WE SEEM TO BE hearing about new branches of the future constantly.
However, with declining branch activity across the board in developed markets, is the very term branch of the future part of the problem?
With branches having been so central to the distribution model of banking in the past, it’s obvious that many banks will struggle to let go of this mode of revenue delivery, at least until such time that branches become clear loss leaders.
Thus, for now there appears an inordinate amount of effort being put into “saving” the old distribution models with a rethink, reboot or refresh – a future iteration that might restore the old behaviours of customers.
The problem is that the economics of branching is struggling as footfall declines, and while in some emerging markets branch traffic is still increasing on a net basis as the middle class grows and large numbers of unbanked are being banked, the overall outlook for branch networks is still trending negative.
The problem here for banks though, is one of focus. Branch activity largely is not declining because the branch is simply designed poorly, has too many tellers or teller stations, or doesn’t have enough technology embedded – it is declining because customers just don’t need to visit branches like they used to.
Banks should be cognisant of the fact that while refreshing branches will help with some segments of existing customers, and might reduce overall network costs, it’s not going to reverse consumer behaviour trending away from branches.
The bank of the future is all about engagement and relevance. A branch of the future strategy is an effort to retain relevance, but it misses the key point that engagement in-branch is in decline for other reasons.
Beyond a spike when a new branch layout is launched, I’ve not seen any data that shows significant improved engagement over time – yet you can bet if we were seeing this trend then the branch of the future enthusiasts would be yelling it from the rooftops.
Here’s the thing – I know we need new branch layouts that remove tellers. I know we need service points, and that they’ll likely be much smaller footprints, but replacing older larger branches so there’s no perceived drop in service. I know complex product revenue will still come through the branch. But we should be talking about building the bank of the future, and not the branch of the future.
The branch will be the least visited and least engaged channel in the channel mix for retail banks in the United States, United Kingdom, Germany, France, Australia and so on. If your primary distribution or revenue strategy is improving the efficiency of your lowest performing, least engaged channel – then you’re doing it wrong.
Many will argue that it’s still about revenue – that most of the revenue comes through the branch. How can we change that without investment in engagement outside of the branch?
That’s the key problem with focussing on a branch of the future strategy – we avoid the real work that needs to be done.
In so doing, we might just jeopardise the entire future of the bank.