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The branch-based banking model is dead (UPDATE)

Here’s a summary of the presentation I gave at the conference this week.

The headline is that the traditional model of banking is dead, long live the new bank model.

The dead model is the one where 80% of costs of retailing are in stores (branches).

Branch based banking is dead.

Branches are not dead … just the concept of branch-based banking per se.

UPDATE: the critical point here (which some are missing – see comments) is that branches are not dead.  You still need some for sales and relationships.  But about a tenth of the number that most banks have today as the majority are just administration or transaction outlets that can be automated.

For those who read the blog regularly , you’ll know what I mean but, just in case, the point is that 8 out of 10 branches were opened as administration centres to service the transaction needs of communities. Those needs are now being self-serviced so what are those transaction centres there for?

In particular, as 95% of customer contact is now being delivered remotely through technology channels, including corporate customers, this should mean that at least 80% of the cost goes into the staffing, processes and technology used in those channels.

In other words, 80% of the old bank operational costs for retailing were in branches. Today, it should be in technology channels.

But there’s more to it than that.

It’s about relationship and connections.

People get technology today not because it’s gadgets but because it is connecting their lives to the lives of countless friends and strangers.

This is why Facebook can go from nothing to a place with the population of the United States in under four years, and why Twitter can go from off-the-radar to on-everyone’s-radar in just under a year.

Last year, no-one mentioned Twitter.

Today, it’s an integral part of the show.

But it’s only integral because it helps people manage, share and organise their lives and loves.

And that’s what banks have to do if they are to reconnect. They must connect people to their money and finances in a simple and easy way.

The presentation draws on all the materials you can find in our directory of social finance, and is themed around the human connections that make up our lives.

This is why each point ends with human faces, as that’s what it’s all about, and empty branches, as that’s what it’s all about.

By way of a little more explanation of the flow.

To start with, today’s kids see the computer and its operating system as a history lesson.

They don’t care how technology works, just as I don’t care how electricity works.

I just like what it can do, and that’s how kids see technology.

They also see banks as a history lesson.

Their grandparents went into branches, their parents used ATMs and they just think of money and banking as being like Mint, an internet service that organises their finances for them.

What’s a bank branch for therefore?

Equally, everyone keeps referring to the Facebook and Twitter generation, or the twitfaced generation as some might call them.

Who are the twitfaced generation?

They’re not the under 25’s.

They’re not the under 35’s.

They are the over 35’s.

Most Facebook and Twitter users are average age of 40.

So when we talk about social networks, we are not talking about the next generation of customers. We are talking about the current generation.

If anything, the new generation of customers should be called “the Mob”, as they are all about being mobile connected youth (the Mobile Youth website is brilliant if you want more on that).

So what we’re really saying is that you need to completely rethink the bank around social technologies and rethink the branch network by closing most of it down and reinvesting that saving into social finance.

If you don’t, you’re dead.

Give it less than a decade, and you’re dead.

I’m serious.

Mainstream media fought this battle … and lost.

That’s why television and newspapers are shutting down by the bucket load as today’s media is created by me on YouTube and Typepad.

So stop fighting the lost bank cause of the branch network.

Rethink it.

Keep the branches you need for sales, and shut the rest down.

Replace them with ATMs.

Equally, start thinking about new ideas such as microtransactions.

A billion iPhone app downloads in nine months.

Charge 50 cents a download and you’ve generated $500 million.

That’s the future.

It’s the grains of sand that will build the future.

And some banks get this stuff.

eBank and Jibun Bank in Japan; Wells Fargo and Bank of America in the USA; BBVA, Caja Navarro and a few others in Europe; but these are few and far between.

By way of example, I’m still waiting for my bank to start a blog or anything … instead I just have a locked out website with activation codes that don’t work (long story).

In summary, the bank of the future will connect with me intimately via my mobile lifestyle 24*7. They will not only be proactive, but predictive of my needs and will provide me with a connection not just to a payment or to my money, but to my financial lifestyle.

