2000 in order to build a series of high-end retail stores for Apple’s products. The board’s argument, which mirrors the current argument against bank branches, was that retail stores were expensive and unnecessary. Jobs disagreed. What he realized was that in order to effectively sell Apple’s premium computer products, Apple needed to control the sales process for their products. They needed to provide a premium sales experience in order to differentiate their premium products and convince consumers to pay a premium price for them.

This is exactly what JPMC is trying to do with their branches. They are trying to differentiate themselves in the affluent customer segment by providing a luxurious retail experience through its branches. The products that JPMC is hoping to cross-sell to its affluent customers (financial advising, wealth management, etc.) are perfectly suited to an upscale branch. “Come on in! Let me take your coat. May I get you an espresso? How was your trip to Italy? I remember you saying that you want to retire early so let’s sit down and talk about your investment options.” These are the types of interactions that are attractive to affluent customers and they can’t be replicated online or over the phone. They have to be in person.


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One Comment

  1. This is a great discussion and I like the mind-model provided by Apple stores.  Imagine a bank branch where I can easily schedule my interaction with the resident “genius”, the staff provide an extraordinary service experience, and advanced technology allows me to have my choice of paper or paperless transaction records. Great stuff. And I agree…the acruwealth.com model looks very promising!

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