HBR.org

Rethinking the bank branch in a digital world

The most innovative banks have learned to provide customers with a fusion of physical and digital services.

By Darrell Rigby and Mike Baxter

Published on September 15, 2014
min read


This article originally appeared on HBR.org. More US bank branches closed in 2013 than ever before. More than 85% of retail banking transactions are now digital. The bank branch is “going south,” mobile-banking entrepreneur Brett King said to CNBC. “And there’s no reason to assume we’ll see a resurgence of activity at the branch—the mobile app is the nail in the coffin.” So are we witnessing the death throes of brick-and-mortar retail banking? Will banking soon be like the business of selling recorded music—almost all done online? In our view, no. Rather than going the way of Tower Records, leading banks are reinventing themselves with innovative mashups of digital technologies and physical facilities, a combination we call “digical.” Here’s why. Banking isn’t like selling records or music CDs. A bank’s products and services are often complicated. Security and trust are paramount. Many people like to deal with a banker in person for certain kinds of transactions, such as taking out a mortgage or even just starting a banking relationship. Branches in the US accounted for roughly three-quarters of primary new account openings in 2013. That may be why some leading banks are bucking the branch-closing trend. JP Morgan Chase, although a digital innovator, has opened 600 branches since January 2010 while closing 325. USAA Bank, which has a long history of industry-leading service without relying on a branch network, has steadily been opening physical service centers at key locations. Of course, banking customers do want all the convenience of digital, such as electronic bill payments and instant deposits via smartphone. USAA Bank offers a voice-activated virtual assistant for mobile devices with a “tap to talk” feature that connects customers to a call center and allows agents to see what the customer was doing just before he or she called. Customers also expect seamless integration of digital and physical capabilities, so that every transaction in one channel shows up instantly everywhere else. The most innovative banks have learned to provide customers with just this kind of fusion. Their transformation often starts with moving current capabilities online to make banking more convenient. It then proceeds along two complementary paths: Creating “signature” experiences and new sources of value. Banks are beginning to focus on one or two key omnichannel experiences, such as buying a car or a home, as a way of engaging customers and setting themselves apart from the pack. Commonwealth Bank of Australia (CBA) collaborated with multiple listing database Domain.com.au to develop a mobile app that can search any house in Domain’s database for visual and written details. Customers can click through to get advice and start the mortgage application online; the bank’s mortgage advisors will then book the required in-person appointments, which many people prefer to do in a branch. CBA’s mobile payments capability allows customers to manage their mortgage balance through any channel, including mobile, online and ATM. Reconfiguring the branch network. Many banks are reformatting branches rather than closing them outright. A recent Bain & Company study found that a number of leading banks are creating “hub” flagship branches that serve as showrooms for complex product sales and venues for providing trusted expert advice. “Spoke” branches provide basic services and sales capabilities, including video links to product specialists at the central office. Other banks are experimenting with “pop-up” branches or branches that combine a bank with a café. Fast-growing Wright-Patt Credit Union in Dayton, Ohio, has installed video tellers in its branches that are synced to the bank’s online platform. Customers using these tellers can transact routine business an estimated 33% faster than in the past. The conclusion? Physical banking is evolving rapidly but not disappearing. Branches may be fewer in number, but they will be more useful and efficient, and banks without branches are likely to find themselves at a competitive disadvantage. Banking isn’t unique in this regard—in fact it’s quite typical. A Bain study of 20 broad industrial categories found that all have been affected by digital technologies to a greater or lesser extent. But only a few subcategories, such as selling compact discs in a store, have essentially been eliminated by digital. The lesson for senior leaders is clear. When you hear the “everything’s going digital” alarm, ask yourself what your customers really want. Chances are they’re going to be seeking products and services that combine digital advances with the time-tested advantages of physical interactions.

This article originally appeared on HBR.org.

More US bank branches closed in 2013 than ever before. More than 85% of retail banking transactions are now digital. The bank branch is “going south,” mobile-banking entrepreneur Brett King said to CNBC. “And there’s no reason to assume we’ll see a resurgence of activity at the branch—the mobile app is the nail in the coffin.”

So are we witnessing the death throes of brick-and-mortar retail banking? Will banking soon be like the business of selling recorded music—almost all done online?

In our view, no. Rather than going the way of Tower Records, leading banks are reinventing themselves with innovative mashups of digital technologies and physical facilities, a combination we call “digical.”

Here’s why. Banking isn’t like selling records or music CDs. A bank’s products and services are often complicated. Security and trust are paramount. Many people like to deal with a banker in person for certain kinds of transactions, such as taking out a mortgage or even just starting a banking relationship. Branches in the US accounted for roughly three-quarters of primary new account openings in 2013.

That may be why some leading banks are bucking the branch-closing trend. JP Morgan Chase, although a digital innovator, has opened 600 branches since January 2010 while closing 325. USAA Bank, which has a long history of industry-leading service without relying on a branch network, has steadily been opening physical service centers at key locations.

Of course, banking customers do want all the convenience of digital, such as electronic bill payments and instant deposits via smartphone. USAA Bank offers a voice-activated virtual assistant for mobile devices with a “tap to talk” feature that connects customers to a call center and allows agents to see what the customer was doing just before he or she called. Customers also expect seamless integration of digital and physical capabilities, so that every transaction in one channel shows up instantly everywhere else.

The most innovative banks have learned to provide customers with just this kind of fusion. Their transformation often starts with moving current capabilities online to make banking more convenient. It then proceeds along two complementary paths:

Creating “signature” experiences and new sources of value. Banks are beginning to focus on one or two key omnichannel experiences, such as buying a car or a home, as a way of engaging customers and setting themselves apart from the pack. Commonwealth Bank of Australia (CBA) collaborated with multiple listing database Domain.com.au to develop a mobile app that can search any house in Domain’s database for visual and written details. Customers can click through to get advice and start the mortgage application online; the bank’s mortgage advisors will then book the required in-person appointments, which many people prefer to do in a branch. CBA’s mobile payments capability allows customers to manage their mortgage balance through any channel, including mobile, online and ATM.
Reconfiguring the branch network. Many banks are reformatting branches rather than closing them outright. A recent Bain & Company study found that a number of leading banks are creating “hub” flagship branches that serve as showrooms for complex product sales and venues for providing trusted expert advice. “Spoke” branches provide basic services and sales capabilities, including video links to product specialists at the central office. Other banks are experimenting with “pop-up” branches or branches that combine a bank with a café. Fast-growing Wright-Patt Credit Union in Dayton, Ohio, has installed video tellers in its branches that are synced to the bank’s online platform. Customers using these tellers can transact routine business an estimated 33% faster than in the past.

The conclusion? Physical banking is evolving rapidly but not disappearing. Branches may be fewer in number, but they will be more useful and efficient, and banks without branches are likely to find themselves at a competitive disadvantage. Banking isn’t unique in this regard—in fact it’s quite typical. A Bain study of 20 broad industrial categories found that all have been affected by digital technologies to a greater or lesser extent. But only a few subcategories, such as selling compact discs in a store, have essentially been eliminated by digital.

The lesson for senior leaders is clear. When you hear the “everything’s going digital” alarm, ask yourself what your customers really want. Chances are they’re going to be seeking products and services that combine digital advances with the time-tested advantages of physical interactions.