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Digitally Savvy Customers are Ready for Thin Branch Networks — but are Canadian Banks?

Progress in repositioning networks will be slowed if the most digitally-receptive customers are lost along the way, underscoring the need for channel segment strategy.

The Big 5 Canadian banks have had a dazzling run in retail branch banking, operating profitable fortress networks over a period of years.

But the foundation is trembling as profit headwinds prevail and consumers delve deeper into digital banking. In three short years, the overall industry concentration of Branch Traditionalists — people who tightly focus both their daily banking activities and loyalty on the branch — has tumbled to 12% from 23%, according to Novantas surveys (Figure 1: Shifting Channel Segment Composition).


Meanwhile the growing ranks of digital-leaning customers are redirecting more of their primary everyday banking account purchases to smaller institutions. In turn, account acquisition among major players is being skewed toward customers who are more strongly attached to traditional physical presence.

As reflected in a recent Novantas shopper survey, 56% of recent chequing purchasers at big Canadian banks fell into categories reflecting high attachment to the branch, compared with only 32% for smaller banks. Meanwhile at smaller banks, 53% of purchasers fell into the lowest categories of branch dependence, versus 28% for the big banks (Figure 2: Segment Trends in Chequing Acquisition).

It is a delicate situation at a time when the major players are turning more attention to network consolidation and re-positioning. Strategically, the high ground lies in capturing the newly-dominant customer category in Canada — “Thin Network Ready.” These consumers turn first to digital channels for most daily banking activities and would accept a thinned physical presence so long as it provides a visible backstop “just in case.”

Reflecting a powerful surge in consumer digital orientation, this Thin Network Ready group has risen to a dominant 38% representation in Novantas surveys. Yet the Big 5 are coming up short with this group — garnering only 26% of their new chequing accounts from this segment in recent years, In contrast, smaller Canadian banks and niche players are acquiring Thin Network Ready right at 38%.

To be sure, the Big 5 continue to dominate primary chequing acquisition overall, and each competitor is committed to a vision of acquisition and service beyond the branch. Yet progress in repositioning networks will be slowed if the most digitally-receptive customers steer their business elsewhere. Under-penetration of chequing purchasers who are Thin Network Ready will cause real challenges for any bank that does not work more quickly to reverse this trend.

An immediate management implication is the need to understand and speak to channel-based segments of customers and prospects. By viewing shoppers through the lens of channel segments on a market-by-market basis, the bank can more clearly assess opportunities and threats and gain clarity on the strategies required to compete and win.

The shift to channel segment strategy could first play out in new marketing messages and offer strategies, and in near-term digital investments designed to attract segments that will happily join the bank in its transformation journey. Longer term, channel segment guidance will be indispensable in repositioning distribution, particularly in sculpting branch networks to free up resources needed to support the digital agenda.

Dependence vs. Attachment
The Thin Network Ready customer segment is one of five cohorts derived from an analysis of consumer branch dependence and branch attachment in Novantas surveys. Along with collecting demographic information, the surveys probed consumer channel attitudes and preferences, particularly the role and value of the branch.

Given the rapid digital technology changes in alternative banking channels, consumer reactions to the traditional branch are especially relevant today. But as it turns out, Canadian consumer views on branch necessity do not primarily reflect variations in demographic traits such as age or income. Rather, branch sensitivity is an attitudinal dimension that must be understood in its own right.

As a complement to behavioural questions about functional dependence on the branch, therefore, we asked a second set of attitudinal questions about branch attachment.

Branch dependence — a set of behavioural questions, asking how often each customer visits the branch, and the specific banking tasks the customer designates for the branch versus other channels; and

Branch attachment — a set of attitudinal questions, examining the extent to which the customer values the branch in a primary banking relationship.

One of the headlines from the resulting matrix is that Branch Traditionalists — people who conduct most of their banking activities via the branch and prefer it that way — are a vanishing species (Figure 3: Channel Segmentation Matrix). In a similar Novantas survey conducted only three years earlier this group was twice as large, representing one of every four respondents. Now at 12% (and presumably still falling), the former core customer group that guided Canadian branch banking decisions for decades is a smaller piece in a much larger and different type of distribution puzzle.

