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Perspectives

The Future of Branch Banking: Four Things to Know

2015-06-30


Smaller, fewer, smarter. Here's what the ideal bank branch will look like in five to 10 years.

Smaller, fewer, smarter. Here's what the ideal bank branch will look like in five to 10 years.


One thing is clear: Bank branches are here to stay. They're not in demand like they once were, due to the rise of digital banking. But retail branches will continue to play an important role for the foreseeable future, says Steve DeLaCastro, vice-president of Cognizant's Banking and Financial Services business unit.

Over the last 20 years, DeLaCastro has seen first-hand how social, mobile, analytics and cloud technologies (the SMAC Stack) have impacted hundreds of banks, large and small. Among other things, these innovations have transformed how banks handle money and underwrite loans, gauge real-time demand, engage with current and prospective customers and deliver goods and services.

But digital banking is more than just Web and app experiences. It's how banks seamlessly blend the physical and virtual touchpoints needed to create a consistent omni-channel experience. What better place to do that than within the branch?

Although branches will continue their decline over the next few years, they will maintain a prevalent role in acquiring, retaining and serving customers across digital and physical channels. Here's why, how, when and where, according to DeLaCastro.

Location still matters

While the boundaryless workplace is alive and well, consumers still value a retail banking presence. In fact, 80% of consumers say branch location influences their choice of bank, according to a study by SNL Financial.

Consequently, banks that have attempted a "branchless" approach or reduced their footprint too quickly have experienced brand erosion and undermined the ability for customers to complete complex interactions and transactions, DeLaCastro notes.

Of course, not all locations are equal. To distinguish the hits from misses, DeLaCastro suggests that banks use analytics to identify large concentrations of high-touch customers and examine the cross-channel behaviors of millennials and digital natives.

When branches beat digital

When it comes to depositing, transferring or withdrawing common denominations of money, branches are no longer the go-to option. For that, consumers have smartphone apps, secure Web sites and strategically placed ATMs.

For everything else, however, customers head straight to a branch, DeLaCastro says. They are incredibly useful for new account openings, point-of-sale services and hard advertising. And they're the only game in town when it comes to in-person support needed to resolve claims or provide advice on complex, high-value transactions, such as loans, mortgages and retirement investments. 

That may change as technology improves and millennials become the majority of customers. But the impact will be felt several years (if not decades) from now. Until then, branches will flourish, especially in Europe, where customers still culturally favor physical transactions over digital ones. And branches will continue to provide credibility and remain business-critical to banks.

Understanding contraction

With branch traffic diminishing, especially in the U.S., careful analysis is needed to make economical decisions regarding viable locations and staffing needs. Again, this is where analytics comes in to better understand changing demographics and user experience demands. 

Over the next 10 years, banks will require 30% fewer branches and see a 40% reduction in branch real estate, according to industry gurus. To fill the void, banks will deploy more powerful ATMs and digital kiosks to replace the majority of teller functions, particularly in low-traffic branches. Customers will be encouraged and coached to frequent self-service digital cafes, which are already replacing branches in locations where leases or office space aren't easily exited.

What the future looks like

Fewer, smaller, smarter and more open: That's the future of retail bank branches.

Instead of stationary tellers standing behind barriers, roaming bankers will move from one location to another, depending on customer need. More automated kiosks and digital signage will be put in place. Less transactional work will be performed by personal bankers in favor of high-value sales and financial advice.

Interactive

Figure 1

For high-touch clientele, banks will increasingly use customer relationship management software to improve ROI at expensive physical channels, from tracking and funneling their interactions, to automating the appropriate services. Some branches have even experimented with geo-location services to contextualize in-person appointments after identifying customers via their smartphones.

Obviously, that's just a glimpse into the future of branch banking. Since not everything can or should be done digitally, branches will continue to play an important role, albeit in limited and smaller-scale doses.

Whatever happens, both banks and customers stand to gain, so long as the evolving services can be flawlessly accomplished between both digital self-service and relevant branches.

To learn more, read our recent reports on digital banking and digital loyalty or visit our Banking and Financial Services business unit.

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The Future of Branch Banking: Four Things to Know