The Future of Retail Bank Branches
A Balancing Act

U.S. banks closed a record number of branches (2,297 Net) last year, according to S&P Global Market Intelligence data. The previous record for closures had been set just one year previously in 2020. In fact, since the high in 2009 of 98,000 retail bank branches, branches have been closing at the rate of approximately 2% per annum. The trend is clear.

The physical size of bank branches is also changing significantly: modern branches are designed to a size of 2,000 to 3,500 square feet to accommodate a full-service operation compared to the 5,000- to 7,000-square-foot branches of the past.

While the number and size of bank branches are diminishing due to cost rationalization, mergers and acquisitions, and increased digitization, the role that bank branches play should not be underestimated.

The Role of Bank Branches

Bank branches offer a direct point of contact with clients and the community at large. They represent an opportunity to provide customer service and create valuable (and value-generating) customer experiences.

While digitization offers clear cost and efficiency advantages to banks, and convenience to customers, research shows that clients still value personal service and direct human contact very highly when it comes to areas such as discussing mortgages, home equity loans, small business loans, and commercial real estate loans.

In other words, not every transaction or banking inquiry can, or should, be conducted in a solely digital manner. Consumers like a hybrid approach to banking with both online and in-person options available.

The Balance

Forward-looking banks offer an effective balance between digitized services and in-person, or virtual, interactions.  The goal is to fully digitize and automate lower-level transactions such as check cashing and funds transfers, while offering hybrid or fully in-person contact for higher-level services, including mortgages and car loans.

Bank branches provide the focal point for these higher-level services, and facilitate:

1. High-value transactions
2. Proactive engagement of customers
3. Relationship-building

This can be achieved by focusing on the customer and customer service and choosing the appropriate technology to facilitate a streamlined and valuable customer experience. The technology available to facilitate enhanced customer experience includes Intelligent Teller Machines (ITM), Artificial Intelligence (AI), robotics and virtual interaction.

It is also important to appreciate the changing role of branch staff and their skills and training requirements. The increased emphasis on customer engagement and financial advice will often necessitate reskilling (training an employee for a new job), upskilling (training an employee on additional skills in an existing job), and redeployment (assigning an employee to a new task).

Competitive Advantage

The trusted position that banks hold within society is largely due to the ubiquitous presence of bank branches within our communities. The agile, digitally native Fintechs and BigTechs that are making inroads onto the services traditionally offered by banks cannot compete with the level of in-person access, customer service and potential for customer experiences offered by bank branches.

Direct access to customers (and their financial history) provides banks with a competitive advantage that can be leveraged effectively by focusing on the delivery of customer experience and augmented by the appropriate technology. It is very important to remember it is not a case of digital services OR in-person services but the correct balance, and integration, of both.