Is it the end of the road for the bank branch?

26 November 2013

Mike Curl

Mike Curl

Head of Finance, Services & Media

Amazon has already sounded the death knell for many local book and record stores. Could the local bank branch be the next scalp for the internet?

The idea of branch-free banking isn’t new. First Direct set-up a non-branch bank way back in 1989, long before internet banking became possible. Today, the number of people choosing online and mobile banking rather than in-branch services is rocketing and the effect on branch numbers is already being felt keenly.

The British Bankers Association (BBA) estimates a 7.4% fall in branch numbers between 2006 and 2012, the equivalent of 800 closures. Meanwhile, customer branch visits have dropped 20% over the past decade, according to research from Celent as we choose to bank online or through our mobile devices. And in some nations the drop in numbers is even more stark: Only half of all bank customers in The Netherlands have visited their branch in the last year and more than 80% use internet banking, according to McKinsey.

The trend is clearly downwards - but it’s not quite time to be penning an obituary just yet. Granted, closing branches would certainly make financial sense for the banks themselves: branches are expensive to run, accounting for between 40% and 60% of operating costs.  But customers themselves don’t want to see bank branches wiped off the high street.

Branches still have a customer base

There are still many consumers, particularly senior citizens, who have yet to join the cyber-society and rely on their local bank. According to a Novantas report, even customers that plan to do all their banking online will still choose a bank that has a high-street branch near their home - just in case.

For some things, we need to see the whites of the eyes, particularly for making those big decisions on mortgages or investments, for example. And there’s also the psychological aspect: having a physical presence nearby makes us feel happier that our money is physically kept safe - we can visualise where we think our money is, rather than just ‘out there’ in cyberspace.

In fact, what we may see long-term, suggests Dave Martin, an executive vice president at Financial Supermarkets in a recent American Banker article, is actually more branches appearing, although the overall square-footage of bank retail space will fall.  These small bank offices, located maybe in-store, like concessions in department stores or even on work sites - basically anywhere with a high footfall - will begin to pop up to deal with complex banking issues. Despite the operational costs, branches are important to banks because they draw in new customers and enable them to up-sell to existing ones.

The future of branches

So, a pattern is emerging where people prefer to conduct simple transactions online and use the branch for more complex banking issues. Whatever happens, one thing is clear, the bank branch of tomorrow will look radically different. The overall physical floor-space will be smaller, but there will be an upgrade in the way they look as banks seek to create a more engaging and attractive environment for people to visit.

The transactional side of banking will still happen in branches, but now customers will be doing it for themselves using self-service kiosks. Digital signs will point out to customers new services they might be interested in such as new mortgages or direct deposits. Touch-screen ‘media walls’ will enable customers to find, print and take home information they need. And it doesn’t stop at 5pm. A bank’s typical out-of-hours cashpoint lobby will now house a touch-screen kiosk with a video link to banking staff.

This isn’t the future. It’s happening now in major branches of Citi, where there are interactive media walls displaying news, weather and financial updates, free WiFi, and two-way video conferencing links to global experts.  And there’s access to customers service experts 24/7 through terminals in the ATM lobby. These Citi branches don’t look like banks, but like Apple stores and that’s deliberate. Apple revolutionised the way technology was sold and Citi wanted to replicate that for retail banking.

Meanwhile, at BNP Paribas’ ‘concept store’ in Paris, you won’t see desks and uncomfortable chairs, but brightly coloured bean bags and, rooms with couches and flat-screen TVs. You chat to your advisor over a coffee, speaking to specialists over a video link if needed.

To reinforce the idea that physical presence is important, internet-only bank ING Direct has opened a cafe in San Francisco. The baristas will ask you whether you’d like to talk about financial matters or open a savings account while they serve you your latte - but no transactions happen in the store.

It’s not time for the traditional bank branch to die, but it is time for it to regenerate.

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About the author

Mike Curl

Head of Finance, Services & Media

My interest in technology started in 1981 when a friend’s father built a Sinclair ZX81 and then relied on the two of us to program it. I soon moved on to my own BBC “B” computer (thanks dad!) and amused the family with some very rudimentary INPUT and PRINT statements…

My passion continues but on a much bigger scale than I could have ever imagined.  Today, I advise business and IT teams at some of the largest organisations in the world, helping them design, implement and exploit the latest technology in support of their business priorities and challenges.

I co-founded Bluefin in 2002 after spending many years in the consulting industry, having started at Andersen Consulting in 1994.  With Bluefin, I have been fortunate enough to be involved with some truly ground-breaking projects and technologies over the years.

What I really enjoy is finding the business value of new technology and leading the pioneering engagements to implement it successfully for the first time. Barclays, a client I lead at Bluefin, has won several industry and partner (SAP) awards for the innovative work we did with them around enterprise mobility. At another client we’ve also been doing some truly amazing work with SAP HANA that has the potential to disrupt established business models.

Bluefin and SAP S/4HANA - welcome to the one horse race