Datamonitor expects overall European branch renewal expenditure to grow at a compound annual growth rate of 9.6% between 2002 and 2005, totalling almost $1bn by 2005.

The research suggests that between 33% and 40% of branches will be revamped and renewal will be highest in the UK, France and the Benelux region, with top tier banks leading the way.

Local branches continue to generate more business than both Internet and telephone banking channels as customers continue to expect face-to-face interaction with staff. As a consequence, firms are forced to revamp branch networks in order to improve cross-sell rates and customer service and retention levels, particularly for the growing mass-affluent market.

To achieve this, banks will have to invest heavily in branch infrastructures, replacing legacy networking and developing next-generation CRM-enabled branch desktops, allowing advisors to access sales and service tools as well as customer data and product information.

Self-service stations as well as facilities for Internet and telephone banking will be available for simple transactions. Sofa-areas and coffee shops are expected to be introduced in an effort to make customers stay a little longer.

In the long term, wireless technologies will signal the end of the traditional glass partition and enable staff to move freely within the branch, allowing them to serve customers as soon as they walk through the door or while standing in queues.

Christine Skouenborg, financial services technology analyst at Datamonitor, says the transformation will not occur overnight as it entails significant investments in infrastructure upgrades and application development.

"There are significant operational issues at stake, most notably the issue of how to increase human skill-sets within the branch and how to position branches as credible centres for impartial advice."