Many have dismissed the lowly branch banking network as dead — or at least nonstrategic. Maximum resources need to be focused on digital points of customer engagement, the argument goes.
This perspective on the evolution of retail delivery technology in banking is decidedly wrong. A June 2022 Celent survey of senior bankers with network planning or branch operations roles evaluated the current state of branch banking. The resulting report, "
The most often heard myth is, "The branch is dead." Observers usually make this declaration when citing branch closure announcements that always have been headline-grabbing. The pandemic appeared to accelerate and broaden branch trimming efforts. This and the significant concurrent growth in the number of digitally active retail banking customers since 2019 led many to declare the branch dead. Nothing could be further from the truth.
The "branch boom" in the U.S. from 1970 to 2010 was unprecedented globally. Densities increased 150% from 107 branches per 1 million adults to 270 branches per million over that period. Most of the branch building occurred among the largest banks that built a value proposition on convenient access to banking — before digital banking was commonplace. With burgeoning growth in digital banking usage, banks don't need as many branches. Larger banks are indeed trimming their networks. Most community financial institutions are not. Why not? Read on.
Another myth heard commonly in 2020 was that "once customers went digital, they wouldn't return to branches." This was undoubtedly true for some customers — but not very many.
Banks and credit unions responding to Celent's June 2022 survey reported that, on average, 84% of pre-lockdown network activity recovered over the following year. Among the same surveyed institutions, network average monthly transactions in the current quarter are just 5.2% below what they were during the same quarter in 2021. Said another way, branch network activity resumed its decadelong industry average of approximately 5% year-over-year decline post-pandemic. The real shocker: Compared with this time in 2021, 44% of institutions reported unchanged network transaction volume. This doesn't sound like "once they go digital, they never go back" to me.
Banks aren't rushing to shutter branches. This is particularly true for community financial institutions; it is the larger banks that have been trimming their networks. Because the branch remains an effective sales and service channel for so many institutions, more than half of surveyed institutions plan to increase the number of operational branches in the next two years.
The final myth I'll debunk is this one: "No one would open an account in a branch if they could do so digitally." It used to be true that banks effectively forced customers to open accounts in the branch through antiquated business processes. That's no longer the case for the most part. Yet, the branch remains banks' primary sales engine, despite the massive migration to digital banking for transactional activity and widespread investment in digital customer acquisition capability. On average, institutions in our June survey attribute 62% of new-to-bank customer relationships to the branch channel, 27% to the digital channel and 11% to the contact center. These percentages are statistically unchanged from our October 2020 survey.
This mirrors the larger U.S. retail picture, where e-commerce's share of total retail spending has been increasing roughly 10% year over year for more than two decades (from less than 5% in 2010 to 12% in 2019). The pandemic precipitated dramatic growth in e-commerce activity across most retail segments, resulting in nearly 18% of all retail commerce transacting digitally in 2020 — a 30% YOY growth. Since then, however, e-commerce activity has nearly returned to its pre-pandemic level. Consumers returned to the stores.
Much work remains if banks want digital to be their primary sales channel. After all, using digital banking properties to sell has been a recent ambition among U.S. financial institutions. (In contrast, other retailers have been selling digitally for two decades.) Most banks' digitally acquired customers have lower average balances, lower transactional activity and higher levels of attrition, as shown in separate research,
The reason, in part, is siloed thinking. Many banks operate their digital customer acquisition (digital sales) operations independently. They manage a sales funnel without any notion of customer onboarding or subsequent cross-sell.
A comprehensive approach to customer engagement, both self-service and assisted service, could massively improve banks' digital customer acquisition efforts. Branch channel leaders could play an important role in bringing this about.
Seems to me, the branch banking organization at many banks could teach their digital banking colleagues a thing or two. When was the last time a chief digital officer visited a branch? As banks envision and implement their customer engagement strategy, it will be imperative for network planning and branch operations leaders to collaborate with their colleagues (including IT) who are leading digital banking initiatives. In my simple way of thinking, banks need more digital in their branches and more branches in their digital.
One thing is clear, though, across the board: It is time to say goodbye to siloed systems and organizations. While investing in API-first, cloud-native digital properties, banks must not neglect the branch channel technology stack; doing so can increase technical debt and limit the benefits of digital investment. Banks can now rely on a single system of engagement, serving all points of customer interaction; for example, the same platform for digital account opening and loan origination can also function as the platform sales application in the branch.
The dichotomy between digital and branch functions doesn't need to exist. It's all retail delivery. Banks must take an agile approach, adapting to meet customers' rapidly changing behaviors — even if it means investing in brick and mortar (and inviting their CDO to visit the branch).
