Will Digital Kill Off The Bank Branch (& What Happens To All That Real Estate If It Does)?

Is the branch dead? Billions of dollars of banking real estate may hinge on the answer to that question.

According to Elizabeth Robillard, author of the recently released Director’s report: Future Branches 2016 the answer is; “no, but it is changing.”

The report, based on four months of research, was released in preparation for the upcoming Future Brands conference in SanDiego. It advocates for change in order for retail branches to stay relevant in the digital age.

Transactions in branches are declining, with the vast majority now occurring online. “Banks are transforming their branches from transaction hubs to spaces where customers can go for education, complex banking issues, and especially where they can purchase new banking products like loans and investments,” according to the report.

“A new strategy needs to be put into place that can revitalize this piece of infrastructure to make sense in today’s digital world,” it said.

Australian bank branches have seen a slight decline in recent years.

An Australian Bankers Association spokeswoman recently said: “Over the year to June 2016, the number of bank branches in Australia declined by two per cent. This reflects changes in consumer demand, with more customers choosing to use online and mobile banking channels.”

But she maintained this does not spell the end for branches, saying branches are; “An important channel for customers to do their banking. Banks are looking at how to improve their branches to make them more user friendly and ensure they’re equipped with the latest technology, such as ‘smart ATMS’ to fast-track basic banking transactions.”

Just this week the Commonwealth Bank released a statement saying it remains committed to its branches.

The bank says a $50 million investment in branches last financial year includes; “Opening new branches, relocating to areas of population and business growth and refurbishing them.”

The banking giant acknowledges a rise in its digital services and a focus on customer service, which is in alignment with the changes outlined in the Future Branches report.

According to the report it is important branches change to accommodate these new purposes because, despite declining transactions, they still remain the place where most revenue is generated.

The report says changes are occurring in branch people, space and technology.

Throughout the change “A bank’s customer needs to be the focus of its branch strategy,” the report said.

Where’s the customer need?

But therein lies the problem. When banks discuss their branch strategy the conversation is always centred around the sales opportunity. The bankers, and their advocates struggle to explain the customer benefit of a branch long term.

Likewise there is little scant evidence that the banking sector generally has genuinely asked itself whether their natural bias towards the branch networks really reflects the whims of increasingly digitally native consumers.

Who’s to say an 18 year old kid today will be the least bit uncomfortable buying a mortgage online when he’s 21.

And as retail stockbrokers in the late 90’s learnt on their rapid path to extinction, when the switch comes, it comes quickly.

Branch employees must be informed and engaged to provide these more complex services. But the question of why this is so is left unanswered.

The report identifies the challenge of a changing employment model and managements responsibility to; “make sure that longer term employees are being re-trained and new recruits are being onboarded correctly.”

The space in which the employees operate is shifting as well. Branch designs must reflect their new purpose. Advisory banks have teller pods and meeting rooms to allow tellers to assist with more complex issues. While community banks design reflects the interactions taking place, think a café or a bar.

Incorporating technology to better assist customers in branches must not come at the cost of the human element, or as the report terms it; “digitising without dehumanising.”

“It doesn’t make sense to invest in something fancy and expensive that the customer doesn’t need or want.”

Digitisation means investment in physical branches is costly and needs to be backed up by serious returns, according to the report. A change in the people, place and technology needs to reflect the changing nature of branches.

Failure to respond to these changes has the potential to send banks into a spiral of decline. Given banking’s significant investment in real estate, the question of branch viability may become a billion-dollar one.

Glass half full

Of course there is still strong contestability over the role of the branch banking, and it would be wrong to suggest the analogue world of bricks and mortars lacks advocacy,

According to Deloitte Digital’s lead partner in spatial and brand experience, Robbie Robertson, argued that branches would still be viable in 10 or even 20 years.

“Absolutely. It’s the bankers role in the branch that will change,” he said.

Robertson and his team provide intelligence and strategy to banks as they redevelop their branches to reflect their new purposes. He believes a branch provides trust, business advice and a place for businesses to connect; “you can’t get that online”.

“We see tangible moments of connection between businesses,” he said.

Robertson said he couldn’t envision a day when branches leave the high street. Instead, branches and there employees will become more specific to their customers needs; “It’s a fundamental change, but not a reduction.”

The digital shift driving the changes also presented opportunities says Robertson. He believes virtual reality would allow branches to provide more services in a smaller space. “Branches will still exist, but their physical footprint will be reduced,” he said.

This article originally appeared on B&T’s sister business site www.which-50.com and was authored by its editorial intern Joe Brookes.