Introduction:

Branchless Banking has been the buzzword for quite some time and many analysts are predicting the closure of a significant number of the branches over the next 5 to 15 years. For example in United States alone, there has been a 50% reduction of average in-branch transactions per month from 11,400 in 2006 to 8,500 in 2010, the branch transactions are decreasing even at faster rate than predicted with a little over 6,000 per month in 2013. It cannot be denied that more branches have been closed over the last 5 years than that over the last 20 years. But will the branches ever disappear as rapidly as predicted? Or will the branches will be reduced to a minimal presence in numbers such as those jazzy flagship stores loosely modeled on Apple stores, that the average customer will hardly notice the presence of the banks in brick and mortar in the near future?

Human Adaptability vs. Traditional mindset:

It is important to note that the human beings have unique adaptability towards the scarcity of items or commodities especially at a crunch time. But interestingly the diminishing of the branches is not happening particularly because of a crunch time or a highly distressing period compared to that of a war or bankruptcy of the country. Sure, the 2008 Financial Crisis has had a deep impact to the people who have made investments that have gone horribly wrong at various situations.

But the disappearing of the branch may not be due to such one-off global incident, in fact it can be attributed to the banks experimenting with the digitization of the services that their branch typically handles, boosted by technological advancements and the obvious factor of cost cutting and optimization of workforce utilization. Banks with brick and mortar branches have had almost 400 years of operational history which is embedded deeply within the human mindset over several generations. The point is that customers almost have a genetic relationship with banks having physical branches and tangible presence within the human society. Generations of customers have grown up seeing the bank branches in their cities and towns - big or small.

Branch Experience factor:

It does not discount the fact that branch banking has always been a challenge to overcome amongst the minds of generations of customers every time they step into the branches. The customer have never been quite comfortable conducting the retail banking activities amidst all the checks and balances for each of the processes which clearly is something they do not relate with the activities of their daily life. The general experiences of a customer walking into a branch are that of long waiting time, enduring frictional processes and may I dare say - uncomfortable. Today's younger generation whom we call the digital natives, with their inherent coziness towards the digitization of their lifestyle, perhaps do not appreciate to the hassles of apparently perceived manual processes of regular banking in a branch. Nevertheless, they do not necessarily disparage the branch experience, at least not yet. The hundreds of years of long drawn tradition of banking is hard to be broken and even the digital natives consider it a way of complicated life, although given better options they will swing towards better experience and services. And that is perhaps what is happening in the markets with the adoption of branchless banking.

The discrepancy in the spread:

It is interesting to note that the innovation in consumer technology is touching almost every nook and corner of the globe - that includes the developed and developing countries. However, the concept of branchless banking seems to have made greater influence so far in some of the developed countries. This may seem unusual as the digital innovation is sweeping many of the developing countries as much as it is for the developed countries. Then why is this paradox? Why is the branchless digital banking concept struggling in many of the developing countries with fast emerging markets? Is it because of the cheap labor, less advanced technology, old and unreformed regulations or the mix of all? It may be possible that many of the banks, both in developed and developing countries are simply monitoring the progress of the technology evolution of digital banking and the quality of support of from the regulatory bodies of the individual countries before investing heavily on a specific strategy.

Given that most of the banks have already been running on old technology stack for decades for their core services, be it core banking, retail, commercial or transactional services, the biggest challenge is the decision to either replace the old technology stack and go for private or public cloud solution, or build the desired next generation services on top of the existing technology stack. The technologists within the bank perhaps are divided on the decision and many of the banks are taking either of the steps depending on the cost, ROI and the service benefits. There is also an ongoing debate amongst the senior bank executives about how much of digitization of services is too much at the cost that is certainly not a cheap proposition whichever direction you go - cloud or build-you-own solution.

The new type of banks:

There has been few banks who have started to give importance to the behavior to the digital generations who will be the "soon to be customers" walking into a bank branch full of perceived friction and overload of compliance and processes which the banks proudly term as risk mitigation. These banks are thinking ahead and are gearing up for the expectations of the digital natives by cutting down frictions, optimizing the processes with lesser customer touch-points, enable more digitization that are well understood and embraced by the digital natives and provide customized services when and where required. It will be unfair to name a few and ignore many who are genuinely working on such transformations, but I will take the liberty to indicate few of those many who initiated the digitization trend sometime back such as Fidor Bank in Germany, mBank in Poland or Moven Bank in U.S.

Many of the banks will eventually have a competitive edge over the other banks who are taking more time to transform their processes. Some of the interesting and innovative services that the banks are offering are Proactive Personal Finance Management (PPFM), enhanced customer experience, social media interface and even going to the extent of providing real time advice based on customer requirements when and where required.

Technology equals Recipe for Success?:

In short, the digital branchless banking experience is emulating the branch services, cutting out the irritants such as the waiting time, filling up forms, undergoing rigorous checks and balances. But, is this enough to change the genetic behavior of the customer of going to branch to do banking? The recent decade of technological advances and the rapid evolution of consumer goods especially in digital technology space seem to provide a clue to the potential future.

Banks are eager to transform their services in such a way that takes out the hassles out of the process. The digital tool along with the power of real time analytics and algorithms are perhaps the best and open secret to provide such capabilities. The customer will slowly but surely get adapted to the better experience, even if it takes away the regular habit of visiting a branch to do banking. It may sound impractical and too farfetched, but the same customers in the developed and developing countries are embracing smart phones in a phenomenal manner hitherto unseen. This is a sign of classic customer behavior manipulation over a comparatively shorter period of time with the smart use of technology influencing consumer adaptation.

Conclusion:

It may seem apples and oranges to compare the embracing of smart phones to disappearance of branches. But if the banks provide alternate and better options, the customers cannot ignore for long the virtue of branchless banking regardless of whether the customer is in developed or developing country. It may perhaps take a longer time for the developing countries to adapt such strategy (although I may prove to be wrong to my delight) but perhaps the winds of change are blowing at much faster pace than a decade earlier. That may be the game changer.