Do Banks Still Need Branches?

The number of bank branches in Ukraine and Europe is rapidly decreasing, so from 2008 to 2022, the number of branches in the EU decreased by 39%, from 225 thousand to 134 thousand, while in Ukraine during the same period the number of branches decreased more than 4 times, from 21 thousand to 5.5 thousand subdivisions as of the end of 2022.

According to the conducted research, individual clients aged 25–45, after opening an account, visit the branch of their servicing bank on average once every 2 years, as a rule, this is required to update personal data, obtain a plastic card, clients aged over 45 years old visit the branch an average of 1.5 times a year, more often for making deposits, making utility payments, etc.

The dynamics of reductions in the number of separate banking units by year are shown at the bottom of the article (for comparison, on the territory of the European Union and Ukraine).

The reasons that led to the reduction of bank branch networks on the example of Ukraine:

- Rapid digitization and development of remote channels of interaction with the client. It is possible to become a customer and carry out most banking operations online, which allows customers to save time and avoid standing in lines when visiting branches. As a result, the number of active customers who chose offline service continued to decrease, branches gradually became unprofitable

- Significant expenses for the maintenance of branches. Providing services through branches requires more costs than providing services through Internet banking. Additional costs must be compensated and transferred to the client in the form of commissions, which encouraged consumers to go online more actively

 - Inconvenient format of branches or their unfortunate location. Placement of branches in sleeping areas, and not in places of concentration of business activity, separate roles of branch employees, as a result of which the client needs to contact various specialists to receive a service

 - Expansion of partner networks. Funds from accounts in Ukraine can be withdrawn at the cash registers of gas stations, supermarkets, pharmacies and cards can be topped up through a wide network of self-service terminals, the infrastructure of which is more than 50,000  kiosks in Ukraine, so there are fewer and fewer reasons to visit the cashdesk of classic bank branches

- Pandemic and war. Due to the pandemic, clients increasingly avoided physical visits to branches and more actively mastered online banking. Because of the war, 8 million Ukrainians went abroad, and more than 5 million people changed their location within the country - most of them continue to use banking services without being tied to a specific branch

Is it possible to develop a scenario when bank branches will not be needed at all?

 In any case, there will remain certain categories of operations and customers that require offline service:

• VIP Clients, who require an personal approach
• Clients who prefer live communication, do not have a smartphone or online banking skills (usually elderly customers)
• Non-standard customers (requires additional AML and KYC review, cannot become a customer online due to non-standard documents or suspected fraudulent activity)
• Complex agreements (obtaining loans, issuing collateral, which requires the participation of a notary and physical presence)
• Operations which according to the legislation cannot be carried out online

However, the dynamics of further reduction/merging of the number of branches will continue. Over time, they will increasingly change their format in order to adapt to the needs of consumers, namely, they will turn into so-called "showrooms" in which customers can try the mobile application, feel the products, get advice, test before choosing a servicing bank