Change to bank branch networks is accelerating. In 2013, the number of bank branches in Europe dropped by 7,800 to 211,000. In the latest quarter, SNL reported a net closure of 343 banks in the US leaving 94,752, bringing the total reduction in the last year to 1,462. And it is many of the biggest banks that are reducing their networks the fastest. For the public and communities, branch reduction is a charged topic.
Yet with customers embracing digital channels, banks need to rethink their physical branch infrastructure. Report after report is showing that not only are customer transactions moving online, customers are much more satisfied with their digital experiences than those in store, and in North America 27% would consider banking without a branch at all . And with significant costs and personnel tied up in physical servicing banks need to rethink their physical distribution strategy.
While we see more and more pure digital banks, such as Hello, Moven or Atom, or niche digital disruptors, the branch is not dead. Yet unless banks embrace change the economics of branch banking will go against them. With declining transactions occurring in store, the unit costs of branch servicing will go up; and without reducing the costs tied up in branches, banks can not release the savings that cheaper digital cost-to-serve allows.
The branch remains where the majority of relationships are formed, where most products are sold, and where most advice is given. And while this is changing as more can be done online, or new social services such as Wealthfront create new possibilities to serve complex needs digitally, the branch remains a cornerstone for relationship value creation.
This can be seen in the operations of banks that are embracing digital and change in their networks. With their latest results, Commonwealth Bank of Australia noted that branches now account for only 4% of their transactions, but those transactions account for 39% of the value transacted. Lloyds Banking Group, noted that while it is able to meet 40% of its customers simple product needs online, only 2% of complex needs are served digitally today, with 82% of current accounts still opened in branch.
Our expectation is that banks will need to continue to make strong moves to reconfigure their branch networks, reducing the number by 20-40% with 20-30% fewer branch staff. To do this requires significant changes in bank distribution – within and outside the branch:
- Reconfigure networks to serve evolving customer needs with different formats, opening times and design
- Shift manual transaction servicing, especially cash management, from tellers to self-service ATMs and online
- Increasing the sales and service capabilities of internet and mobile offerings to include easy, native processes that can be integrated into branch experiences when needed
- Upgrading branch processes and platforms to automate in-branch activities, eliminate paper, allow straight through processing, and enrich customer interactions
- Changing service media to allow rich digital interactions for customers in branch and for remote customers to connect to branches or service centres through voice, text or video
- Transforming the retail front office workforce through training and cultural shifts towards a new sales and service culture that is part of the digital world
The reality for many customers is that the branch and the personal service it entails is still important. The branch network configured for the digital age is an asset that most digital disruptors will never be able to replicate.