But where do former Branch Traditionalists turn when they hit the exits? As underscored by survey results, there are multiple flavours of digital preference and behaviour. Sound strategic planning will adjust for key differences in the preferred banking experience among emerging segments.

New Centre of Gravity
As highlighted in the Novantas survey breakout of five channel segments, the new Canadian consumer banking centre of gravity is 70% composed of people who are either: 1) Channel Mixers, who extensively use digital channels in active combination with the branch; or 2) Thin Network Ready, having moved a step further to adopt a true digital centre of gravity, but still wanting the branch as a mostly-unused backstop.

Thin Network Ready (38%).
The largest segment — and potentially most worrisome for the Big 5 — is the Thin Network Ready consumer, who has little actual dependence on the branch but still considers branch access when selecting a bank.

Reflecting lingering emotional attachment to physical touchpoints, Thin-Ready customers still list convenient branches and automated teller machines among their top requirements. But given their lower actual branch usage, they are less interested in convenient hours and more interested in digital capabilities.

Thus a strong digital offering with a much smaller but still-convenient branch network will attract these consumers. This puts Thin-Ready shoppers in play for banks that lack traditional dense branch networks but can provide the necessary elements of brand, product, digital convenience and targeted physical presence.

The Thin Ready crowd is shifting away from the Big 5 a bit, leaving these banks more heavily weighted with consumers who are not only attached to the branch but more heavily dependent on it as well — in other words, with the highest cost-to-serve and the most resistance to change.

Channel Mixers (32%). As the name reflects, customers in this segment use all channels to some degree, including moderate branch usage. And like the Thin Network Ready, they exhibit a relatively high attachment to the branch.

Channel Mixers account for much of the advantage Big 5 banks have enjoyed in primary chequing acquisition. Comprising 39% of recent purchasers among the largest players, they had only a 26% representation among smaller banks and niche players.

Compared with Thin Ready customers, Channel Mixers place much greater emphasis on physical convenience. Highlighting the difference, they are 50% more likely to say placing a branch nearby is the one thing a bank could do to be most convenient, and 50% less likely to say “really useful online/mobile banking” would do the most to make a bank most convenient for them.

Polar Opposites

The remaining 30% of customers in our channel segmentation are either stuck with the branch for now (either happily or unhappily), or almost completely divorced from it.

Branch Traditionalists (12%).
These customers exhibit both high branch usage and high emotional attachment to the branch. Like Channel Mixers, they tend to gravitate toward the Big 5 — a recent primary chequing acquisition at a Big 5 bank is three times as likely to be a Branch Traditionalist than one acquired elsewhere.

Given their preferred and frequent branch usage, Branch Traditionalists also value convenient hours. For both Traditionalists and Mixers, marketing should reinforce superior physical convenience as well as rapid funds availability.

The larger strategic question for the Big 5 is the implication for cost-to-serve and competitiveness. In an industry contending with profit headwinds and digital disruption, it becomes harder to broach network consolidation if the bank is pulling an outsized share of consumers who are wedded to the branch in both attitude and dependence.

Innovation Seekers (10%). Customers who express little emotional attachment to the branch continue to use it are dubbed Innovation Seekers. This segment is on the move: While comprising only 10% of current account holders, Seekers represent an outsized 17% of recent chequing acquisitions, as well as 17% of prospective switchers (those already thinking about changing banks or receptive to the idea).

Innovation Seekers do not care about convenient branches as much as the typical shopper and appear to be attracted to competitors who can differentiate on product and service delivery. When prospective switchers from this group were asked to choose the one thing a bank could focus on to be most convenient to them, more picked “really useful online/mobile banking” than picked “a branch near me” — the reverse of prospective switchers in the Traditionalist and Mixer categories.

