Published in Customer Think, March 5th 2019.
Article By Mark Smith
Banks seem to change their minds on this topic every few years, shifting from rapidly opening new branches to predicting their demise and closing shop. They appear to have been stuck in the same cycle of opening and closing branches since the 90s, which leads to the question – why are banks so fickle about the number of physical branches needed to provide a compelling customer experience across digital and physical channels? Could it be that they don’t actually know how to work this conundrum out?
First let’s establish what exactly banks have been up to since the creation of online banking in 1994. They immediately entered this cycle of opening and closing branches. The late 1990s saw an increase in the number of physical branches, as most customers were pre-digital and still preferred face to face interaction with their banks. As online banking moved to the mainstream when digitization exploded in the early 2000s, the (first) ending of the bank branch network seemed certain – the chairman of First Union bank went as far as calling the bank branch dead.
This, however, was not the case. Despite bold claims, the 2000s did not see the demise of physical branches, but rather their continued growth. After openings skyrocketed throughout the decade, the number of branches reached their peak in 2009. The trend reversed again in the 2010s, with reports that 25% of bank branches were unaffordable due to low traffic, and by 2014 the number of branches hit a 10 year low. Further suppressing numbers was the rise of mobile-only banks appealing to millennials shifting technology habits.
In 2016, financial services research firm Keefe, Bruyette & Woods predicted that up to half of all bank branches could disappear in the coming decade. This, coupled with banks rolling out high-functioning ATMs that are replacing human tellers and dramatically shifting the customer experience, has us once again at a turning point in the bank branches debate. Chase went so far as announcing that they will have completely teller-less physical branches, suggesting that while bank branches might not be dying they are completely changing function. At the same time, some non-bank financial organizations, like Capital One Cafés, represent a move from virtual to physical and have started building a new style of branch infrastructure – the cafe/casual banking location, with lower overhead, in-person support, and a fun environment.
At the end of the day, consumer habits are always changing, especially with the rapid pace of new technology adoption, and trying to keep up by building and then closing branches cyclically does not make sense. Instead, banks should strive to achieve an always-on customer experience that meets customers where they want to be met, and fully integrate branch networks with all the other digital channels now available to customers. The critical new thinking for banks is to not see branches and digital as different or competing ways of communicating with customers, but to understand that customers just see the bank, and want to be able to use both physical and digital systems whenever they choose – and they expect them to work together, in perfect harmony.
For some customers this might mean interacting with a human teller at a bank branch, for others it might be a mobile only experience, and for some it might be a combination of several touchpoints with the bank. As the traditional banks seem to flip-flop on physical and digital, we now see companies like Amazon are planning to move into banking in the near future – banks need to stop trying to predict whether to flip or flop next and instead focus on customer needs and the type of overall experience that companies like Amazon deliver.
How can banks move closer to a more dynamic and engaging customer experience? They need to ensure that they are providing a quality experience on every channel. This means that bank branches are just as important as a mobile app, which is just as important as an automated ATM. At every touchpoint the customer should be prioritized and given a seamless experience. There are many customers that still like physical touchpoints and also like mobile, but for different days of the week – I myself am very much a quick ATM stop guy during the week, but I use the local branch at weekends. Banks need to optimize for these differing preferences.
Each channel should be optimized to answer questions a customer may have, connect them to resources and give them the functions they need. Bank of America’s mobile assistant Erica is a great example of how a channel can be improved to provide a more responsive experience. This thinking must be applied across channels.
Taking it a step further, banks should try to personalize each customer’s experience based on past actions. For example, if a customer primarily goes to bank branches and interacts with a teller and rarely engages on a digital channel, the bank should adjust its interactions accordingly. Sending this customer digital messages via email and a mobile app is likely going to be ineffective, and a more personal touch via the phone or in person would make them more receptive. The same would be true with a customer that only interacts online via a mobile app or banking website. Calling this customer or trying to entice them to visit a bank branch would be ineffective and likely annoy them.
To achieve this level of personalization banks need to make sure they connect together all the data that can then inform personalization across every touchpoint. Once they implement a system like this, they will realize that it doesn’t matter how many bank branches they open or close because the real success comes from creating a loyal customer base that has the option to interact with the bank in their very own way.