Banks around the world have been investing huge sums of money in efforts to renew their branches. In Europe alone, more than 12,000 outlets—8 percent of the total stock—underwent some form of improvement in 2005, and our calculations suggest that Europe’s retail-banking institutions may be spending €10 billion or more annually on refurbishment initiatives. The picture is similar in the United States, where several networks are also undergoing renewal, expansion, or both.

Projects begun in the past few years have varied enormously in scope, from low-key tactical tweaks to total refits of dilapidated outlets. But as a whole, the impact seems surprisingly limited. A recent survey of executives at 40 banks by the worldwide retail format design agency John Ryan, for instance, found that changes had been rolled out, on average, to only 10 percent of the branches in a network, despite more ambitious initial plans in some cases. Almost half of the executives in the sample said that they would have done things differently if they had had an alternative.

A typical case concerns a large European banking organization that started to refurbish its network of 1,000-plus branches, with a total budget of €250 million. The bank halted the...