Branch Banking Reimagined: Why Banks Should Keep Their Doors Open

Even the most unobservant realize that the pandemic has accelerated digitalization – in banking and elsewhere. For many months, bank customers were forced to adopt remote banking, and millions of people have now shifted to online and mobile banking. While initially this shift was born of necessity, it resulted in droves of customers discovering the ease, convenience and reliability that digital banking offers. So what does this mean for the future of bank branches?

As people start returning to “normal” activities (going back to offices, restaurants, entertainment venues and more), will they also return to their bank branches? In short, yes they will. However, those visits will be for different reasons than in the past. In this blog we’ll consider the future of bank branches.

New Habits Are Formed

COVID-19 forced everyone to do things differently. Bank branches closed overnight and banks of all sizes and in all locations pioneered new ways of working. The “dash for digital”, which had already been underway, gained a new urgency as banks sought ways to give customers access to their money during the pandemic. In the process, branch transactions fell by around 30-40%, as did cash use in most markets.

Overall, banks performed heroically and offered a financial lifeline to people and businesses, exactly when and where it was needed. Technology clearly played a major role. Online and mobile usage flourished, and video-tellers quickly became mainstream. The way banks responded to the pandemic boosted customer trust but also increased customer expectations.[1]

As the old saying goes, habits die hard – scientists estimate that approximately 40% of daily human activity is performed out of routine.[2] Nonetheless, people formed new habits and banking customer behavior has changed, probably forever. Many have adopted a digital-first approach to banking. They appreciate the speed and convenience of online and mobile options, and see these services as a viable replacement for branch banking. Digital services such as photo-check deposit help customers straddle the analog and digital worlds.

In the wake of the pandemic, many banks diverted investments from their branches to digital initiatives, and some redoubled their branch closure programs. U.S. Bancorp closed over 400 branches in the final quarter of 2020, while JPMorgan closed 334.[3] However, the latter simultaneously expanded its physical footprint by opening 222 new branches, and also became the first bank to venture into the metaverse. So what’s actually happening to branch banking?

Physical and Digital Footprints Differ

In the past, a bank’s branch network was an essential engine of growth; indeed, it was often the principal engine of growth. Traditional banking services had to be taken to the customers – the bigger a bank’s branch network the larger its market share. Over time the link between a bank’s branch network and its customer base has weakened, particularly now that remote banking has become mainstream and digital banks have no branches at all.

In the digital age, customers have greater choice than ever before. They also have high expectations and will shop around for financial products and services that meet their specific needs. This has long been the case for high-net-worth individuals (e.g., partly because FDIC insurance is capped at $250,000 per depositor per bank in the U.S.). These days customers of all income levels are likely to have accounts at multiple banks for different reasons.

Customer Expectations in the Age of Experience

Many customers hold accounts at different banks because individual accounts meet a specific need, for example a checking account at a digital bank may be attractive because of its engaging app. Similarly, some banks may waive monthly account fees when you use direct deposit for your paycheck or keep a minimum balance. The fragmentation of financial products, increasing competition and emergence of new bank types has reinforced the trend for customers to shop more widely for products across multiple banks or even non-bank financial services providers. How can banks fight back and reclaim their position as a one-stop-shop? A strong (and reimagined) branch network can help.

The In-Branch Experience

Although COVID-19 has changed branch economics, many people still want to visit a branch when it suits them, though perhaps less frequently and for different purposes. In a digital age, people still yearn for physical experiences and visiting a bank branch may be more appropriate for some customers and certain services.

Customers tend to visit a branch to find out more about complex bank products and services, such as mortgages or retirement planning, or to receive financial advice from a trusted advisor. The branch of the future can serve as the beating heart of a truly customer-centric banking strategy, but it must provide a compelling experience that is closely aligned with other bank channels.

From a bank’s perspective, branch visits represent an opportunity to cross-sell, upsell and add a human touch to service. Customer data can be harnessed to create products that meet a customer’s exact needs and create a truly personal banking experience. Reimagined branches can help to elevate the bank’s brand and customer satisfaction overall.

From Terminals to Tablets

To do this effectively branch culture will need to change from offering over-the-counter services to a more relaxed lounge experience. The bank branch must showcase all that’s good about a bank’s brand. Banks must reinvent and repurpose their branch networks as ‘smart branches’ that combine leading-edge technology – such as tablets, biometrics, voice recognition and more – with world-class service to increase customer engagement and build brand loyalty.

Think Outside the Branch

The key consideration is that a branch experience must complement the digital experience. Many banks believe that branches are a good way to attract new customers and retain them. But, to remain relevant, banks must do more than open new branches – they must invest in new strategies and adopt technologies that tear down silos and promote open customer dialogue. 

Explore Pathways to the Metaverse

The metaverse (Web 3.0) has the potential to reinvent branch banking beyond our imagination. JPMorgan recently launched Onyx, a banking “lounge” in the virtual world of Decentraland, marking the first foray of banks into the metaverse. While not a branch per se, their investment in Onyx (and the bank’s metaverse unit which created it) signals the start of something big.

As stated in JPMorgan’s white paper, Opportunities in the metaverse: How businesses can explore the metaverse and navigate the hype vs. reality:[4]

“In the metaverse, some of the existing services and business models we are familiar with will continue to exist, but the metaverse opens a whole new realm of ways to engage which we expect will lead to uniquely new services and business models. Not everything in the metaverse will be relevant for every business. However, there is little downside to taking the opportunity to explore.”

[1] https://www.forbes.com/sites/alanmcintyre/2020/11/19/the-future-for-bank-branches-embrace-complexity/

[2] https://www.sciencedaily.com/releases/2014/08/140808111931.htm#:~:text=Summary%3A,allow%20us%20to%20reach%20goals.

[3] https://www.americanbanker.com/news/u-s-bank-accelerates-branch-closings-as-more-customers-go-digital

[4] https://www.jpmorgan.com/content/dam/jpm/treasury-services/documents/opportunities-in-the-metaverse.pdf