The bank branch is facing an uncertain future due to digital transformation. While branches remain profitable, their importance has declined as online and mobile banking have grown. Since the 2008 financial crisis, thousands of bank branches have closed worldwide as banks aim to reduce costs. However, branches still play important roles like building customer relationships and strengthening a bank's local presence. Rather than disappearing entirely, branches will likely evolve, with new formats and an increased focus on experience. Their role within an omnichannel strategy also remains crucial. To be successful, banks must leverage data analytics to optimize their branch networks and align locations with customer needs.
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Will Bank Branches Survive Digital Shift
1. Will the Bank Branch Survive
Digital Transformation?
There is a debate in the banking
sector that has been running for
more than ten years in which, to
date, no consensus has been
reached: the role of the bank
branch. In a world where digital
transformation grabs all the
headlines, the debate sometimes
seems to remain in the
background, even if it comes up
now and then to coincide with
news about the reduction of the
number of branches.
Looking back, the role of the
bank branch had not changed
very much since its
popularisation in the 1960s, up
until the arrival of first, online
banking and later, mobile
banking. The global crisis we
experienced in 2008
undoubtedly represented a
turning point, with the closure of
thousands of branches all over
the world.
Although the starting point was
different in the United States and
Europe, where the situation was
different in each country, the
strategy of the banks was
similar: a drastic reduction in the
number of branches.
One only need mention two
pieces of data to support this
statement. In Europe, since
2008, a total of 48,000 branches
(20% of the total) were cut. It is
notable that, in Spain, 15,000
branches closed in this period
(38%). In the United States, the
reduction has been less drastic,
2. from 100,000 to 90,000
branches (10%) since the
beginning of the crisis.
I began this article by stating that
the debate around the role of the
bank branch in the age of digital
banking still goes on since,
despite everything, it remains
the most commercially
successful channel and the axis
around which the distribution
model turns. On average, the
cost of the physical network
(costs incurred by real estate,
personnel and support including
the cash management) stands at
between 33% and 50% of the
operating cost.
There is a variety of opinions
regarding the future role of the
branch, there are even those who
predict a complete (or near
enough) disappearance of the
medium. One of these is Brett
King, the renowned guru of the
banking world, who in 2015
developed this idea in the book:
‘Branch Today, Gone
Tomorrow: The Case for the
Death of Branch Banking’,
essential reading for a
background in this debate.
Although it is an interesting
point of view, in my opinion it is
too radical. Nonetheless, it’s
undeniable that the development
of digital channels, especially
the mobile channel, represents a
paradigm shift in the sector. We
come from a distribution model
whose axis is the branch, around
which the rest of the channels
once turned. Branches bore
100% of the weight of the
customer relations burden. The
model that we tend towards now,
albeit with various levels of
development according to
geography and institutions, is
Mobile First. In this new
paradigm, the mobile channel is
the point of access in customer
relations with the bank and all
other channels, branches
included, revolving around it.
Consequently, the branch has
gone from being the centre of
customer relations to playing a
less relevant role.
Once the new position of the
medium is understood, there are
two challenges that must be
faced: the efficiency of the
network and user experience.
We noted earlier that the main
issue with this channel is cost. In
this sense, all institutions have
made a significant effort to
reduce this barrier, eliminating
many attention points and
migrating operatives towards
other channels where the cost
per transaction is much lower.
The entire sector has already
migrated low added value
operations such as bill payment,
3. balance inquiries etc. and is
working on broadening the list
of options available. This
includes services that, up until
recently, were unthinkable
outside the traditional branch.
For example, the origination
process entirely through digital
channels is of the utmost priority
for almost all institutions
worldwide and this includes ever
more complex products.
As a result of this focus on
streamlining the channel, user
experience has become less
relevant for institutions, leaving
an outmoded branch space that is
hardly attractive to the customer.
There are two major courses of
action available to boost
satisfaction levels with the
medium: on the one hand,
commitment to a new concept of
the branch as well as its
integration as one more element
of the bank’s omni-channel
strategy.
Traditionally, the layout of an
institution’s branches has been
similar, varying only in size
(number of stations) based on
the traffic of each one. It will be
necessary to develop different
concepts of branches, with
different objectives aligned with
the overall strategy of the
institution. In recent years, we
have witnessed the development
of these concepts with varying
degrees of acceptance. Being
patient during the
implementation of these
prototypes until a working
model is found is fundamental to
this process.
Some of the most common of
these concepts in recent years
are listed below, even though it’s
true that institutions have often
opted for a combination of these:
· Flagship branch: located
in the main commercial arteries
of the main cities and which
serve to improve the brand
image and offer innovative
concepts to attract the general
public.
· Self-service branches:
offices with little or no physical
presence which allow the
development of all types of
operation through ATMs or
Kiosks as well as supporting
video conference systems. In the
coming years, we must be very
attentive to how the
development of artificial
intelligence may contribute to
the explosion of this model.
· Mobile branches: the
reduction in the number of
physical offices has had an
impact on smaller communities
which have been left without a
local branch. The
4. implementation of these mobile
offices allows these
communities to access services
within predetermined hours or
days.
· Micro-offices/Nano-
branches: branches normally
located in areas with a large
amount of foot traffic, such as
public transport hubs, which
allow the most common
operations to be carried out
quickly.
· Cobranding: through
partnership with other brands of
every kind, such as cafés or
travel agents for example, new
spaces with different objectives
are created (more time spent in
the branch, cross-selling of
finance products, etc.)
Flexibility of opening hours,
adapted to the needs of the target
audience, inevitably has to go
hand in hand with these
concepts. This is an issue that is
still to be resolved for the
majority of institutions.
In addition to these new branch
models, the other important
aspect is the integration of the
medium into the multi-channel
strategy of the institution. This is
an aspect that not only concerns
this channel but one that must be
addressed in a general sense as
the institution’s overall strategy
is defined. It is necessary to
reflect on what Customer
Journeys the branch can and
must have a primary role: sales
and advisory on complex
products, distribution and
handling of currency, building
relationships with customers,
etc.
Furthermore, the office will
continue to play a fundamental
role in strengthening the image
of the institution, it being the
closest link to the environment
(neighbourhood, community) of
the institution.
Finally, a key aspect in the
development of new concepts
for the office, much like in the
development of the multi-
channel strategy, is information.
The ability to collect data, such
as customer traffic, reason for
visit, average time spent, areas
of the branch visited, etc., is a
starting point but is not alone
sufficient when cross-
referencing this data with sales
information, customer
relationship, etc. is necessary,
which allows advanced models
of customer behaviour to be
obtained. These models allow
the capacity of the commercial
network and the needs of the
customer to be aligned, testing
the success of the proposed
concept models and defining the
5. role of the branch in the multi-
channel strategy. In addition, the
development of these models
will allow the future needs of
each point of sale to be
anticipated and adapted
accordingly.
To conclude, and to respond to
the question that serves as the
title of this article, my opinion is
that we will indeed continue to
see bank branches. Of course,
we are witnessing an evolution
of the medium at a pace
unprecedented in its history. The
use of analytics, flexibility in the
implementation of new office
concepts and an accurate
definition of which processes
can continue to bring value in
the channel will give a
competitive advantage to
institutions when addressing this
evolution.
Carlos Luzuriaga
Banking Partner