After an initial stampede towards digital-only banking, some big banks are going back to their roots by doubling down on physical branches.
A decade of regulation and recapitalization after the 2008-2009 credit crisis has restored many big banks to health. During the crisis and the aftermath banks were focused on staying alive – cutting costs and becoming complaint.
Today, they have emerged from their stupor - well-capitalized and profitable – and are clearly focused on growth. They have to stay relevant in the face of competition from big tech and fintechs and, in doing so, reinvent themselves. Excellence in digital banking is one way, of course, but some have decided that a physical presence gets them closer to their customers.
JPMorgan Chase will open 400 new branches in the USA, raise the hourly wage for some workers and add new jobs as part of a $20 billion investment program. This will up the amount of branches the bank has in the country by almost 8%, said Bank Innovation.
Chase believes that the branch is the heart of its customer relationship. Branches are a core distribution channel for the bank’s products, financial advice and other value-added services. Much of the bank’s deposit growth originates at the branch, and Bernstein Research said last year that it grew deposits faster than its major competitors and twice as fast as the industry.
JPMorgan Chase is not ignoring digital banking, however – far from it. Last year it launched digital-only mobile bank Finn, which primarily targets millennials who can open accounts, make deposits, issue checks, track spending and create savings plans.
TD Bank is also banking on its branch network, while taking digital transformation seriously as well. The Toronto-based bank now has more branches in the U.S. (1,260) than it does in Canada (1,138). But it wants to differentiate itself by providing branch-style convenience in its digital offerings.
This increase in physical branches runs contrary to the efforts of many other banks in closing branches For example, in the Nordics, the number of branches has already been halved since the financial crisis. New regulations like PSD2 – the open banking initiative – as well as cost containment are the drivers. Costs are key to branch closures, as I said last year. Branch and associated staff costs make up 60 – 65% of the total cost base for a bank with an extensive branch network. Even for banks committed to an extensive physical presence, they need to transition to advisory-oriented, low volume/high value branches, versus the traditional transactional high volume/low value ones.
But while all banks are embracing digital in one form or another, there are many which remain dedicated to the local branch. The largest banks with the deepest pockets can have it both ways. Smaller banks, for the most part, are focusing their resources and continuing to prune branches and invest in mobile channels.
Either way, digital excellence is a pre-requisite for success. Bricks can work alongside clicks, providing customers with the best possible choices and customer experience.