What we’ve been thinking: One of the most interesting studies of the recent regional banking unrest in the US—completed by The National Bureau of Economic Research—found that during the 1Q crisis, banks with lower branch density experienced larger deposit outflows and worse stock performance than banks with higher branch density.
Double-edged sword of digital: The study suggested that while digital banking has enabled banks to grow faster and attract large numbers of customers, those deposits often consist of “hot money” that customers yank as soon as economic conditions worsen.
Branches promote relationship banking: When there’s a whiff of trouble, the theory goes, if the bank has attracted tech-savvy business customers who are online all day, they won’t hesitate to withdraw their money over the internet.
But if a bank builds branches in many small towns and cities, they’ll attract “depositors who walk into the branch to deposit their money,” according to Levine. “And those are the customers you want when you run into trouble.”
The trend: The ever-increasing dominance of digital banking has pushed financial institutions to take a fresh look at where the branch fits into the bank’s overall customer experience.
The backlash to the ‘vanishing branch’: It’s conventional wisdom that the branch is well on its way to extinction.
How we got here: With their limited operating hours and long lines of customers waiting for a teller, branches were once just an unavoidable part of banking. Technology disrupted that. Digitization and ATMs meant that when the pandemic shut down branches, banking still happened without them. This didn’t go unnoticed by banks.
Cost cutting and closures: Reducing the geographic footprint and encouraging customers to use only the bank’s digital channels has had obvious cost benefits.
Those savings had a cost: But the cost savings from branch closures have come at the expense of personal relationships, which lead to a deeper understanding of the customer’s needs and intent. Without face-to-face interaction, most banks struggle to maintain close, loyal relationships.
What it means: Building consumers’ confidence in the brand through accessible support, encouraging brand immersion, and creating a hub for learning about finances will help financial institutions keep up with consumers’ changing needs and ensure that the physical branch continues to offer a return on investment in banking.
A premature obituary for the branch: This isn’t the first time branches have been pronounced dead and defunct. When ATMs were introduced in the 1970s, people thought they’d end the branch. (Spoiler: They didn’t.)
And we expect that to continue. Asking about whether anyone will still go to the bank branch is a lot like asking whether people will continue to shop in brick-and-mortar stores, go to their doctor’s office for an appointment, or commute to their workplace.
Yes, they will. But those experiences and the environment in which they happen will be different from what they used to be. And consumers will have more choices when it comes to meeting their various needs.
Where does the branch fit into the digital world? Reviving the branch isn’t an exercise in nostalgia or a Luddite victory: Banks won’t pivot away from digitalization. Instead, what’s recommended is what Accenture calls a “horses-for-courses approach,” which plays to the strengths of each channel. Bank branches will be transformed into part of an integrated customer experience that spans multiple banking channels.
Branches build relationships: Net deposit outflows for three quarters in a row have made retention critical. Building robust relationships, fostering loyalty, and cultivating trust are the remedy. Financial institutions need to rekindle personal conversations with their customers.
Enter financial wellness: Banks also will be shifting their emphasis from meeting specific needs and selling individual products to talking about improving customers’ general financial well-being. Branches will help banks learn more about their customers, show interest and empathy, offer advice, and build loyalty. They’ll show customers how to manage their finances better.
Financial education has value: Even non-personalized advice or financial education material and staff educators can fill a needed gap for many.
Our take: Banks that provide a differentiated in-person experience for needs that require a human touch are likely to see more traffic and greater usage of their branches for high-value tasks.
Coming next in this series: A look at what customers think of branches.
First Published on Sep 6, 2023
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