Digital Transformation Conversations

Digital Transformation Conversations

A fine balance: physical bank branches in the age of the digital consumer

These are not comfortable times in retail banking. A leaner, meaner economic climate has hit branch networks hard – 5,000 bank branches in Spain have shut down since 2008[i]. US banks have a similar story to share with 3,000 branches shutting down between 2009 and 2012[ii]. It's not just the quest to trim costs that has branches shutting down, however. We're also seeing a sea-change in consumer behavior with more customers gravitating to online banking. In 2010, only 36% of US banking customers preferred banking online. But in 2011, that percentage shot up to a whopping 62%[iii]! Transactional banking activities that were previously the domain of physical branches are also being moved online[iv].

Does this mean bank branches will cease to play a role in the future of banking?

We don't think so. For a start, new banks that were exclusively conceived and operated online have started setting up physical branches. Case in point: Virgin Money, which opened "Lounges" in February last year[v]. While basic transactional activities have shifted online, complex products and advisory services continue to remain the forte of physical branches. Not surprisingly, US consumers echo the same sentiment – 90% of US banking customers prefer face-to-face advice for complex products[vi].

Does this mean that there should be a clear divide between transactional and advisory services? With the former being relegated to online channels and the latter—support from banking representatives, trading securities or loan applications—being the domain of physical bank branches?

We believe both online and offline channels have their own unique strengths that need to be capitalized on. But at the same time, neither of these channels is mutually exclusive and they need to co-exist and be mutually supportive. For instance, HSBC, Barclays and Italian bank CheBanca! offer advisory services either in dedicated premier branches or within a personalized service area of their existing branches – all of this while sustaining an active online presence[vii].

Digital technologies are powerful allies that transform physical branches to offer customers a personalized banking experience, especially when it comes to complex advisory services. Bank of America is one such bank to have deployed digital tools in its branches – it uses video-conferencing to offer its customers expert mortgage-related advice. Then there's Citibank, which has used media walls[viii], interactive kiosks and work benches to enable customers to help themselves to product-related information[ix].

  Citibank's Media Wall and Interactive "Work Benches" with Digital Service Browser   Source: Citibank website  

We believe that the traditional banking network, replete with full-service branches, may not be sustainable in the long-run. Instead, differentiated branch formats, with varying levels of digitization, will be crucial in helping banks stay relevant to the evolving digital customer. The idea is not for physical branches to start competing with digital. Bank branches need to tap into the best that these digital technologies have to offer. When undertaken in a the smart way, it can change the very DNA of physical branches.

We've identified four models that we believe will reshape the role of physical bank branches. Curious to know which branch model is the best fit for you? To learn more, read our paper: "The Future of Bank Branches: Coordinating Physical with Digital".

 





[i] 4-traders, "Spanish Banks Must Close 10,000-12,000 Branches Santander Executive", October 2012
[ii] AZCentral.com, "Are bank branches endangered species?", May 2013; Chicago Tribune, "Illinois sees more bank closings than openings in last year", July 2012
[iii] American Bankers Association, "ABA Survey: Popularity of Online Banking Explodes", September 2012
[iv] Forrester article: "The State Of North American Digital Banking: Priorities, Goals, And Metrics", 2012
[v] Virgin Money website
[vi] EFMA, "THE FUTURE OF BANK BRANCH NETWORKS", December 2012
[vii] Italy Chronicles, "What a Bank!", December 2008
[viii] Media walls allow customers inside the branch and pedestrians on the street to view information about the bank, live market updates, global and domestic news
[ix] Citigroup website

About the author

Stanislas De roys
Stanislas De roys
Stanislas De roys, Vice-President, Capgemini Consulting France
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