Home Banking Technology and Banking: Branches Versus Digital Solutions

Technology and Banking: Branches Versus Digital Solutions

by internationalbanker

By Jane Winterbottom – jane.winterbottom@internationalbanker.com

The banking sector has undergone a major change of organisational and operational structure since the time of the global financial crisis more than six years ago. This has been due to the squeeze on the banking-business sector stemming from the credit contraction and recessionary economic conditions across the globe. At the same time, the technological sector has been striding ahead. The banking and financial-services sectors, and many other commercial enterprises and industries, have been revolutionised by the application of technology towards both business-process efficiencies and customer-product and service solutions. For the past few years, banks across the globe have been treading carefully when it comes to delicately balancing the customer-service options offered to clients—technological solutions in some cases can be no match for face-to-face interactions and customer-help services. However, with the tightening squeeze on bank balance sheets and the increasingly rapid development of technological solutions, banks across the world are looking to reduce face-to-face customer-service options—offering online, mobile and application-based solutions rather than branch services. A phase change is gradually occurring whereby technological services are acting as an alternative to human interaction in certain banking services, rather than as a supplement to it.

The number of bank branches that have closed reached a record high number this past year in the US—with more than 1,500 closures occurring over the 12 months. 80,000 branches remain operational across the US, and, according to forecasts by HSBC, at the very least 10 percent of these remaining branches will be closed within the next five years, before the end of this decade. In particular Bank of America has closed 568 branch offices over the past two years. Banks across the globe are keen to trim down bank-branch offerings to capture the significant and sizeable gains in cost reduction—the costs of property and the labour force will be reduced significantly by this phase change. Mobile-banking applications have been accelerating in development, and the scope and convenience of these applications is more and more useful to consumers. Many interested parties are now wondering if the end of the physical presence of banking services altogether is on the near-term horizon.   

Mobile banking, more so than online banking, has been the biggest threat to branch-banking services. Consumers can now carry out many branch services in the palm of their hands in a matter of seconds, with a few clicks and from the location and timing of their convenience. Alternatively customers can now carry out a great number of banking services from the access point of a cash machine—also often a more convenient option than visiting the branch. This is especially popular with consumers under the age of 40 years. However, industry participants and analysts have noted that there are a number of industry risks from this continuing trend and are warning against a shift out of branch banking altogether. The cost-reducing options of closing branches, reducing the workforce and subsequent payroll costs may be appealing to the bottom line; however, there are some potential downfalls to these types of changes. The long-term strategy of banks may be put in jeopardy under this model of business. To start, there are still a significant number of risks to online and mobile banking—issues around Internet security and the safety of personal data and finances are real concerns that need to be addressed with an increased and specifically directed effort and amount of resources.   

Additionally, the banking business may be adversely affected by a loss of bank identity by offering only online/mobile services. Bank branches help banks to build a brand and subsequent brand loyalty from customers. Damage to brand loyalty can be very harmful for bank business strategy and development longer term. Perhaps new innovative and creative online options may be used for building bank brand identity and loyalty; however this will require targeted efforts from bank executives. This type of clever advertising can be costly and will be difficult to fulfil at a time when most banks have had to reduce marketing and promotional budgets.  

Meanwhile, some banks are actually attempting to buck the trend and are in fact increasing the number of branches in their business networks. Some of these banks are going so far as to even increase the amount of face-to-face interaction on offer in the branch—creating spaces where customers and tellers are not separated by the typical glass-type structure but are instead capable of chatting over a desk or at meeting points face to face with no separator between them. One key example is First Republic Bank in the US, which is seeking to enhance all areas of customer service and solution offerings.   

In the UK, there has also been a sweeping trend of increases in online and mobile banking whilst at the same time a substantial decline in the number of customer branch visits. In the UK through 2013, the number of uses of banking apps per week doubled from the previous year to reach 18.6 million, according to the BBA (British Bankers’ Association). Over the same period of time, the banking sector saw a 10-percent decline in transactions executed at physical bank branches. Additionally, BBA research has indicated a continuing trend of this kind, with currently over three-quarters of customers utilising mobile- and Internet-banking solutions at least once a month.  

As technology advances, banks will most likely continue to integrate the developmental changes to make business more efficient and more straightforward for customers. Online and mobile banking has been gaining in popularity with customers, leaving the prospect of a bank-branchless High Street a realistic one for the future. The convenience of managing finances from the mobile phone, tablet or home computer has been developing rapidly, and the take-up has been growing likewise. However, one demographic, which is becoming more and more significant to the wider economy, is still particularly keen on branch banking and face-to-face services: the over 50s. The banking sector will have to come up with even more creative and innovative solutions and services to keep hold of these customers if they choose to continue reducing bank-branch numbers into the future.


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