That’s what MINT is doing today and BBVA has delivered too, but it requires bravery to go down this route.

Being brave by shutting down transaction centres, opening hi-touch 21st century sales centres and pushing the rest down a common technology platform that supports access via mobile, laptop, music player, television, car … any internet-enable device basically.

And this changes your business model as the old model would involve massive investment in the business case to launch new technology platforms.

Today, technology is free and disposable.

So get on with it.

Retail bankers of the world, unite.

Shut down the branches and bite the bullet.

Stop fighting the old fight and start focusing on the future.

Otherwise you’re just dead meat, and who are we all going to sell to then?

The mobile phone companies?

p.s. as mentioned, all the case studies supporting this can be found at our directory of social finance

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Chris Skinner

    @Volksbank my German translation implies your comment was: “what a load of old b******s”
    @Neil and @Volksbank
    Don’t misinterpret what I write as there’s a key opening line: “Branches are not dead”.
    I am not saying banks should close all branches … just that they should rethink and only keep open the ones that provide a sales store. All transaction centres – 80% of most banks’ branches – should be shut down and replaced by automated lobbies / minimal services.

  • Chris,
    provocative as usual and I would mostly agree. I guess for your presentation it is a case of ‘you had to be there’! but I think the thing I am most unsure of is the notion that we need to re-invent branches as ’21st century sales centres’.
    Sure, branches need to move with the times and since we’re in the 21st century your comment is arguably a needless truism – here is the problem – the not-yet-banked (Gen Z if you like) are not going to use branches, period. Not to buy, not to transact. They don’t have to. Increasingly, straight through on-boarding (customer acquisition with no physical presence required) is a reality in more and more jurisdictions. Gen Z don’t buy music in music stores, they don’t buy books in bookstores (ok – as a generalisation). As a generalisation therefore, they won’t use bank branches to bank.
    Most banks seem to have failed to grasp that the key is not to spend time working out what to do in branches (e.g. ‘sell’ not ‘transact’ – that is just an operational cost reality) but instead: Who will branches serve in the future? Certain segments of the population will prefer a physical point of presence others (most, I wager) will not. If you align the branch proposition with the consumer, you’ll meet with some success – if you don’t you won’t. Sounds simple but I don’t see banks doing it.
    I’m especially wary of banks that build ‘high-tech’ branches. Maybe it fools the commentators and the stock analysts but it seems to me a ‘showcase for the absent’. I much prefer the honest approach of Metro Bank or the upscale segmentation of North Shore Credit Union in Vancouver.
    That’s why Metro Bank’s approach is not a contradiction (@Neil) – they won’t publish volumes or segmentation data but I’d bet that it isn’t 18-21 year olds, but rather Mums who expect to be passing branches (sorry, ‘stores’) at least once a week. Oh, and some ‘switchers’ incensed by the perceived general retail banking malaise that have bothered to get off their backsides. I suspect that was the segment they were going for in the first place so their challenge is not whether stores are needed but whether the chosen segment represents a big enough franchise.
    As an aside, there is an interesting transitional dilemma – and that is that if you ask Gen Zers what prompts or will prompt them to select a bank they will rank branch network or proximity to branch as a key (top 3 usually) factor. So they ‘value’ branches (perhaps because they are a reflection of brand?), but they don’t intend to use them!
    But then again, successfully dealing with dilemmas and paradoxes is what building a successful strategy is all about and I wholeheartedly agree that retail banks that fail to adapt are in for interesting times!

  • Branches continue to be absolutely central to the majority of customers. One of the problems is that commentators (like mayself) are not typical bank customers and while we might be avid social media and internet users, the vast majority of the population are not. They still want to be able to visit branches and speak to a real person who gives them advice. For all the flashy technology and the free dog biscuits that are now available in the branches, the real differentiator is the people and a fundamental change to the culture in banks is required as articulated in my recent blog: http://www.itsafinancialworld.net/2011/01/why-leadership-of-banks-needs-to-change.html#