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Branches Wanted: Dead or Alive?

There are wide differences of opinion between different banks of the role of a branch these days.

Is a branch a branch, a store, a transactional centre, a sales centre,
a retail lobby, an automated machine or all of these things or none of
them?

On the one hand, I see HSBC saying that branches are uneconomic; on the
other hand, Santander has decided to rebrand all their UK branches and want more.  Meanwhile, there are new banks opening branches, such as Tesco and Metro Bank, and old banks closing branches by the dozen.

Who is right and who is wrong?

Are branches alive and kicking, dead and gone, or in terminal decline?

Answer: depends where you sit.

A branch is useful for banks that see them as a key channel and as an asset for human interfacing.

Now that sounds like a dreadful techno-nerd phraseology but then, truth be known, I’m a dreadful techno-nerd person.

I hate branches.

Can’t stand the things.

Only ever go in there for paying in cheques, and how long will they last for gawd sake (2018 in Britain).

If that’s the only reason for going into a branch, then close them down.

But not everyone goes to branches for cheques.

Many want branches around as a place to go to ensure the bank can be trusted and to talk to someone.  To human interface.

And, after the many issues of the past year with banks closing, the ability to queue and get your money out of it physically seems somehow reassuring.

Branch

Ah, but if trust is your only reason for having branches, then close them down.

After all, trust in banks has collapsed in the last year and if you only keep your branches open so that people can queue when you collapse and get their money out, then that's a pretty rum state of affairs.

Equally, some people trust a one man bank more than some big banks, so this is not the key either.

But then, that one man does have a branch so maybe there is something in that?

You see, it is all about the human connection isn’t it?

The ability to transact and interact with a human.

But, yet again, you don’t need branches for that either do you?

You can interact with humans on telephones, via keyboard and, soon, via remote video.

So what is the real point of a branch?

It’s …

… errrr …

… it’s to …

… to errrr …

… it’s to sell, isn’t it?

The future bank will have big sales centres replacing existing branches, and then lots of automated satellite stations for transaction services.

No.

Rubbish.

You can sell via the internet and telephone too. After all, if you needed branches then no-one would bank with call-centre only banks such as First Direct.

And yes, First Direct does have ATMs via HSBC but HSBC branches do not cater to First Direct customers or vice versa.

So, what is the real point of a branch?

It’s a channel.

And, if you are a bank that sees the human channel with physical connectivity as being important, as Santander obviously do, then you need branches.

If you are a bank that sees remote connectivity and services with limited human interaction in a physical space, as HSBC see the world, then you do not need branches … just automated transaction centres.

HSBC_1

And customers will self-select their preferred bank to service them based upon their view of the bank's competence at managing these channels and the channels they offer that suit the customer's lifestyle.

So, if I’m a customer who wants a bank with branches and humans, then I will choose between Santander and the few other banks on Main Street left to service me that way.

Meantime, if I’m a customer who never wants to see a branch again in their lifetime – and there are some of us who feel that way! – then give me First Direct, Smile, PayPal, Zopa and SmartyPig any day.

This is the reason why Metro Bank and Tesco are getting into UK bank branches … because they recognise that the incumbent players have no idea as to whether to be committed or de-committed to their branch strategies and operations.

And while the incumbents dither and prevaricate, they are just losing on both ends of the scale.

Their customers are dissatisfied with their shoddy, under-invested branch operations, and their competitors are seeing huge opportunities to recreate the branch experience to gain traction with those customers who want a branch experience.

No wonder banking is such fun when the business models are being reconstructed in real-time and the decision makers haven’t noticed or reacted.

Meanwhile, if you are committed to branch as a channel, it would do you no harm to look over the Financial Brand's Future of Branches presentation.

This post also relates strongly to the Multichannel Myth, whereby a bank should focus on single channel excellence, and a huge debate 18 months ago about branches.

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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One brilliant thing is way better than 1000 average ones

I’ve blogged on some of the themes I’m going to cover below, but the story …

  • This is truth: “Customers will self-select their preferred bank to service them based upon their view of the bank’s competence at managing these channels and the channels they offer that suit the customer’s lifestyle.”
    This remark needs to be heard by those who believe in a single channel strategy.

  • Banks that are “committed to the branch as a channel” are in a lot of trouble. This means they will be plowing a lot of money into the branch channel AT THE EXPENSE OF INVESTING IN OTHER CHANNELS.
    The “truth” is that some channels are “better” for certain types of transactions and interactions than other (where “better” means more convenient for the customer, more robust from a functionality perspective, easier from a delivery perspective, and less costly from the bank’s perspective).
    Increasingly, electronic channels are becoming the “right” channel for a larger set of interactions and transactions.
    True, there are customers today that “prefer” the branch channel. But, first, who are these customers? Often, older customers with limited future product needs.
    Second, preferences can be shaped and molded by the bank through incentives and policies. (FYI, look at Sweden where just 12% of consumers use a branch in a given month vs. 42% in the rest of Europe Thx to Forrester Research for that data point).
    Third, lets take a closer look at why those consumers prefer the branch. It’s often because they can’t do what they want in some other channel. And furthermore, if the bank didn’t screw up something in the first place, then maybe the customer wouldn’t need to go into the branch in the first place.
    So go ahead, bankers. Spend money redesigning your branches to look like Starbucks coffee shops with comfy chairs. And watch those chairs go unused, while your competitors extend their capabilities in the channels that will be (if they’re not already)the battleground of the future.

