Branches: Fading Fast?

Branches: Fading Fast?

The smartphone is becoming the foundational banking channel.

January 18, 2016

“If your customer base is aging with you, then eventually you are going to become obsolete or irrelevant. You need to be constantly figuring out who are your new customers and what are you doing to stay forever young,” says Jeff Bezos, founder and CEO of

We might note the impact of these words in consideration of financial institution branches and how this business model is influenced by tech-savvy younger generations.

The literature indicates millennials are part of the force at work that currently drives change in how providers make financial services accessible. Branches are not only susceptible to this change, but in a state of it as financial institutions consider—and reconsider—the role of this point of contact.

This week, discover how branches are influenced by the younger demographic and ways you can incorporate to evolve your branches in response to changing consumer need.

How might you rejuvenate the branch and in the process stay “forever young?”

‘Facts do not cease to exist because they are ignored.’ --Aldous Huxley, writer

The Future of the Bank Branch is in Trouble—Here’s Why,” says Business Insider. Millennials like digital options and are making fewer branch appearances, notes the article.

They’re having an impact: As 26% of the American population and 34% of those employed, millennials “will shape the future of the bank, as well as the relationship between the bank and the customer.

“As third parties increasingly provide the services that consumers are using… the valuable relationship between banks and their customers will continue to deteriorate.”

A survey of millennials by BI Intelligence reveals four takeaways for financial providers:

1. Branches will become obsolete with better online options, fewer branch visits, and higher transaction costs at the branch.

2. Nonresponsive providers will lose consumer relationships as third-party providers serve as disruptors and banks miss chances to brand and cross-sell.

3. ATMs will become extinct with fewer cash and check transactions.

4. “The smartphone will become the foundational banking channel,” and financial institutions must offer services to accommodate these devices.

Technology’s impact may go beyond the possible demise of the branch, according to  “Banks may become a thing of the past as technology-driven finance solutions… are gaining popularity among U.S. consumers.”

More than half of Americans may join the ranks of nonbank financial providers, according to TransferWise, a peer-to-peer money transfer service.

Such companies are growing quickly and TransferWise claims to save users $1 million per day in money transfers. The company’s flat fee is 0.7% in the U.S. compared to a more typical 3-6%.

“In five years’ time, some parts of the sector will be almost universally controlled by nonbanks. Other parts will be a mix. The most important result will be the true democratization of finance,” according to TransferWise’s CEO.

More branch trend watching is found as U.S. News & World Report identifies “10 Banking Trends for 2016.” 

Four of the trends are branch-related: Fewer consumers will visit branches; more integration is expected between services via branch and phone; mobile technology will be increasingly evident in branches; and, despite the growing popularity of online banking, brick-and-mortar branches will not be subject to demise—people still like to visit tellers.

Finally, The Charlotte Observer reports actual branch cut projections: JPMorgan Chase plans to eliminate 300 branches by year-end and Bank of America will continue its branch reduction plan to cut costs—down 100 in the last year and by 1,200 overall since 2010.

‘If it scares you it might be a good thing to try.’ –Seth Godin

How should financial institutions respond with change afoot?

First, keep in mind that “Building the ‘Branch of the Future’ is More Than Technology,” per The Financial Brand. Providers think about “the wrong problem and the wrong solution.”

Rather than increasing branch traffic, “banks and credit unions should focus on what actually happens at the branch, and figure out how to remove friction from processes using digital technologies.”

Importantly, realize “branch transformation should begin with the consumer, not merely installing new technology and applying strategies from other industries.”

Most bankers fail to acknowledge that to keep branches alive, “the size and nature of the branch network must change more substantially and more quickly,” reports American Banker

The source says branches do not perform up to par.

To combat this problem, banks need to downsize branches, streamline others by optimizing digital activity, and follow these four principles for remaining branches:

1. Direct branch activity to appropriate channels as 70% of branch transactions could take place digitally. And, some branch activity—like providing loan advice—could occur in digital hubs.

2. Focus energy and dollars on “high potential branches.” It may be that new configuration of activity focused on locations will be impactful.

3. Think long-term and do not fall back on current assumptions and costs. Focus on better consumer experiences.

4. Consumer preferences are not consistent across markets.  Providers must be flexible and aware of local priorities.

BankersHub provides “7 Things to Create Your Branch of the Future—Today.”  “Consumers still want a personal relationship with their financial institution.” Most new accounts and relationships begin at the branch.

Still, branches need rejuvenating. Ways to do so include: invest in good staff; position them to create a positive experience for visitors; create nice ambience in the environment with functional zones; deploy self-service stations inside the branch; integrate digital and branch offerings; make small business transactions important with dedicated spaces and other amenities; and halt cross-sales in favor of relationship building.

Perhaps the most important thing to remember is "The Branch of the Future Is Only as Good as Its Bankers,” per American Banker. “Evolution does not mean elimination.” But “a failure to evolve, however, all but guarantees elimination.”

Peter Drucker observed, “When a subject becomes totally obsolete we make it a required course,” perhaps meaning that we might learn from the past and adjust accordingly for future success.

But financial institutions can make adjustments for success given what we already know about the present: People go to branches because they seek personal interaction.

It is imperative, then, to remember that “the quality of the branch experience is driven by the quality of staff and their personal interactions” with consumers.

Will your branches fade, or enter into the light?

LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via @Bray_Lora and visit the CUNA blogThe Research Roundup: Economic Perspectives.