For retailers, format renewal is fast becoming a recognized way to revitalize a flagging business.1 For most banks, on the other hand, experiments with different branch formats have yet to pay off. Few have hit upon a formula that transforms the distribution network and boosts the bottom line. Even supermarket banking, now commonplace, has in many cases failed to return a profit.
The problem is that the rationale for retail format renewal is essentially about attracting more customers. But banks, however much they try, are hard pressed to persuade consumers to move in any numbers. Bank customers, unlike retail customers, tend to be loyal. Provided they are satisfied with its service, they stick with the same bank for five to seven years on average, and switch only when they move to a new home in an area outside their bank’s network.
This explains why banks’ market shares are so static. Assuming that most banks replace customers moving out of the market with people moving in (and replace most of those who choose to leave with new customers), the only extra customers up for grabs come from net household growth, which seldom rises above 3 percent a year. Even...