Navigating the uncertain future of branch banking

By : Neill Malcolm Harris

November 27, 2018 01:00 PM

Are banks closing the wrong branches?


You want to increase the relevance of your physical branches, but  changing the branch to meet the needs of an increasingly-connected digital population gets more difficult by the day. 


The services customers need – deposit, withdrawal, balance updates and information about credit products – are available via ATMs and digital banking, so it might be logical to believe the branch’s role has diminished significantly in the last decade.  And research by the Federal Reserve of Philadelphia suggests demand for physical branch locations along with, “increased merger and acquisition activity following the Great Recession, changes to firm strategy, and consumers’ increased reliance on mobile technology” resulted in banks strategically closing branch locations.


This prompts something of a chicken-and-egg question: did digital banking explode because physical locations were closing during the recession, or vice versa? Whatever the answer, the outcome is that the bank closures between 2008-2013 weren’t randomly selected, they were based on where banks concluded future business might be.


Neighborhoods with higher average credit ratings and lower rates of home ownership or other credit products were more desirable for a branch than locations with fewer residents who’d be able to take advantage of bank offerings or become customers.


Research shows low and middle income families with a bank nearby are more likely to have a bank account. Deposit accounts are a leading indicator that a customer will use other bank products. So it should follow logically that the biggest opportunities for banks to scoop up more customers for all products is with branches in these neighborhoods, because branch banking matters to these customers. And while consumers are using online and mobile channels to complete transactions, research by Novantas shows that, 60% prefer opening their accounts in a branch as opposed to a digital channel.


Digital vs. physical: branches in the balance


Digital banking usage has been increasing since its introduction, but McKinsey & Co research reveals only 20% of consumers are “bank in my pocket” customers that don’t use branches.  


While traffic may be down in the branch, 85% of consumers still go into a branch for discussions about their accounts and new products. Key takeaways for the industry are:


  • No market is fully digitalBranches will remain a requirement for 30 to 50% of banking consumers for the next 3 to 5 years
  • Even in the most advanced digital markets, only 40% of sales were done through digital channels
  • Digital usage will progress, but in the meantime, the branch is still the main channel
  • As consumer preference changes, FI’s need to plan for more digital and remote services
  • McKinsey sees the future as closing branches on main streets and opening new ones in lower-cost locations that are easier for customers to access
  • The real estate investment firm JLL, sees a future where bankers will tailor their branches to customer needs and demographics


ATMs and ITMs offer a way to elevate branch experiences


No matter what neighborhood a bank is in, the needs of its visitors remain the same: a real bank employee at a time that’s convenient to the customer. So the challenge for financial institutions is to provide longer hours and more flexible branch formats that help retain and grow business. A current favorite industy topic is small/micro-branch formats deliver great service while occupying as little as 200 sq. feet. Some features of micro-branches are:


  • More machine driven transactions – self-service and assisted service
  • These branches offer more transaction options than the traditional ATM.
  • Flexible retail delivery strategy depending on the time of day.
  • One bank has a micro branch in a condo building with abbreviated hours for staff, but extended teller hours with ITMs
  • View toward shared tenant space – on university campuses, in hospitals and in malls
  • Matching the site-specific purpose and experience required to the cost to serve


Making “bankers’ hours” a thing of the past


Rivermark Credit Union and Consumers Credit Union have deployed unmanned micro-branches using NCR Interactive Teller technology to service members away from traditional branches, extending the reach for the FI and the service hours for their consumers. An Eastern bank branch in Revere, Mass. has created manned locations in a micro 200 square foot location. There are zones for “banker hours” and 24/7 service that utilize NCR ITMs.


It’s clear that financial institutions will continue to experiment with branch size and formats and the technology deployed in these micro locations to keep up with the expectations of today’s banking consumers.


Neill Malcolm Harris

NCR Product Marketing Dir. for ATM Solutions

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Neill drives marketing for NCR’s ATM solution portfolio. He travels extensively to many of the World’s leading banks and financial Institutions, articulating how SelfService technology and innovation can inform and support strategies and solve challenges.