Ground attack or air strike: Winning the banking customer battle

Share this post:

You have the mission to grab territory. You called in the lieutenants to devise a strategy. The Air Force general makes a strong case to efficiently blanket the territory with air campaigns. The Army favors the tried-and-true approach of gaining ground inch-by-inch.

Banks hoping for growth are faced with a similar dilemma. Banking is undoubtedly becoming more digital.  Globally, three quarters of customers visit a branch less than monthly[1]. But physical branches are still where most customers prefer, and 80% of them actually chose[2] to open new accounts. Should growth-seeking retail banks favor air strikes with heavy investment in digital, or build a branch network to launch ground attacks?

New IBM research that analyzed data[3] between a bank’s deposit share vs. branch coverage in a market revealed four forces at play. Together, they can guide retail bankers in finding the optimal balance in the digital vs. physical dilemma. The four forces are:

  1. Traditionally banks grew by opening branches under the assumption of a linear relationship between share of business and the number of branches in a market.

    Figure 1: Linear relationship of market share vs. branch share and cannibalization effect.

  2. However, when branches are located too closely together, instead of finding new prospects, the new branch may go after customers of existing branches.  Smart banks know not to over-crowd a market with branches to avoid this cannibalization effect. Figure 1 shows the linear relationship and cannibalization effect.
  3. When a bank doubles the number of its branches, it can usually expect to more than double its market share. In a given market, the banks with the most branches usually have a disproportionately larger share of business. The tendency that the big guys get bigger is known in the industry as the network effect because of customers’ preference of banks with a large network. See figure 2.

    Figure 2: The Network Effect

    Figure 2: The Network Effect

  4. Sometimes a particular aspect of a brand is extended to the company’s other products. A company is said to have a halo when customers think that any product by the brand is automatically good.   Advances in digital technologies allow banks to grow without a vast branch network, and it is now possible to gain a disproportionately larger market share relative to its branch share through this halo effect, powered by mature digital offerings and strong branding.  See figure 3.

    Figure 3: Halo Effect

    Figure 3: Halo Effect

How can retail banks invest on the spectrum of digital vs. physical? Our research has found two sweet spots:

  • Dominate with physical: Cover the market with 6 to 18% of branch share, which offers disproportionately larger market share through network effect.
  • Differentiate with halo: Complement a thin network of up to 1% of branches with strong digital offerings and branding.

Read the whitepaper, “Digital versus physical—Finding the right balance to maximize return on investment” to learn more. Contact your IBM representative to learn more about IBM’s thought leadership in banking digital and branch transformation.


[1]Source: Accelerating digital transformation in banking, Deloitte, Oct 2018

[2]Source: 2018 U.S. Retail Banking Satisfaction Study, JD Power

[3]Source: FDIC banking industry data, 1994-2017



Worldwide Channel Transformation / Front Office Solutions Leader, IBM Global Banking & Fin Mkts

More Banking stories

IBM Algo FIRST becomes IBM FIRST Risk Case Studies

In the continued evolution of the IBM Governance Risk and Compliance (GRC) product line, I am pleased to announce that effective today, Algo FIRST (FIRST) is rebranded to IBM FIRST Risk Case Studies. Algo FIRST was acquired by IBM as part of the Algorithmics acquisition which took place in October 2011. During its time at […]

Continue reading

The Thomson Reuters and IBM Exclusive Breakfast Briefing, Oct. 2, 2019 in Toronto

How do compliance professionals manage more than 57,000 regulatory alerts in one year? IBM OpenPages with Watson recently had the opportunity to join host Thomson Reuters for a morning of regulatory compliance thought leadership to explore this very topic. The day began on the 29th floor of Thomson Reuters client center bringing together more than […]

Continue reading

The challenge of managing hundreds of daily GRC alerts

Today we are inundated with alerts, breaking news, celebrity scandals and what their neighbor had for lunch.  The feeds are not limited to one medium; your computer, your television, your phone, your tablet and now even the watch you wear on your wrist. The flood of data that comes in can bury a person. How […]

Continue reading