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Future of the Branch: Where do we go from here?

Evolution Of The Bank Branch – Where Do We Go From Here?

While the history of banking can be traced back as far as 2000BC, the advent of modern banking really occurred in the 17th century when banknotes were first issued. Although the first cheques were written in the 1600’s, the first “clearing house” to process cheques between banks was not set up until the 1800’s. Branch banking also boasts an impressive history of longevity and innovation, dating back to 14th century Italy. However, it is only in the last 50 years, with the rapid advance of technology, that banking has undergone dramatic and diverse changes, most notably illustrated by the acceleration of the pace of change with the adoption of mobile banking. 

To look towards the future of banking, it’s vital we understand how banks have evolved over the last 50 years. Until the 80’s, banking was a privilege granted to the customer by a bank manager in a branch. Banks typically opened numerous branches close by to one another to service the maximum number of customers.

As more branches opened, the increased volumes of customers and staff led banks to begin managing the group of branches centrally. Meanwhile, products offered by banks became broader and grew in complexity, as did the processes behind them and the management structure of the bank. With this widespread growth, banks opted to centralise functions such as clearing, while the significant progression in computer technology led to the creation of data centres; designed to automate accounting and offering opportunity for greater scalability for banks.

As the number of branches continually increased, more processes were centralised or even outsourced to aid the efficiency of the bank. Customer service was revolutionised by the introduction of the contact centre, effectively removing the need for phone calls from customers to be answered in-branch. These centralised functions were siloed by product and customer segments to improve efficiency within the bank, but ultimately resulted in the spread of customer data across different systems.

Advances in technology continued to offer new avenues for banking, with the introduction of internet self-service banking in the late 90’s, and mobile banking following shortly after in the millennium. The rising bank web presence prompted the growth of online marketing teams, focused on the importance of customer engagement through social media.
For many banks, their online presence has been implemented using product and process siloes, creating a banking legacy plagued by duplication, inefficiency and cost issues.
In contrast, the relaxation of banking regulations to allow for new competition in banking, creates a valuable opportunity for new “challenger” banks, armed with the advantages of hindsight and new technology, to follow a more “customer-centric” approach to banking. These emerging banks have the ability to operate at a much lower cost than their well-established competitors, while still producing compelling customer experiences and developing strong relationships.

So, how is this possible and what is the future of the branch? This blog series examines how changing customer behaviour and preferences, alongside the rapid pace of technology innovation, will impact the future of the branch, and whether it can survive in this ever-changing, digitally focused banking landscape.

For the majority of banks worldwide, customer interaction has largely moved to digital spaces, with many banks experiencing almost 90% of all customer interactions online or through mobile. Witnessed in numerous other industries, banking is following the trend of moving interaction from a physical, manual world, to a virtual, automated one, to meet the needs of the 21st century customer.

While removing the physicality out of banking initially appeared restrictive, this drastic change actually offers the greatest opportunity for innovation in banking and the branch. Services and knowledge are no longer hindered by the limitations of being spread geographically, but can now be centralised to offer customers the best advice and products anywhere, anytime, on any device. This significant improvement to accessibility of key services and knowledge offers banks the chance to build upon their customer service.
Although this does not remove the need for branches in the short to medium term, the number of branches will undoubtedly decline. Branches may instead shift their focus, operating as self-service centres offering sales and financial advice.

However, the next evolution in banking will be the management of customers online, an area of utmost importance since digital customer interaction has become so vital to banking. Banks have become well acquainted with managing websites and content, alongside providing online and mobile banking products. Social media support has been incorporated into their offerings and specialisation in digital marketing has become a wide-spread practice. Despite the benefits of such progress, these new offerings have often been implemented in a silo fashion, using different technology and processes for various customer segments and products.

Therefore, the next crucial step for banks will be the creation of the “digital front office”, largely focused on digital marketing to manage prospects and turn them into customers. This, in turn, will provide banks with the opportunity to present customers with an exceptional level of service and advice, creating loyal advocates of the bank. So, what does the front office need to focus on? The first step is to successfully manage customer interactions online or through mobile; I call this Digital Engagement.



Comments: (2)

João Bohner
João Bohner - Independent Consultant - Carapicuiba 07 March, 2017, 13:29Be the first to give this comment the thumbs up 0 likes


Very good description of the evolution of the banking business.

I myself am a witness to the difficult times, in the early 70's.
Citibank had 3 branches in the state of São Paulo, Brazil.
The main branch was in the city of São Paulo, another in Campinas, 100 km distant and another in Santos, 70 km, opposite side.
At the end of the day we took a car to collect checks in Santos and Campinas to, at midnight, do the clearing with other banks.
During the night the files were updated, the paper lists of transactions for the tellers were printed, taken by car to Campinas and Santos, so that the branches could serve customers from 10:00 onwards. The tellers kept the balances on the paper lists updated, manually.

The cars were substituted by telecommunications.

Unfortunately, the operational inheritance of 'end-of-day processing' has not evolved and no one dares to tamper with this area.

I agree that the big step is the "digital front office", but it will only succeed if we eliminate the legacy of 'silos by product and customer segments'.

You have to invest to get rid of legacy systems; have to eliminate the 'batch processes' with corresponding silos.

You have not to play the lottery of fintech's startups, hoping that in a stroke of luck, a miracle solution will come up that will settle all frictions!

Financial transactions must be processed online, with geo-positioning, real time, completely, definitely, accurately and corporately.

This approach allows to use a single, integrated source of information for the corporation, the costs per transaction will be drastically reduced, allowing the Bank to grow and not shrink...

Then, yes, the “digital front office” will succeed seamlessly.

A Finextra member
A Finextra member 07 March, 2017, 17:16Be the first to give this comment the thumbs up 0 likes

Jao, agree with you totally. Digitalisation is making banking frictionless by removing people, paper and process so that everything is fluuid and straight through. But at the heart of the business approach must be custimer centricity to remove silo's of products, processes and channels. 

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