The challenges facing banks today have been well-documented. Increased regulatory scrutiny has led to higher compliance costs at the same time as low interest rates and legacy issues make the operating environment more difficult. A key area of focus has been the delicate task of looking to improve legacy IT systems while simultaneously competing with fintech start-ups and digital disruptors offering consumers new solutions.
Yet despite trying to improve efficiencies, there has been less focus on the role and value of the bank branch. Against a background of increasing digital offerings branch networks have increasingly seemed outdated millstones, contributing heavily to the cost base for banks. The fact we have seen a massive reduction in the number of branch visits customers make only confirms that view.
That said, while consumers increasingly prefer to engage with their bank via digital channels, there is still a need for branches. Accenture’s recent survey of UK consumers found nearly 70 per cent use them for making important financial decisions. We are hearing the same in Asia – from Hong Kong to Mumbai. Branches still play a key role in brand positioning for banks and are seen as vital in building customer trust despite lower usage. Banks need to recognise that their customers still want branches even if they don’t use them as much.
So how to marry what appear two conflicting forces – the rise of digital banking and lower use of branches and consumer demand for a physical, “expensive” large branch network? Talking to a range of global clients, we have seen that the banks who have aligned their digital strategy with their branch strategy have navigated this conundrum the best. They have reduced their distribution costs by making their branches a physical manifestation of the digital experience. Critically, at the same time they have not lost customers. They have positioned themselves at a competitive advantage as they have the appropriate digital capabilities to absorb higher volumes as customers continue to shift to using digital over branches.
Of course, we can say with some certainty that the rise of digital adoption makes current branch formats and networks unsustainable in the long-term. On the other end of the spectrum newer banks with low run costs and pure digital players building physical presence are posing a threat to banks customer retention and future revenue plans. Ultimately banks will have to be led by their retail customers – we know that when switching banks customers give significant consideration to a ‘phygital’ bank model that offers the right blend of branch and digital services. So the message is clear – the branch is not dead but with the right strategy and investment banks can achieve the holy grail of higher customer engagement and lower costs.
Sushil Saluja is a senior managing director for Accenture’s financial services business