The Context: A rapidly evolving retail banking industry
Although brick-and-mortar banks (aka, retail banks) played a vital role during the COVID-19 pandemic as “essential services,” a massive behavioral shift saw consumers leaning into digital across all industries more than ever before became the new normal for most.
This came at a time when many retail banks had already undergone 10+ years of much-needed innovation, shifting their focus from “financial products” to “customer experiences.” This gave rise to new tech platforms and enhanced digital services that solved a number of customer pain points, including making it easier for customers to manage their finances directly from their mobile phones. Fortunately, when the world came to a halt at the start of the pandemic, retail banking customers were prepared to manage everything from the palm of their hands.
But this digital transformation didn’t happen just to improve the customer experience alone. Over the last few years, many new digital-only players, often called neo-banks, have entered the market in growing numbers. Compared to traditional retail banks, they claim to offer a purely digital, hassle-free experience without any unnecessary fees. With these new competitors disrupting the world of financial services, retail banking had to evolve (quickly) to stay relevant.
Therefore, it’s safe to say that the retail banking industry was already at its transformation tipping point well before the pandemic began. The pandemic simply was a catalyst for accelerating it. In fact, McKinsey found that 15-20% of banking customers in the US were likely to increase their use of digital or mobile banking channels even once the pandemic subsided.
This has forced the retail banking industry to double down on a number of fronts, most notably around improved digital banking services, stronger customer relationships (i.e. moving beyond transactions), and increased customer personalization (in-store and online).
If you ask anyone in the retail banking industry, they’ll tell you that it’s far from obsolete. There’s a high-touch, interpersonal element to the industry that, on one hand, can be enhanced by digital services but, on the other hand, can’t be effectively replicated or replaced by them. However, they will also tell you that retail banking is incredibly saturated because today’s customers have more choices about where to keep their money safe and secure.
The Problem: How to remain competitive and accessible in a rapidly changing market
In the face of growing competition, retail banks must be increasingly strategic about where they place their brick-and-mortar locations. Not only do these bank locations need to be easily accessible to their target customers, but they also must be competitively positioned to fill voids where other bank brands (and branches) don’t have a strong presence.
The question then becomes: How can a retail bank best optimize its footprint in any given market across the US? Answering that question comes down to data. Unfortunately, simply relying on publicly available data sources, like Census Block Group (CBG) data, to suss out a bank’s real market opportunity is what we could call a “bare minimum” approach to retail site selection. To paint a complete picture that drives informed decision-making, you must know:
- What businesses are currently present in a given trade area;
- What CBGs feed into that trade area;
- What the demographic make-up of those CBGs is