Banking on Branches in the Digital and Fintech Age

The advent of the fintech & digital age has had an adverse impact on both perception and reality of having physical bank branches. We have seen largely in developed nations, that a large number of physical Branches are being closed. However, on the contrary, in countries like India the number of physical bank branches is increasing.

This can be somewhat logically understood by the fact that the penetration / reach of Banking is already low in many developing nations and more so in Least developed nations.  Whereas the developed nations have a much better Banking reach.

But, the reality is much more complex than that. So, let’s consider the following: -

1. Recently regulators in the UK made some strict observations regarding closure of Physical branches and the impact it has on local communities.
2. Banking is also about Financial Inclusion (especially with remote communities / locations) and having a physical branch does enable inclusion and in turn reduces the social divide.
3. Banking is a trust business, especially on the deposit side (Liabilities). So, having physical branches does lend a great amount of trust and credibility besides adding to convenience.
4. Having local bank branches also ensures a good connection with customers, understanding the local economy, and in turn helps in providing products and solutions that are tailored to local needs on the ground.
5. Localised branches also have a great impact on MSME’s (Micro Small & Medium Enterprises) in that region, again in turn impacting the local economy positively.

That said, we can also understand the need for banks to rationalise real estate & operations cost, given competition (especially new age digital fintech’s) and advent of automation and technology. Also, this helps in reducing unit costs and thereby in a way aide financial inclusion.

So, we need both presences, reach & rationalisation in branches. Contradictory but true. So let us look at some thoughts on how this is being done, or can be done.

1. The UK is attempting to have Banks share the branches. This is a good move, though this needs to be implemented in a manner so as not to cause confusion or lack of walkins (foot falls).
2. We can also have local Banking Centres (like business centre’s, shared spaces etc) where Bankers can invite customers for physical meetings and servicing. This can be on pay as you use (driven by number of seats and / or time the infrastructure is used for)
3. Few decades back (almost 30 yrs back), a local bank in India had a Mobile branch (Modified Bus) which used to drive and stay positioned for a few hours in surrounding localities. This Mobile branch was aligned to a regional anchor branch.
4. Have local agents who will provide banking services like deposits, loans, money transfers, savings, sell insurance etc. by visiting customers or being locally based with a small office / physical presence. India has a concept of BC or Banking Correspondents. who are basically enabling such activities. They can be aided by platforms like Tablets, mobile apps etc.
5. Provide local kiosks and ATM’s with capabilities like Video conferencing / meeting with Bank employees for addressing customers service needs / or queries.  While Kiosks & ATM’s exist, there is a lot of work that needs to be done for access to employees through digital means (beyond just call centre’s).

Hence by using a good mix of technology, physical branches and employees’, banks can achieve a fine balance between physical presences & reach, whilst also rationalising branches and related costs by leveraging tech.  

Finally, crucial for success of such efforts is by not just classifying products and solutions amongst Physical and Digital channels / Avataars. We need to have an integrated approach, where customers / user journeys can smoothly pass across Channels, rather than just having multiple channels that do not talk to each other.

Happy to hear your thoughts and also of any other innovative techniques being used by Banks that you have heard.