Digital Technologies will Accelerate Branch Transformation, Not Make Them Extinct Retail banking is evolving at an accelerated pace. Globally, banks are facing disruptions from multiple directions. Business and economic realities have reduced the total number of US bank branches by 3,000 between 2009 and 2012 - a decrease of 3% over the 3-year period. In Spain alone, banks have closed 5,000 branches or 12% of their overall capacity since the financial crisis began in 2008, lowering the total branch count to approximately 40,000 in 2012. That is not all. Digital technologies have also brought a significant shift in consumer banking behavior. The percentage of US banking customers who prefer to bank online jumped to 62% in 2011, up from 36% the previous year. Today, four of the top five transactional banking activities in North America – bill pay, viewing balances/transactions, viewing statements and money transfer – are happening online. This brings us to the key question of this paper: do brick-and-mortar branches have a role to play in the future of retail banking?

1. The Future of
Bank Branches
Evolution of Retail Banking
Business and economic
realities have forced the
shutdown of bank branches
Digital technologies have
brought a significant shift in
consumer banking behavior
Transactional activities
happening online
in North America
Bill Pay
US Customers Online Banking
Preference
3,000
In the US,
bank
branches closed between
2009 and 2012
36%
2010
View Balances
/ Transactions
View Statements
62%
Money Transfer
2011
Digital Technologies will Accelerate Branch
Transformation and not make them extinct
Proximity and Advisory will remain integral to a bank branch
47%
of US Banking customers believe
that a bank is not even legitimate
unless it has branches, up from
41%
only a year ago
90%
of consumers
prefer face-to-face advice
for complex products
We don’t envision a branchless future, but a future with fewer branches.
Based on the levels of digitization,
we predict the emergence of four bank branch models
1.THE SHOP
2.THE LOUNGE
Minimal staffing without
complex advisory skills
Focuses on relationship
building with high levels
of customer intimacy
Has low levels of digitization
with self-service options
Involves low levels
of digitization
3.THE DIGITAL POD
Offers retail-like
displays and
self-service aisles
for customers
A showcase for high-tech
banking innovations
- Video Conferencing
- Online Document Sharing
- Digital Signatures and
Card Readers
Limited
advisory services
Focuses on
standardized
products and services
Provides complex advisory services
4.THE PHARMACY
Promotes high levels of customer
proximity with an entire range of
advisory services
Flagship branch that
incorporates all aspects
of self-service and online banking
Used to reinforce a
bank’s brand image
Optimizing a branch network helps banks save up to 30%
Current State of Bank
Total Branches
Cost of Existing Branch Network
4,000
$ 2,100 million
Our Estimation Model
STEP 1
STEP 2
Differentiate Branch Network
Based on Proposed Models
Post 10%
Rationalization
The Pharmacy
45
The Shop
20
%
20%
15%
Digital Pod
%
The Lounge
Total Branches
3,600
Cost of Proposed Branch Network
Total Savings
$ 1,472 million
30%
The future of banking lies in
physical co-existing with digital.
Sources:
1. AZCentral.com, “Are bank branches endangered species?”, May 2013; Chicago Tribune,
“Illinois sees more bank closings than openings in last year”, July 2012
2. American Bankers Association, “ABA Survey: Popularity of Online Banking Explodes”, September 2012
3. Forrester article: “The State Of North American Digital Banking: Priorities, Goals, And Metrics”, 2012
4. EFMA, “THE FUTURE OF BANK BRANCH NETWORKS”, December 2012
5. Novantas, “U.S. Multi-Channel Customer Research 2012”, May 2012
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