Inside JPMorgan's big contrarian bet on brick-and-mortar bank branches

• Banks are closing retail branches at a record pace, shuttering 1,700 in the 12 months ending in June 2017.
• But JPMorgan announced in January it's expanding its branch network, adding 400 locations in 15 to 20 new markets.
• The company recently promoted Pam Codispoti, the creator of the Chase Sapphire Reserve, to run its retail branch network.
• She'll draw on her playbook that made the Sapphire Reserve such a phenomenon to help make branches more appealing to millennials.
• That includes the launch of a new type of branch - smaller and more digitally connected - on February 12.

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Across the country, banks are closing branches at a heightened pace.

The 1,700 branches shuttered in the 12 months ending in June 2017 is the largest decline on record, according to data from the Federal Deposit Insurance Corporation (FDIC) analyzed by The Wall Street Journal.

This news stands in stark contrast to the announcement by JPMorgan Chase in January that it would be expanding its network with 400 new branches in 15 to 20 new markets over the next five years - an investment spurred in part by the savings from the recently passed tax law.

JPMorgan has, of course, culled some branches over the years, but far fewer than its peers - just 484, or 8.6%, since 2012, compared with more than 30% cut by competitors Citigroup and Capital One over the same period.

The aspiration for branch expansion isn't entirely new, either. It's been on CEO Jamie Dimon's wish list since for more than a decade, but, like so many other well-laid plans, the financial crisis derailed that.

Back before the crisis he had made it clear that he wanted to be in some new markets," said Nancy Bush, an independent bank analyst who's been covering the sector since the 1980s. "That kind of all got put aside as we recovered from the crisis."

The bank has long zigged when others have zagged under Dimon's leadership, but the firm nonetheless expects the investment in branches to help its bottom line - a belief seemingly divergent from conventional wisdom in the banking industry, which is largely preoccupied with handling the customer migration to digital and mobile platforms, especially by millennials.

"He's always an opportunist. That's just the way he's been. When everybody is retreating, he's going to be expanding," Bush said.

But though he holds the final word, Dimon won't be the one captaining the new initiative on the day-to-day basis.

JPMorgan has tapped their millennial-whisperer for the task of managing branches, including the expansion. Pam Codispoti was named the head of branches at JPMorgan back in October, departing from her post as the president of Chase Branded Cards.

Codispoti, who spent nearly 12 years in credit cards at American Express before joining JPMorgan in 2014, made a splash by masterminding the now-legendary Chase Sapphire Reserve credit card and, in the process, dispelling the myth that millennials weren't interested in premium cards that carried a fee.

According to Bush, Codispoti faces an elemental challenge in overhauling the bank feature that used to be ground-zero for selling product: How do you make these things work?

"You're trying to establish this middle ground between digital and human," Bush said. "How do you establish that middle ground where you do things in a branch and make it profitable?"

Codispoti is game for the challenge: "There is a myth out there that branch banking is dead, that branches are going away. I just don't believe that to be true," she recently told Business Insider.

She'll be pulling moves from her Sapphire Reserve playbook to prove the naysayers wrong once again. One of the most important things she learned from that experience was the value of getting in front of your target customers early and designing a product with their input from the get-go.

"We took some calculated risks to do things differently than we'd ever done before. We launched Sapphire Reserve without any initial marketing. And we allowed our design target - which were savvy millennial travelers who rely on social - we kind of brought our product to them and allowed them to market our product," Codispoti said. "Those principles of design-led thinking, customer first, getting into the homes of people, doing ethnographic research approach, and that agile methodology are things we will use as we try new things in our banking environment."

Making branches appealing to that Sapphire Reserve demographic - savvy millennials - will be crucial to JPMorgan's branch success.

As Bush notes, young earners in their 20s and 30s just don't need a physical branch for most of their routine banking anymore - mobile and digital options and ATMs suffice for moving money around, paying bills, and opening accounts.

"The generation of mine and the generation before me, we still have a need for branches," Bush said. "Our kids and grandkids do not."

Codispoti allows that millennials want something different out of branches than their forebears, but she doesn't think they want out of the proposition altogether, noting that the demographic still visits a Chase branch three times a quarter.

"They really would like to come to the branch for experiences and advice moreso than everyday transactions, which I think they feel very comfortable doing on their own from mobile or digital tools," Codispoti said. She continued: "We have a long pipeline of innovations that are targeted to millennials, millennial-minded customers who really want to bank on their terms, wherever, whenever, and however they choose."

One of those innovations, the Everyday Express branch, launches in limited release next week. The locations are smaller than a typical branch and feature more digital tools, including the company's eATMs.

They'll also offer advice services in the style of Apple's Genius Bars to help bridge that human-digital divide that Bush referenced.

The first six Everyday Express locations open February 12 in Culver City, California, and in Queens, New York.