Banks are accelerating the closure of brick and mortar branches this year, as they encourage older customers to gravitate to mobile and online banking.
Millennials themselves need no encouragement to bank online, as 71% of them would rather go to the dentist than listen to what their banks are saying.
Branches will not disappear entirely, however, and most banks will maintain smaller, anchor branches to provide a reassuring presence versus their purely digital competition.
Branch and associated staff costs make up 60 – 65% of a total cost base for a bank with an extensive branch network. Digital transformation and a focus on cost-cutting are propelling banks to transition to advisory-oriented, low volume/high value branches, versus the traditional transactional high volume/low value ones. UK and Nordic countries lead the way, but digital transformation is also happening across the pond in the US and in Asia.
HSBC said its use of bank branches is down more than 40% over the past five years with 93% of contact now made via digital channels. The bank will cut 62 more branches from its UK operations alone in 2017.
US banks shut down 1,555 branches through the first nine months of last year, or roughly 1% of all US bank offices, according to FDIC statistics. Wells Fargo will shut down more than 400 bank branches by the end of 2018, on top of the 84 locations it closed in 2016.
Non-US banks are also planning more cuts. After its ninth year of losses, the Royal Bank of Scotland is expected to cut £800 million ($1 billion), said the Financial Times, and most of the savings will come from staff cuts in its main offices in London and Edinburgh, and from shutting down high street branches.
These are just a few examples of the groundswell of branch closures globally. Financially it just makes sense. “Banks and credit unions have a big incentive to figure out how to get branch users to make the digital shift,” according to The Financial Brand.
In the article, it says that research from Bain & Co. estimates “every interaction a consumer has with a teller or call center agent costs the institution $4, whereas mobile interactions only cost 10¢ each.”
Despite the depressing branch figures, there are still many customers that prefer a brick and mortar bank staffed by humans. Last year, JP Morgan had to hire more tellers due to customer complaints.
Maybe there is a happy medium. Martin Vander Weyer wrote in The Spectator: “Rather than decimating their networks, banks should be developing technologies (such as video links to financial advisers elsewhere) that help branches stay viable, and finding creative uses for spare space.”
In the old physical world, banks were focused on manufacturing bank products that were sold in branches in response to customer needs. Today, and in the future, successful banks will harness data to predict customer needs, and present solutions in real time on the customer’s device of choice.
Of course, this requires significant technological and business evolution through digitalization – and managerial courage. Meanwhile, they will keep pruning the branches until they find new reasons to keep them open – or get rid of them altogether.