Is There A Future For Bank Branches ?

I was recently invited to participate in a panel discussion on the future of banking at the Economic Forum in Poland. The head of retail for a major retail bank predicted that within five years, his bank would not have any branches left. This was a remarkable statement, considering that in his country, 29% of banking customers still visit a branch once a month; in Warsaw, there’s a bank branch on every street corner. Across Europe, however, these numbers vary: Forrester’s recent research shows that only 7% of banking customers in the Netherlands visit a bank branch at least once a month, down from 9% in 2011, while in Spain, 49% of banking customers still visit a branch once a month.

Branches Will Not Disappear, But They Will Change.

What is going on here? Will bank branches disappear or will they transform themselves from transaction processing hubs to sales and advice centers? We think the latter because:

Branches are expensive.The elevated cost structure of branches — including their increasing staff expenses (i.e., hiring, training, and retaining them) and the security costs related to cash dispensing — is putting pressure on the cost/income ratio of many retail banks. This is the main reason why SNS Bank moved the cash-dispensing function out of its branches and replaced them with ATMs. But ther are more examples as stated by my colleague Benjamin Ensor in his blog about digital banking innovation in Turkey.

The popularity of self-service channels is growing. Online banking is still growing, but it is now incorporating personal financial management tools to provide a new interface for customers that gives them greater insight into their financial affairs. In addition, the usage of next-generation ATMs is growing

Mobile banking is taking off.Our research shows that usage of mobile banking at least once a month for routine tasks more than doubled in the Netherlands this year; it climbed to 14% from 6% last year. In our report The State Of Mobile Banking 2012, we explained that consumers are progressing from simply checking their account balances or locating an ATM to making bill payments or transferring money to other accounts via their mobile phones. 

Why Branches Will Still Exist.

 There are two reasons why Forrester thinks that branches will still be around in the years to come:

You still have to visit them on occasion.In many countries, the pace of development of new legislation is not in sync with customer adoption of new technology. For example, to open a bank account in many countries, you are still legally obliged to show up in person to prove your identification, despite any online onboarding functionality that may exist.

You still want to visit them. This also varies according to country and cultural habits but, in general, face-to-face appointments still matter for specific “big-ticket” banking matters like mortgage advice or investment decisions. At Forrester we think branches will continue to play an important role in these services.

eBusiness And Channel Strategy Teams; start digitalizing your branches?

Despite the rise of digital self-service channels, branches will continue to play an important albeit smaller role in the near future. However, you should think about what would happen to your current distribution model if the Dutch situation became a reality for you; are you ready? Your digital agenda should create a sense of urgency in your firm and encourage it to make the necessary investments — just as Australian bank ANZ did recently by investing $1.5 billion in a complete distribution overhaul. This involves not only redesigning the branches , including videoconferencing equipment, but also making them more “digital” by equipping them with devices to handle contactless or cardless transactions and investing in next-generation ATMs. Digital banking executives should lead the transition from a branch-centric to a more digitally focused approach. This means creating great customer experiences across multiple touchpoints including those "good old” (or should I say “brand new") digitally enabled branches.

I would love to hear your thoughts on the future of branches, so let me know — we don’t have much time to lose.

Comments

Cash Deposit Is Becoming The Raison d'être Of Bank Branches

Call it personal experience or anecdotal evidence, but in the few occasions that I've visited a bank branch - mostly because I had to and not because I wanted to - I've seen the queues at the various counters only becoming longer. Maybe it's because more people are entering the banking system and don't feel comfortable with digital channels in the beginning. Maybe it's to seek face-to-face advice for big-ticket decisions like those indicated in your blog post. But, I think bulk of the footfall is accounted by something more mundane: cash deposit into bank accounts by small businesses who do a bulk of their business in cash. Modern ATMs are equipped with BNA and other features for cash acceptance. But, if it took around two decades for people to make a habit of withdrawing cash from a machine, can we expect them to overnight start depositing cash into a machine?

Bank Branches Solidify Loyalty

Bank branches while changing, continue to offer significance when it comes to building customer loyalty. It really comes down to customers and business accounts still requiring the branch experience for new accounts and issue resolution. There is nothing like face to face encounters when it comes to money management. We have all had the experience of trying to resolve issues online, and 9 times out of 10 it is not a pleasant experience. We are talking about people's finances here, and that is where the branch necessity comes in.

The Future of Bank Branches = Digital+Experience+Trust

I believe we are at the dawn of a new digital era, after the internet and online banking took the banks out of the bricks and mortar buildings in the 90's, the growing trends of Smartphone bringing banking to wherever a customer is can be intimidating. However, this is an era where the branches will have a much bigger role to play in bringing the customers back to the banks. The new branches equipped with their digitally enabled capabilities, will serve as an integral part of this new social interchange, a place where bankers can build valuable customer relationships, and once again make banking a trusted and personal experience. My recent blog posted on infocus.emc.com had more thoughts on the future of banks that is shaped by digital, customer experience and trust.