Digital banking: Eclipsing the branch, enticing customers?

It’s all over the news. Around the world, banks are closing branches and more plan to follow suit. Their reasoning? “Digital is taking over”. However, this presents its own set of challenges. How do banks address them so that they reduce their number of branches, while still delivering compelling service offerings?

This isn’t a recent phenomenon. According to research conducted last year by Nottingham University, the UK’s branch network has shrunk by 40 percent in the last 20 years. Reasons have ranged from workforce movements to urban areas, to adoption of telephone and online banking. That digital use should eclipse branch banking is the next logical step in this trend.

The challenges faced by banks can be grouped into three categories:

1. Remote delivery of complex products and advice
2. Bad publicity associated with cutting jobs
3. Customer resistance to change

Great strides have already been made in the delivery of complex products and advice. With the emergence of the latest generation of websites using Web 2.0 and the evolution of HTML5, it is becoming a lot easier to personalize the user experience, not only from customer to customer, but also from device to device.

Leaders in digital and mobile banking services continue to invest in digital channels and back office to bolster their capability. Additionally, there’re more complex products out there, such as commercial loans and mortgages moving onto the digital platform. This is not new, but it’s a move towards attaining full-service digital status. The challenge is not keeping up with technology, but using technological advances to guide the strategic direction of the bank. In this way, banks can remain competitive and, most importantly, relevant. This is more important than ever now that non-traditional players such as Funding Circle (loans), TransferWise (international payments) and Nutmeg (investments) are encroaching on traditional markets.

Job cutting will always attract negative publicity, however the recent banking history has witnessed some praise and recognition of banking job-cuts as the move in the right direction, i.e. a way of encouraging customers to use digital self-service.

As for resistance to change, there are two ways to counter this: educating customers and incentivising them. Making your digital and mobile user experience customer friendly goes hand in hand with educating customers on their existence as well as the benefits. What is their incentive though, if they’ve been doing their banking in branches for the last 20 years? If the returns on investment in digital and mobile are so high, and the cost savings through having fewer branches are significant, could some of those benefits be passed on to the customer? It’s no coincidence that the most popular bank accounts in the UK today are those that pay in-credit interest, cashback or provide bundled benefits like insurance.

The point is, branches have been ubiquitous for far too long. They’ll never quite disappear, but their current functions are quickly becoming irrelevant or redundant. Some banks have already recognised this and started moving towards theassisted self-service model – branches equipped with self-service machines and staff on hand to assist, reminiscent of airports and self-service check-out points in supermarkets. This is the future and the direction banks should be heading to. The next step is to redefine the branch.