Can Switching to a Hub and Spoke Model Save Bank Branches?

Brought to you by WBR Insights

Bank branches are in crisis. Widespread branch closures have seen the coverage of these once prevalent locations drop significantly over the last decade.

As banking customers become ever more accustomed to online banking, automation, and self-serve options, the number of teller-assisted transactions have been falling. This is leading to a situation where banks must do more with fewer people on staff and change the nature of their branch network to remain financially viable.

These changes to branch networks, including location closures and redesigns, don't come cheap either. It's estimated that a US bank with 1,000 locations could potentially spend $120 million to close 30% of its network.

However, many financial institutions are finding they can get more value from their branch networks by switching to what's known as a "hub and spoke" model.

Hub and Spoke

In a hub and spoke model, a brand has a single centrally-located branch, offering the full range of financial services you'd expect from a bank - mortgages, loans, teller services, etc. This location serves as the "hub" and is supported by a network of much smaller branches which serve as the "spokes."

The spokes are staffed by an absolute minimum number of people and try to encourage the use of automated kiosks and ATMs as much as possible. Such spokes are normally designed to complement online banking as somewhere people can visit to quickly ask for basic advice or carry out simple transactions, such as paying checks or adding cash into their account.

Spokes will usually either focus on advice or service. Advice spokes are staffed by two or three trained advisors able to assist on a range of financial queries, with the option to use video conferencing to link to other advisors at the hub location. Service branches, on the other hand, typically only provide teller transactions - either automated or facilitated by a skeleton crew.

As you've probably realized, technology plays a big part in the hub and spoke model for banking. It's key to the whole operation that each spoke is in constant contact with the hub. Video technology, instant messaging, data, automation, and more ensure the spokes are always connected to the rest of the network.

Discussing its own move into a hub and spoke arrangement last year, Bank of America Financial Center Executive Will Smayda said, "These centers will provide our existing banking, investment and commercial clients, as well as new customers, with access to Bank of America's retail capabilities. Seamlessly integrated with our digital offerings, the physical presence of these new locations will provide our clients with both the high-tech and high-touch experience that we always strive to create for them."

Benefits of Hub and Spoke

The hub and spoke model has many benefits over a traditional network of full-service branches.

Smaller branches mean lower costs for bank brands across the board. Lower rents, labor costs, utility bills, and other fixed costs all make keeping branches open in the location where they are most needed a far more financially viable proposition. Customers benefit from having their local branch remain available to them while also experiencing minimal waiting and run-around. From a customer service perspective, spokes are much better able to meet the needs of their clientele. Each spoke can be configured to best serve its area - staff being able to speak a local language, for example - improving the customer experience for that region.

Centralizing administrative tasks at the hub location also brings benefits. By having all the data stored at a single location which can then be filtered down to the spokes, it ensures all information is consistent and updated in real time. The hub and spoke model is also very simple and cost-efficient to implement. Services can be pulled back to the hub branch while the spokes are repurposed according to need. While this certainly disrupts service temporarily at the branches being repurposed, it makes the whole process far more elegant than building new ones from scratch.

When it comes to recruitment, banks can employ fewer but more highly trained advisors/tellers to provide the services they need. This helps provide more fulfilling roles to staff and better customer service to clientele.

Final Thoughts

The benefits of switching to a hub and spoke model in the new environment are many. From a relatively simple implementation process, banks can drive their branches to become more financially viable while still offering the crucial local banking services their customers need and expect.

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Hub and spoke branch models are set to be a hot topic at Future Branches 2019, taking place this November at the Hilton Austin, Austin, TX.

Download the agenda for more information and insights.