The future of branch banking

For many years the branch has been at the heart of banking operations across the world, simultaneously playing the role of service delivery hub, sales outlet, processing centre and unit of account. In more recent times the branch has been somewhat upstaged by digital channels and the promise to revolutionize everything from customer experience through to the economics of distribution. So what are the implications of this digital revolution on branch banking and how should the industry adapt?

The role of the branch
In countries with mature banking industries branch numbers have diminished in recent years as competitors merge and consolidate operations, and as activity is displaced to digital channels. Meanwhile in the relatively under-banked Philippines, branch numbers have continued to grow as banks expand their physical presence and reach out to a young and growing population widely dispersed across an archipelago. However, this investment comes at a cost and is a major factor causing the cost-income ratio of the Philippine banking sector to be significantly higher than that of other countries in the Asia-Pacific Region.

We believe that banks now need to make an important strategic decision and determine exactly what the role of the branch should be for their organization. The answer to that question will determine to what extent future expansion (or contraction) of the network is required, how branches should be configured and resourced, and how they should be managed organizationally.

Whilst each bank should view the question in relation to their own competitive strengths, there are some commonalities that all banks can benefit from adopting:

an increased focus on sales and service. The branch remains the key channel for interpersonal contact and a conducive place for activities such as explaining products or dealing with complex concerns. Focusing a higher proportion of branch activity on these aspects should increase customer satisfaction and profitability.
an increased focus on customer acquisition and community engagement. Regardless of whether located in urban or rural locations, branches are rooted in communities and can play a vital role in local life. By engaging in community outreach activities banks can simultaneously support local people, build brand awareness and loyalty, and drive new customer acquisition.
a showroom for the entire bank. Historically the branch was the bank. As telephony and digital banking evolved these channels have in many cases become separated from the branch causing dislocations in the overall customer experience. This can be addressed by reconfiguring the role of the branch to be a physical showroom for the whole bank. Customers coming into the branch should receive guidance on how to use digital banking and should experience seamlessly integrated services such as on-the-spot digital activation.
product neutrality and holistic customer servicing. In the Philippines Branch Banking is synonymous with deposit gathering. Whilst the branch remains a vital ingredient in deposit gathering this structural linkage can be detrimental, hindering the growth of digital deposit gathering and sales and service of a wider range of products. The branch of the future should view the customer holistically and be product neutral.