American Banker

Four Ways to Save the Dying Bank Branch

Despite the growing dominance of digital banking, the physical bank branch is not extinct.

By Richard Fleming and Mark Schofield

Published on January 13, 2016
min read


This article originally appeared on American Banker. Despite the growing dominance of digital banking, the physical bank branch is not extinct. But to ensure the viability of branches, the size and nature of the branch network must change more substantially and more quickly than most banks acknowledge. A cost-benefit analysis reveals that many branches are underperforming. As currently configured, the typical U.S. branch requires at least 5,000 teller transactions per month to justify the cost of operation. We estimate that for a typical U.S. regional bank, one-third of its branches fall below this level. If the 20 banks with the most U.S. branches reduced both their branch footprint and costs per branch by 30%, their total cost savings could well exceed $10 billion. In response, banks should eliminate some branches while streamlining others, first by redirecting branch activity that is more clearly suited to digital channels. The institutions that undertake such a project more quickly will stand a better chance of reaping the benefits of having convenient digital channels combined with smarter branch networks. After downsizing the branch network, what should banks do with the branches that remain? Whichever route retail banks take, here are four principles behind a successful transition. Much of Your Branch Activity Belongs Elsewhere From our work with banks worldwide, we know that about 70% of branch activity at most banks is tied to errors or would be better routed to lower-cost, more convenient digital channels. Consumers clearly prefer digital channels for many transactions, particularly routine ones such as making deposits and payments. For those transactions, banks should avoid policies that force customers to go to a branch and stand in line, such as ceilings on remote deposits. The savings achieved by reducing inefficient branch interactions should help banks enhance their capability to digitalize customer experiences — highlighting convenience and speed — to help compete with many fintech insurgents. Banks can also look externally, through partnerships and acquisitions, to accelerate their offerings of digital channels to replace activities that had been encumbered in physical branches. Another way to streamline the network is by changing the way employees interact with customers. Some communication, such as giving mortgage advice, does not have to occur in a branch but could be done through mobile chat or video. As banks plug their front-line staff into a digital hub, that can raise productivity by reaching more customers and reducing paperwork. Read more at the American Banker. Richard Fleming and Mark Schofield are partners with Bain & Co.'s financial services practice. They are based, respectively, in New York and Toronto.

This article originally appeared on American Banker.

Despite the growing dominance of digital banking, the physical bank branch is not extinct. But to ensure the viability of branches, the size and nature of the branch network must change more substantially and more quickly than most banks acknowledge.

A cost-benefit analysis reveals that many branches are underperforming. As currently configured, the typical U.S. branch requires at least 5,000 teller transactions per month to justify the cost of operation. We estimate that for a typical U.S. regional bank, one-third of its branches fall below this level. If the 20 banks with the most U.S. branches reduced both their branch footprint and costs per branch by 30%, their total cost savings could well exceed $10 billion.

In response, banks should eliminate some branches while streamlining others, first by redirecting branch activity that is more clearly suited to digital channels. The institutions that undertake such a project more quickly will stand a better chance of reaping the benefits of having convenient digital channels combined with smarter branch networks.

After downsizing the branch network, what should banks do with the branches that remain? Whichever route retail banks take, here are four principles behind a successful transition.

Much of Your Branch Activity Belongs Elsewhere

From our work with banks worldwide, we know that about 70% of branch activity at most banks is tied to errors or would be better routed to lower-cost, more convenient digital channels. Consumers clearly prefer digital channels for many transactions, particularly routine ones such as making deposits and payments. For those transactions, banks should avoid policies that force customers to go to a branch and stand in line, such as ceilings on remote deposits.

The savings achieved by reducing inefficient branch interactions should help banks enhance their capability to digitalize customer experiences — highlighting convenience and speed — to help compete with many fintech insurgents. Banks can also look externally, through partnerships and acquisitions, to accelerate their offerings of digital channels to replace activities that had been encumbered in physical branches.

Another way to streamline the network is by changing the way employees interact with customers. Some communication, such as giving mortgage advice, does not have to occur in a branch but could be done through mobile chat or video. As banks plug their front-line staff into a digital hub, that can raise productivity by reaching more customers and reducing paperwork.

Read more at the American Banker.

Richard Fleming and Mark Schofield are partners with Bain & Co.'s financial services practice. They are based, respectively, in New York and Toronto.