Tough Problems Solved

Sometimes, no matter how many ATMs you place in shopping malls, no matter how simple you make online account management, consumers want to walk into an actual bank. They want to talk to a real, live teller or loan officer. They want face-to-face contact.

Today’s banks understand that. They also know that, of the myriad ways financial institutions have to reach out to their clientele — ATMs, call centers, online banking and bricks-and-mortar branches — the last is by far the most costly. Wanting to make the most of their investments, banks — especially those operating in emerging markets — ponder how to optimize their branch networks. They want to know where to open branches, where to upgrade branches, where to close branches and where to merge branches. These decisions become especially significant, and especially challenging, in the current competitive marketplace — one replete with quickly developing economies, mergers, acquisitions and fragmented customer expectations.

These challenges have prompted IBM Research and IBM Global Business Services to take a fresh look at ways to best reconfigure bank-branch networks. To meet the challenge, a group of researchers at the IBM China Research Lab has developed the IBM Branch Reconfiguration tool.

Branch Reconfiguration is a quantitative analysis and optimization tool used to develop site location and relocation models for financial institutions This sophisticated tool takes into account highly complex data (geography, demographics, population, transaction history, potential demand, sales performance, consumer loyalty) to model a sound reconfiguration plan. Employing the customized decision-making trees of the IBM geographic information system platform, Branch Reconfiguration can help bank management determine where to locate new branches, where to relocate existing branches and how to upgrade or downgrade branches to suitable service levels. Branch Reconfiguration also provides an advanced statistical analysis and adaptive machine learning methodology to identify core customers and forecast market potential.

For example, one of China's top banks, which provides financial products and services to more that 170 million people and corporations, wanted to reconfigure its branch operations in a large Chinese city. The bank operated a complicated network of nearly 100 branches there, and needed to optimize them to meet changing customer needs and to compete effectively.

Historically, the bank had relied on its internal experts to choose and review branch locations. However, after finding that some of its existing branches fared poorly, the institution wanted a scientific, quantitative tool to optimize its network. It wanted this tool to continuously diagnose the performance of the branch network, taking into account frequent mergers and acquisitions in the banking industry, customer expectations and China’s rapidly evolving urban scene. The bank also wanted to speed time-to-market, improve its return on investment and increase customer-satisfaction levels.

To tackle this problem, the bank contracted with IBM Global Business Services. IBM banking industry consultants worked with researchers at the China Research Lab to deploy the Branch Reconfiguration tool for the client. After the bank provided IBM with data on the performance of its various branches — including branch transaction rates, number of accounts open and products offered — IBM deployed Branch Reconfiguration for an in-depth analysis of the branch network, its core retail customers and business characteristics. The tool’s statistical analysis and in-depth information mining capabilities helped the bank determine how to optimize its branch network. Issues such as where to open new branches, where to upgrade branches, and where to downgrade, move or close branches were all examined. As a result, the bank is now better able to determine branch placement. It has reduced its overall costs, time to market and in-bank customer waiting times, increased its number of deposit and business accounts, and boosted overall profit. Enabling the bank to serve target customers in the right locations with the right type of financial products, Branch Reconfiguration has also improved the institution’s customer satisfaction levels — giving the bank an edge over its competitors.

Although only recently developed, the Branch Reconfiguration asset is already receiving attention from other banks operating in emerging markets, including institutions in Chile, Australia and parts of Europe. The tool is also helpful in providing decision-making support to banks undergoing mergers and acquisitions.

The Branch Reconfiguration tool is available to clients through IBM Global Business Services. For more information on putting this powerful business optimization tool to work for you, contact IBM Research Services.