We still need bank branches

For many years we have had discussions about bank branches and a branchless future. I personally don’t believe in a branchless future, but many do. And yes, there are many branches disappearing, much to the annoyance of those who lose that physical store.

For example, America still has a large number of branches (32 per 100,000 people) and remaining fairly steady, whilst Europe has seen a near 20% reduction in bank branches from 2009 to 2015 (238,467 in 2009 falling 49,616 to 188,851 in 2015). That’s still a lot of branches.

What is the outlook for the future?

In my view, there is always a role for a branch in banking, but not the branch as we knew it. The old branch was all about transactions. Pay in, pay out, cash a cheque, deposit some coins and so on. All of that is going or has gone. But there are two to three elements to a branch.

One, it supports a community and specifically the business community in the area. Businesses have different needs to consumers, and do often need access to a human. People forget that.

Two, money is not the same as a Facebook update. If you lose a post saying what a nice time you’re having, it’s not the same as losing a deposit of $10,000. In fact, I often state that if you woke up today and find you’re bank app confirms the balance you expected, then you’re happy. But what do you feel if the balance is -$10,000 short of what you expected? You’re just going to sit and ignore it? Of course not, you’ll call the bank or go to the branch to eyeball someone. That is because money is different. It is far more emotional than other parts of our life, because it is the controlling factor in our lives.

Three, I think a lot of pundits forget what it’s like to get your first job, first relationship, first car and first home. These are big moments in a young person’s life and to imagine they would all be dealt with through an app is a little bit strange. I always hark back to Deutsche Bank who opened an amazing branch in Berlin for their high net worth clients. Along with the mandatory café and shop areas, they designed two rooms nicknamed the iPod room and the Senator room. The iPod room was designed for their young customers and was all white plastic and hip; the Senator room was for their wealthy clients and was all oak and red leather, like a library. When the branch opened, they were therefore surprised when all their young customers wanted meetings in the Senator room whilst their old customers wanted to meet in the iPod room. Think about it. Old people want to be young and hip again, whilst young people felt that money was serious and important and demanded a serious and important room to talk about it in.

Four, building on the last point, money is serious, critical and central to most people’s lives, and needs a human interface. Sure, you can build the human interfaces into a Skype call, and we will, but removing the humanity and the human physical access from a service so fundamental to our lives is stupid. It demeans the role of the bank and banking, and is undermining the role this service has in people’s lives.

All in all, I can see why people think branches are not necessary, but I firmly believe they are necessary. Not for their old role of transactions or for the role of advice, although I believe that is quite important still, but mostly for their core role of trust.

Roberto Ferrari of digital bank start-up CheBanca in Italy articulated it most succinctly for me. When visiting his branch in Milan, I wondered why a digital bank had branches. He told me that it was for three reasons. The third is services; the second is trust; but the most important reason he gave me is marketing. His branch network was for marketing purposes.

Wow, that’s a surprise, but I can see why. He told me that where the bank had a physical presence, they received two-and-a-half times more deposits and assets than where they did not. In other words, the bank that has a branch has far more chances of getting people’s trust and money than ones who do not.

Maybe this is best illustrated by Metro Bank, the first new retail bank in Britain since 1840. It has been followed by many other challengers, but is the one of the few new challenger bank with branches. I was at the launch in 2010, with the first store at Holborn, and now it has over 50 branches across the UK. It also in profit, announcing a 77 per cent increase in profits to £7.2 million in the three months to the end of September 2017, up from £4 million in the previous quarter. It also notched up record quarterly customer growth as 79,000 new accounts were opened, taking its total to 1.1 million. Surely, that’s a testament to the branch, or rather store, strategy. (I also loved Vernon Hill’s quote: “We don't have problems with bank robbers, nowadays they don't use guns to rob us by breaking safes, they use the keyboard.”)

Finally, I heard another great story recently. Apparently, Larry Page and Sergey Brin, the founders of Google, had a meeting when they started Google with a major investor. They had a great meeting and walked out with a check for $100,000. As they left the meeting, the first bank branch they encountered was one of Wells Fargo and immediately went in to deposit the check. That’s the reason why Wells Fargo was and still is the bank behind Google. Now there’s a good reason for having a branch if I ever heard one.