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Monday
Jul292013

Bank branches are not going to be transformed. They are going to cease to exist

There is lots of talk in the banking world about how banks should adapt their branches in order to stay relevant in the world of today (and tomorrow). This is the wrong question, akin to Kodak asking how they should improve or adapt film in order to stay competitive in the world of digital photography. The better question is how can banks adjust the totality of their offering in order to stay competitive, and it seems obvious to me that part of the answer is not transforming bank branches, but rather setting out a roadmap for shutting them down entirely.

Everyone agrees that basic transactional services are moving and will continue to move out of branches to other channels. In the developed world, most purely electronic transactions (bill payment, money transfer, etc.) can these days more easily be made using online or mobile banking than at the branch. Increasingly, banks let customers deposit checks remotely too, by snapping and uploading a photo of it. Getting cash out of a bank requires a trip to the ATM, not the branch. Making a cash deposit still does, but who, aside from small businesses that accept cash payments, makes cash deposits at branches anymore? All these innovations have contributed to the 45% drop in transaction volumes in US bank and credit union branches over the past decade, with mobile check deposit reported to be the biggest driver.

Many branch boosters would accede to the notion that such transactional activities can be banished from branches for good, but they argue that sales and service will always have a place at retail. This seems like wishful thinking that ignores the way that every other consumer-facing industry is changing. You might have plausibly thought fifteen years ago that, despite the emergence of the internet, customers would never choose to buy something as expensive as a major holiday in any way other than in the office of a trusted travel agent. It was a plausible hypothesis, but it was wrong. Today, you might think that, despite the emergence of the internet and our increasing reliance on it, customers will never choose to buy products like mortgages, investments, and loans online. But neither history nor early indications are on the side of that hypothesis. Even if customers would prefer, were cost no object, to make such purchases in a retail environment, they will no doubt respond to the savings they can enjoy by making them online instead. 

Of course, travel agents still exist to serve a niche of technologically unsophisticated consumers who still want to sit behind a desk while someone else books their flights. And other travel agents exist to serve a niche of wealthy, busy consumers who are happy to pay a premium for service and expertise. But these are niches, and I can’t see any mass-market bank maintaining an extensive branch network to serve such small markets.

I take the point that as an intermediary step, branches need to evolve. Maybe the airlines needed to set up thousands of check-in kiosks in airports in order to get customers comfortable checking themselves in, even though the endgame is getting customers to check themselves in on their own computer or phone (allowing the airlines to rip the kiosks out again). But if banks delude themselves about the endgame, then their roadmap will be flawed. The key objective of a branch transformation program should be to hasten their end. 

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