  • Ron, are you saying branches are a worthless investment? That there is no ROI (acquisition, deposits, etc.) on branches? That there’s no future role for branches? And if so, when will branches become completely irrelevant? Are “old customers” the only ones who will use branches, and once they die, branches will die along with them?

  • Ron, are you saying branches are a worthless investment? That there is no ROI (acquisition, deposits, etc.) on branches? That there’s no future role for branches? And if so, when will branches become completely irrelevant? Are “old customers” the only ones who will use branches, and once they die, branches will die along with them?

  • Ron, are you saying branches are a worthless investment? That there is no ROI (acquisition, deposits, etc.) on branches? That there’s no future role for branches? And if so, when will branches become completely irrelevant? Are “old customers” the only ones who will use branches, and once they die, branches will die along with them?

  • Ron Shevlin

    @JP: What I’m saying is that making large investments in branch DESIGN (or re-design)is likely to be a bad investment decision for a very large percentage of banks. Investing in technology that drives branch efficiencies is a different story.
    Second, no, I don’t think that “old” customers are the only ones who will use branches. Younger consumers will use branches — but not necessarily because they WANT to, but because they HAVE to. Because there will be no other way for them to get their problem resolved or to get help choosing between six different checking account options all with similar naming conventions.
    And the argument about the “personal relationship” that customers have with bank employees in branches holds no water.
    Example: You (Jeffry) and I certainly have a friendship/relationship… and we’ve never met personally. (Not that meeting personally wouldn’t either: 1) enhance that relationship, or 2) end it completely when you kill me for being so argumentative with you all the time).
    Banks need to come up with completely new types of interactions (like what MS Surface might offer?) that are best suited for branches in order for significant branch redesign investments to be worthwhile.

  • With respect to branches, my main, overarching point is simple: If you’re going to continue building new branches, you can’t continue building them in the same style that you did 20 years ago (which is, nevertheless, precisely what many/most financial institutions do).
    It costs just about the same to design/build a good branch as it does to create a shitty branch. It may take more work, as in thinking, but not much more money. Good branch or bad branch, there will still be walls, carpet, furniture and “stuff on the walls.” There’s a lot more that goes into those decisions than financial institutions — and their local architects — realize.
    Regarding branch technologies driving efficiency, I completely agree. That’s where things like cash recyclers, CRM, video tellers and automated safety-deposit boxes come in.
    With respect to who uses branches, I will have to disagree. You seem to assert that there are only two types of branch users: old foagies and pissed-off customers. I contend there will — for the foreseeable future — continue to be a significant segment of the population who wants to look people in the eye when it comes to dealing with their money, whether that be handing over their paycheck to be deposited, or getting a $250,000 mortgage. For some people there is simply no substitute for a smile and a handshake.
    And who said anything about the “personal relationship” argument? Not me. I’m well aware of the depth of relationships that can be forged remotely.

  • With respect to branches, my main, overarching point is simple: If you’re going to continue building new branches, you can’t continue building them in the same style that you did 20 years ago (which is, nevertheless, precisely what many/most financial institutions do).
    It costs just about the same to design/build a good branch as it does to create a shitty branch. It may take more work, as in thinking, but not much more money. Good branch or bad branch, there will still be walls, carpet, furniture and “stuff on the walls.” There’s a lot more that goes into those decisions than financial institutions — and their local architects — realize.
    Regarding branch technologies driving efficiency, I completely agree. That’s where things like cash recyclers, CRM, video tellers and automated safety-deposit boxes come in.
    With respect to who uses branches, I will have to disagree. You seem to assert that there are only two types of branch users: old foagies and pissed-off customers. I contend there will — for the foreseeable future — continue to be a significant segment of the population who wants to look people in the eye when it comes to dealing with their money, whether that be handing over their paycheck to be deposited, or getting a $250,000 mortgage. For some people there is simply no substitute for a smile and a handshake.
    And who said anything about the “personal relationship” argument? Not me. I’m well aware of the depth of relationships that can be forged remotely.

  • With respect to branches, my main, overarching point is simple: If you’re going to continue building new branches, you can’t continue building them in the same style that you did 20 years ago (which is, nevertheless, precisely what many/most financial institutions do).
    It costs just about the same to design/build a good branch as it does to create a shitty branch. It may take more work, as in thinking, but not much more money. Good branch or bad branch, there will still be walls, carpet, furniture and “stuff on the walls.” There’s a lot more that goes into those decisions than financial institutions — and their local architects — realize.
    Regarding branch technologies driving efficiency, I completely agree. That’s where things like cash recyclers, CRM, video tellers and automated safety-deposit boxes come in.
    With respect to who uses branches, I will have to disagree. You seem to assert that there are only two types of branch users: old foagies and pissed-off customers. I contend there will — for the foreseeable future — continue to be a significant segment of the population who wants to look people in the eye when it comes to dealing with their money, whether that be handing over their paycheck to be deposited, or getting a $250,000 mortgage. For some people there is simply no substitute for a smile and a handshake.
    And who said anything about the “personal relationship” argument? Not me. I’m well aware of the depth of relationships that can be forged remotely.