Innovation Seekers seem to be branch-dependent customers who would clearly be happier if they could find a comfortable path into the digital space. Successful migration would lower the burden on the physical network and provide more latitude for reconfiguration. The key going forward may be to limit the number of Innovation Seekers by better meeting the emerging preference for empowering digital banking solutions.

Digital Only (8%). Finally — and smaller than the digital enthusiasts might think — are Digital Only consumers who neither use the branch nor value it. While this group has doubled from a small base over the last three years, it remains a decided minority of chequing customers. This highlights the challenge that branchless players have faced historically: a reluctance on the part of consumers to completely sever ties with the branch even after they have largely abandoned it in favour of other channels.

Still, it is significant that one of every 12 Novantas survey respondents fell into the Digital Only segment, essentially expressing complete resonance with digital and zero resonance with the branch. And these are not just tech enthusiasts with low banking potential: survey demographics reveal a healthy representation of customers with annual incomes of at least $75,000, concentrated in both the 18-34 and 35-54 age groups.

Today the Digital Only segment constitutes 4% of primary chequing relationships at the Big 5 — half the concentration in the national consumer base. And they represented only 2% of the Big 5 chequing account origination stream in recent years, suggesting that the largest Canadian banks are struggling to attract and retain what little share they have of this segment. As this most channel-progressive consumer banking segment continues to grow, the acquisition challenge for the Big 5 will grow with it.

Turning Point
It is clear that the Canadian banking industry has reached a turning point in distribution. More consumers are transitioning from “receptive to digital banking” to “solidly anchored in digital banking.” As this attitudinal and behavioural shift progresses, the decision criteria for bank selection is changing as well, with differentiators such as a superior digital banking experience and resonant marketing gaining in importance over traditional factors such as branch presence.

Meanwhile channel economics are in flux. Facing continuing profit headwinds and steadily declining branch usage, many bank management teams are actively considering programs for network efficiency, consolidation and repositioning. Some of the Big 5 banks have started announcing staff and branch cuts. We expect further announcements going into 2017, probably more aggressive over time.

Channel segment insights will be essential in managing digital transitions and network transformation. By linking segments to branches, banks can better determine how to optimize branch resources, encourage channel migration by segment, and link sales force calling efforts.

Behavioural analysis. Looking strictly at branch balances and profitability will not provide a clear view of the impact of network changes A detailed understanding of how major customer segments utilize the network today and will likely do so in the future is needed, along with modeling of potential customer impact as the bank continues to transform the network (by evolving branch formats and/or consolidating sites).

Reinvestment. An increasingly important factor in network transformation is reinvestment — careful redeployment of some portion of freed-up resources in marketing and other forms of distribution (digital, call centre, ATMs, alternative branch formats). Segment insights are needed to evaluate highest-return opportunities and guide reinvestment of freed up resources.

New-form customer acquisition.
To rise above all the potential branch-related buzz surrounding network consolidation, banks should develop marketing- and innovation-driven growth campaigns to target Thin Branch Ready customers. These campaigns will shift the emphasis away from the branch toward other factors, such as exceptional online/mobile banking, helping to build the type of convenience imagery that is more relevant to digitally-oriented consumers.

Proactive channel migration.
Branch reconfiguration efforts can be improved by understanding which of the bank’s geographic markets can attract the right customers with a thinner branch network, versus others where more caution is required given customer segment mix. To that end, the real opportunity with Channel Mixers and Branch Traditionalists, especially for the Big 5 banks, may lie in encouraging transaction migration and attachment to other channels, so as to engender greater flexibility in local branch planning.

Retention. From the perspective of customer relationship continuity, branch consolidation can be a hazardous exercise. A significant retention program is needed for best success. But as our surveys underscore, different levers (messaging and positioning; migratory paths to alternative channels) work with different customers. This reinforces the importance of gathering behavioural and segment insights to guide strategies and resource allocation.

Adel Mamhikoff is a Managing Director in the Toronto office and Brandon Larson is a Director in the New York office of Novantas. Also contributing was Chris Musto, a Director in the New York office. They can be reached at,, and

For more information, contact Novantas Marketing

+1 (212) 953-4444

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