Reinventing Branch Banking in a Multi-Channel Global Environment

What is happening to branch traffic?

Branch traffic has been declining for the last 15 years and will continue its negative trend as we see increasing use of alternative channels. Now with mobile banking remote deposit capture, some banks are seeing traffic decline by as much as 15 percent.

What does the erosion in traffic mean for the industry?

Shrinking branch traffic means fewer sales as historically branch visits were the primary way that banks drove cross-sale opportunities. As such, productivity and utilization of branch staff is down significantly and running a profitable branch is harder than ever. Banks have tried to balance this impact by either closing unprofitable locations—which is difficult given long-term lease agreements, or reducing staff. With branch staffing already at minimal levels, this cost reduction option is also becoming unfeasible. The rise of the digital consumer and the high-cost infrastructure of physical banking are leading to a declining return on investment for branches—one that if not corrected quickly will become a financial burden cutting deep into cross-channel profitability.

What are the things customers most want to do in branches?

Different customer segments value different aspects of branch banking—some place a high value on its ability to deliver personalized service and expertise; others focus on convenience and access. It really differs by customer segment and local market, and to some extent, the capabilities available to the customers on alternative channels.

Fundamentally, branches convey a community and market presence, reinforcing brand recognition and trust for consumers. So while customers may no longer visit the branch, they still choose their bank based on its proximity. Branches still remain the preferred channel for mortgage applications and complex product sales where customers feel the need for an adviser to guide them through the purchase decision. Local businesses and retailers that rely heavily on cash also continue to use the branch for daily deposits and withdrawals, but that is more by necessity than choice.

How has the industry responded to the challenges?

The industry is beginning to explore alternatives to reach the customer through personalizing and targeting online offers, using advanced analytics for lead generation and, more recently, offering branchless banking for the subset of customers who rarely visit a physical bank location. However, at the aggregate level, we see many more branch closures and lower levels of new branch openings as banks look to consolidate locations and adapt their network coverage to lower demand. But branch closures are not easy, nor are they a blanket solution. Some banks are experimenting with different models. We are seeing flagship stores emerge in cities while others are emphasizing neighborhood branches to differentiate themselves in their markets and drive foot traffic.

Others are investing in offering more consultative sales and relationship building activities in branch locations, such as hosting seminars for small business owners in partnership with complementary solution providers and offering access to experts through video conferencing facilities. Banks are also reviewing their footprint and looking for ways to maintain their geographic reach without incurring significant cost. One bank is leveraging a self-service branch approach, which provides a small, understated branch divided into clearly identifiable zones, relying exclusively on self-service for routine transactions.

How should banks be transforming their branches?

In today’s business environment where customers seek convenience, personalization and seamless service, one of the most critical areas is developing a cohesive and complementary multi-channel distribution strategy—including digital, face-to-face and voice. Establishing an array of opportunities will help to maximize revenue and profits for the whole bank, including the branch network. Additionally, leading banks are adopting a mix of emerging models from flagship stores to community centers and self-service kiosks. Each model aligns to the target customers in key markets where the bank has a significant client base, an approach that increases the bank’s geographic relevance and balances customer needs, revenue opportunities and cost to achieve growth in return on investment.

Finally, branch transformation is a multi-year journey, one fraught with issues such as long-term lease agreements, negative public relations and operational and cultural roadblocks. Banks should adopt a structured approach and strategy that is based on customer needs in the local market. The competitive landscape, the bank’s brand and internal capabilities are all factors to consider.


Dean Nicolacakis