Future of Banking - the withering branch?

[Dani Boekel (Dani_Boekel)]

In this guest post, Ray McGroarty, Polycom’s EMEA Director Industry Solutions and Market Development, discusses how collaboration technology can bridge the gap in delivering tailored financial services to customers from anywhere and everywhere.

Bank branches are slowly fading away, but demand for services they provide to communities across the country remains. It will be the delivery of those services that will change the most. Despite the advent of new technologies, such as mobile, cashless commerce and the like, bank branches were still said to be thriving in 2012. 

Prime locations for branches were still highly sought after, with John Stumpf, then chairman of Wells Fargo reported in the Economist saying “location is still the most important decision maker when you choose your branch” and that people “still think that their money resides within that branch”.  Banks with the largest numbers of branches attracted the largest amounts of customers and having a dense branch network meant that those banks could charge a bit more for some of the services and therefore have accelerated positive effects on profitability.  

The demise of the bank branch had be  announced a few times before, with Alfreda Santz of Santander reporting in the Economist article that consultants have advised them 10 years ago that they should scrap branch plans and go straight to the internet.  But as Alfredo said, he had heard it all before with the rise of ATMs and credit cards, and again the withering and death of the branch had not come to pass. The United States and Europe have instead seen a steady increase in the numbers of bank branches since the new millennium despite the technological innovation which would suggest the opposite trend should be evident.

But the current prognosis for the retail bank branch has once again becoming a little gloomy, and the Economist thinks that this time it will be more serious. The digitisation of commerce has gone on elsewhere, and consumers have embraced the idea of booking travel, filing tax returns and in some cases even filing for divorce on-line. As one commentator noted, when you can handle a digital divorce, then dealing with your banking needs on-line is a doddle (British expression, meaning 'a piece of cake') . Consumers have already demonstrated an enthusiasm for moving to mobile and internet based banking without much of a push from the banks, so it is thought that this trend could accelerate as more people experience the convenience of the newer ways of doing things. 

The environment in which the banks are operating now is quite different to the previous eras.  Low rates and new regulations are wiping tens of billions of dollars from revenues and are tipping many branches into unprofitable operations.  McKinsey reports that for some Euro banks, about half the customers would be deemed unprofitable for their banks.  McKinsey also suggest that banks can remove 20-25% of their costs from well-managed, comprehensive digital transformations, so that the appetite for undertaking the work required should be high.

Now, there are some products, such as mortgages, where a bit more advice is required, compared to say just checking your balance.  As Rob Markey of Bain suggested in the Economist article also, people “crave physical interactions with human beings in the branch”, so we wonder whether there is some middle ground which can satisfy the cost imperative of digitisation and the needs of some people, when discussing some products, to interact with people. 

Some banks have been dealing with this conundrum by exploring the use of video enabled channels to their clients.  They can increase productivity of advisors by having them operate from a “center of expertise” while satisfying clients’ requirement for instant access to advice. When the customer visits the branch for advice, they can be guided to the video booth, connected to an expert and have their query dealt with quickly and accurately.  Some pilots of this new workflow have reported double digit growth in sales of targeted products when the experts and the customers can be put together at a time of the client’s choosing. 

Current practice tends to be to have clients visit a branch in order to access the technology that allow them to connect to the experts and there are some advantages to this. For example, the quality of experience, voice and video, and the ease of sharing documents, are all under the control of the bank and can be assured.  However the day will come when clients question the need to travel to a branch to do that as they will have a variety of video conferencing applications on their phones and tablets and will much prefer to do it from anywhere and everywhere.

So, will we still see any bank branches on our streets or shopping centres in a few years’ time?  Probably yes,  they are unlikely to go away completely as they have a role to play in brand awareness and growing a perception of security and reliability for some clients.  But as Citigroup has shown in the concept branches in Singapore and elsewhere, the branches may look a bit different to today’s serious and substantial buildings.  You may find yourself popping into a bank which is an Apple Store lookalike,  because they serve better coffee than anywhere else on the street, whilst simultaneously checking your balance to see if you can afford that extra shot and blueberry muffin!

This blog is part of a series of 25 blogs that take a look at how Polycom has transformed industries and business functions. These blogs are a variety of retrospective, current and visionary perspectives with the common thread of unleashing the power of human collaboration. Follow the hashtag #Polycom25 on Twitter for tweets about this significant anniversary in our history.