Tony Virdi, Head of Banking and Financial Services, UK, Cognizant
There is no simple answer to whether retail banks still need branches for customers to visit. The truth is that, even though regulation and technology is moving at pace, it will depend on the bank, the region and the customer. Whilst arguments have raged for many years about whether retail branches will die out due to the impact that existing and emerging technologies are having, no-one has an answer. Unlike travel agents, whose bricks and mortar locations have (mostly) been replaced by online travel and price comparison sites, the concept of moving all cash and assets online still proves worrying for many banking customers all over the world.
What is definitely happening, however, is that banks are making changes to their existing methods of customer engagement. In the US, for instance, customers are visiting traditional branches less often and the average number of teller transactions fell to 15.6 per hour in 2011 from 19.1 in 2005, according to research cited by Celent[i]. Despite this, boutique-style branches are being opened in Canada and, in the UK, Metro Bank offers ‘stores’ that are open even on public holidays[ii]. Whether investing in the latest luxury branch to entice existing and new customers in or embracing newer channels of engagement – online, mobile or social – there is a revolutionary change afoot.
There is not a simple “one size fits all” solution. It is true that phone banking, internet and, increasingly, mobile banking have all started to offer bank customers alternative (and often more convenient) ways of accessing and handling their financial matters, reducing the need for local branches. Internet and mobile banking transactions are growing logarithmically.
Where banks recognise that, for some, there is a complex relationship that customers have with their money, in-person branches are the only solution. The branch is currently almost considered as a security guarantee for when, or if, other channels fail.
So, what should banks do? Several leading banks have told investors that new technology in their branches will help trim jobs; as a result, the redesigned branches tend to be smaller, another factor in cost-cutting exercises.
However, new technologies do not have to completely replace in-person branches. Whereas many banks are trying to optimise their channel strategy, which can potentially result in driving efficiencies by closing down branches, others are exploring opportunities to open new ones that go beyond traditional banking, offering more service-orientated experiences. Instead of transactions, administration and cash – which can be completed easily remotely – in-person branches can evolve to offer personalised service, advice and sales. They can give consumers an opportunity to engage, talk and obtain knowledge and understanding of finance and money, thus strengthening the relationship with the bank and fostering customer loyalty.
So what will happen to branches as result? Asia may be leading the way where the branch of the future is centred on self-service as circa 80 – 90 percent of all bank transactions can be performed via this method. The remainder requires specialist attention (face to face interaction) for which there are specific ‘booths’ for things such as mortgage or pension advice. In Spain there has been widespread adoption of community banks, where a branch is the place to meet, for example, to have a coffee or to read books. We are also seeing the rise of ‘face time’ via technology rather than physical meetings for some personal banking advice. This provides more readily available contact at more convenient times that suit the customer with a specialist who can reside anywhere in the world giving access to a wider skills base. Some banks are even considering giving customers in the branch mobile tablets for self-service to improve the customer experience.
In essence, for every branch that closes, new channels of engagement with a bank’s customer opens. It is only the institutions that refuse to embrace new technology and more collaborative methods of communication that may ultimately falter. As in all industries, technology is shaking up the traditions we are so used to. The banks that drive change the fastest and in the most visionary manner, to optimise the balance between maintaining in-person branches and offering alternative means of engagement, will be the ones who go on to succeed and perhaps become leaders.
Ultimately, banks have to do what is right for them and their clients, which means adapting with the times and adopting the technology that suits their customer preferences to improve user experience and enhance bank loyalty. Bank branches provide a way to connect customers, almost an olive branch in the sense of offering a bridge between traditional and modern worlds, although they also need to continuously evolve to offer a significantly enhanced customer experience.