The disappearing bank branch

The Irish bank branch is the latest victim of the post-crisis banking fallout. Danske Bank started the current wave of closures with its announcement that its 27-branch network will be replaced by nine Personal Banking Centres. AIB followed with a plan to slash branches in tandem with a deal to soften the blow by allowing customers to access An Post branches for basic banking services. It total it is predicted that as many as 270 of the country’s 900 or so branches are under immediate threat and the trend is unlikely to end there.

The developing Irish situation mirrors a global trend where many of the functions of the bank branch are being displaced by smartphone apps and other forms of self-service.

But if the quantity of bank branches is decreasing, given the resources of the Irish banking system there is little chance that the reduction will be matched by a rise in the quality of the branch experience that is much in evidence elsewhere in the world.

The global banking industry is pretty much at an all time low in terms of reputation.

Nowhere is this so true as in the UK, where it might have been thought that public opinion of the banks could hardly have sunk any lower in the aftermath of the financial crisis that has enveloped the global economy since 2008. But in the past few weeks the processing malfunction at RBS seriously affected millions of customer accounts (Ireland fared even worse through subsidiary Ulster Bank), while the Libor rate-fixing scandal that has claimed the jobs of Barclays Chairman, Marcus Agius and Chief Executive, Bob Diamond.

With more than 20 banks worldwide under scrutiny, the Libor scandal will inevitably envelop banks elsewhere and the banking industry’s status as most-despised sector is assured for the foreseeable future.

But the banking industry is not unaware of its position and has been working for the past few years to redeem itself through an accelerated commitment to corporate social responsibility policies and other PR manoeuvers.

Faced with accusations of indulging in ‘casino banking’, and with political threats to break up their operations and separate retail deposit-taking business from trading activities,  global banks have looked to recast themselves as contributors to the real economy. And the branch is central to this.

There is strong evidence that in spite of the rise of the mobile device and a parallel substantial decrease in transactions originated through the branch, the branch remains central to the retail banking experience in the minds of the public. While branch numbers may be diminishing, in other important respects its status is being enhanced relative to other delivery channels.

The opportunity to reconnect with the public through the branch by way of superior, personal service is clear: the business case for the branch in the face of rapid take-up of remote and in particular smartphone-based apps for transactional banking is more complex.

But if the evidence of recent initiatives in branch banking is anything to go by, a wide range of banks and financial institutions – from global behemoths to local credit unions – are innovating at branch level like never before.

The branch will remain central to the retail banking experience for the foreseeable future for three core reasons.

First, the branch remains the single most important expression of a bank’s brand. This is something that cannot be replicated by the extensive range of new, non-bank organisations that – enabled by facilitating regulation and technology – have made major strides in taking a share of banks’ traditional business, particularly in the realm of payments. This is most marked in the developing world; here the implications of mobile money are that bank branch networks will not develop as in the developed world, but instead will be emulated by retail outlets offering cash-in/cash-out facilities in support of mobile money schemes.

Second, while transactions may be decreasing, the branch remains the location where by far the greatest number of higher value-added product sales takes place – with estimates as high as 80 percent over some product lines.

Last, the branch – when best practice design is observed – is reinventing itself as the location where all retail banking channels converge. The branch is increasingly seen as the place where technology truly integrates with the brand and where the silos in which these channels often exist are dismantled.

So, while there are plenty of examples of luxurious new branch designs aimed at the high net worth individual, perhaps the key motivator behind the new branch experience is to educate the regular retail customer on all that can be achieved through use of existing technology without human intervention, while confining the branch visit in the main for high-value advisory sessions.

The branch is now the place where customers learn about the bank’s latest mobile app or enhanced money management software, possibly on a massive Microsoft Surface touchscreen interface or guided by a personal assistant wielding an iPad.

In their efforts to redefine the bank branch experience for their customers, banks have looked outside to the wider retail and hospitality industries. Citibank Asia hired design company 8 Inc., designers of the Apple stores, to help with their Asian flagship branches. One small credit union, in the U.S., North Shore, sent their staff for training to Ritz-Carlton before successfully changing its business model and customer profile to embrace the high net worth segment.

New-style bank branches are now employing hi-tech video banking facilities giving customers virtual access to product specialists. Technologies such as radio frequency identification devices (RFID), allows bank branch staff to be immediately alerted of customer entry and instantly call up that customer’s details to be displayed on an assistant’s screen for prompt and immediate service.

Above all, the new wave of bank branches that is in evidence around the globe are infinitely more welcoming and pleasant than their predecessors; places where attentive and knowledgeable staff open up potential for their customers.

All of this sounds a far cry from what might be expected in the Irish situation, but it is to be hoped that if the migration of transaction banking to the smartphone and other remote devices continues, that what remaining branch staff there are will use this capacity and be capable of delivering a genuinely valuable advisory experience for their customers.