Adapting Branch Networks in the Era of Digital Banking Dominance

There’s no question that consumers are increasingly using digital platforms for their everyday banking needs. According to a 2019 American Bankers Association (ABA) survey, the banking channels used most often are online (37%) and mobile app (36%), with bank branches in third place at 17%. However, at the same time, multiple surveys show that branches remain important channels for consumers. A 2018 Celent survey found that 77% of consumers prefer visiting a branch to discuss a lengthy topic, 63% prefer a branch for investment advice, and 51% opt for a branch to open a new deposit or credit card account.

So while banks are developing more advanced digital platforms, they are maintaining their commitment to the branch channel. Here are 4 ways that banks are adapting branch strategies to ensure they continue to perform effectively in a digital world.

Reduce the overall number of branches, but look to open branches to expand reach.

Over the past decade, there has been a net decline of more than 13,000 bank branches in the U.S.

In general, banks are reducing branch numbers. For individual banks, the pace and extent of the branch reductions depend on multiple factors, including the bank’s current position in a given market (market share and branch density), competitive factors and market dynamics.

  • In April 2019, U.S. Bank announced plans to trim up to 15% of its branches by the end of 2021 as it pursues a digital-first strategy.
  • Wells Fargo’s branch strategy involves maintaining a significant branch presence in attractive markets, while aggressively reducing branch counts in other markets.

However, lower branch density has reduced the cost of entry into new markets. While many banks are cutting their overall branch numbers, they are also opening branches in targeted markets.

  • In 2018, Chase announced plans to open up to 400 branches in 15-20 expansion markets, including Boston, Washington, D.C. and Philadelphia. As a result of this expansion, Chase’s branch network coverage will rise from 69% to 93%.
  • Similarly, though Bank of America has reported a net reduction of more than 750 branches over the past five years, it has also opened 200 new branches, with another 400 expected to open over the next three years in markets like Cincinnati, Cleveland and Pittsburgh.
  • To achieve its ambition of becoming a national retail bank, PNC has targeted new markets with digital-first strategy supported by a thin branch network. It recently opened branches in markets like Dallas and Kansas City, and claimed that these new branches are generating deposits at five times the pace that the bank would expect for a de novo branch in its legacy markets.

Redesign and restaff branches.

Branches are changing from primarily being rather forbidding places to process everyday banking transactions to become more welcoming and dynamic locations where consumers and small businesses can engage more deeply with the bank, obtain advice, discuss financial solutions and showcase new banking technologies. Branches are even acting as meeting places.

To reflect this change, many banks are redesigning their branches, making them smaller and even removing teller stations in favor of a more open-plan layout. Along with branch redesign, banks are also changing the composition of branch staff: smaller branch formats need fewer staff; and the shift from transaction processing to engagement has led to significant shift from tellers to advisors and product specialists.

  • In May 2019, Berkshire Bank outlined plans to introduce new “storefronts” in the greater Boston market. These storefronts will not act like traditional branches (i.e., will not accept deposits or payments), but will feature free co-working spaces as well as event rooms.
  • Bank of America is the middle of a six-year plan to renovate 2,800 of its branches.

Incorporate technology into branches.

Many banks are incorporating cutting-edge technology into branches, which can help to showcase new products and other bank innovations, build customer engagement and improve employee productivity:

  • In April 2019, HSBC Bank USA won the Consumer Banking Innovation Award from FinTech Breakthrough for Pepper, a social humanoid robot deployed in HSBC branches in New York City, Seattle, Beverly Hills and Miami. The bank claimed that the presence of Pepper in its New York City flagship branch boosted business by 60%.
  • Chase launched Digital Account Opening in its branches, which it claims enables bankers to optimize their time for providing advice.

Build synergies between physical and digital channels.

The key to future success will be to develop a channel-agnostic approach that:

  • Recognizes the strengths and limitations of different channels
  • Avoids channel conflict and cannibalization
  • Cross-promotes channels, such as enabling clients to:
    • Conduct digital and mobile banking tasks in branches (and that includes having branch representatives show consumers how to use digital tools)
    • Make branch appointments through the digital platform
  • Applies different retail banking models for in-footprint vs. out-of-footprint markets
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