The coronavirus pandemic is the equivalent of a 100-year flood for retail banking, upending the industry’s long-standing attachment to in-person banking.
Even though banking is considered an essential business and many institutions have kept at least some of their branches open subject to social distancing requirements, many consumers simply don’t want to go to places where they don’t have to. And they’ve discovered that relatively few banking activities have to be completed in person. As a result, branch activity has dropped to a trickle while digital transactions have soared, according to retail banking executives The Financial Brand has spoken with.
There are two branch-related scenarios that every retail banker is thinking about intently. They represent opposite ends of the spectrum of possibilities:
- The enforced shift away from in-person banking will have an impact, but a large percentage of people will gradually return to doing business with people face-to-face, glad to do so once the health issue is eliminated.
- The people who stayed away (or were kept away) from branches and learned how to bank digitally won’t be coming back into a bank branch anytime soon … if ever.
The Financial Brand reached out to a group of knowledgeable industry sources on this subject. Overall, the opinions mostly came down closer to option 2. — permanent, significant change. No one thought there would be no change.
High Branch Costs Will Drive Decisions
The pandemic will have a significant impact on branch economics, observes Novantas. The research and consulting firm predicts that not only will many high-volume transactions not return to branches, but that the branch’s “competitive advantage for sales has been eliminated overnight for some period of time if not forever.”
As the economic impact of the pandemic rolls out, there will be fewer branches, as they are expensive to run, states Steven Page, VP of IT, Marketing and Digital Banking for SafeAmerica Credit Union. “I can see big branch networks being reduced to help with costs.”
“Long term, it will be more difficult for many branches to be profitable, forcing community banks and credit unions to make decisions they have been avoiding relative to bricks and mortar,” observes Joe Sullivan, CEO, Market Insights. “Declining profits will make some bankers finally take notice and take action this time.” The actions will involve eliminating or repurposing branches to something other than a teller-deposit function.
The Digital Shift Will (Mostly) Stick
“Once the consumer adjusts to digital channels, they won’t go back,” states Kevin Blair emphatically. The President and CEO of NewGround says the pandemic will “most definitely” have a long-term, transformational impact on in-person banking.
“We have already seen Gen X, Y and Z all distancing themselves over the last five years and communicating primarily through digital and social channels,” Blair states. “Now the pandemic just forced everyone, including Boomers and beyond, to do the same.”
“The longer stay-at-home orders remain in place, the more time consumers will have to adopt new banking behaviors. In-branch teller transactions will never recover.”
— Joe Sullivan, Market Insights
“Habits have been broken,” Page maintains. “This new world we will be living in, fueled by digital technology, won’t be as scary as people might have thought in the past.” Adds Sullivan: “The longer the pandemic lasts and the stay-at-home orders remain in place, the more time consumers will have to adopt new banking behaviors. In-branch teller transactions will never recover.”
Celent predicts a high percentage of new digital banking users will continue to use digital after the crisis, further eroding branch transactional activity, states Bob Meara, Senior Analyst – Banking. “We expect to see digital comprise a higher share of new account and loan originations also,” Meara adds, at least for the banks and credit unions that are equipped to handle digital account opening.
“While people will experience the convenience of doing things remotely, I believe that the comfort of going back to what is familiar will be a stronger driver, at least in the short-term.”
— Alex Jimenez, Extractable
A different view comes from Alex Jimenez, formerly with Zions Bank and now Chief Strategy Officer at Extractable. “Many people see this crisis as a catalyst to move everyone to digital. While people will experience the convenience of doing things remotely, I believe that the comfort of going back to what is familiar and what ‘it used to be’ will be a stronger driver, at least in the short-term.” Jimenez does agree, however, that the pandemic will accelerate the pace of change towards digital — mostly driven by financial institutions themselves.
Another factor in branches’ favor is noted by David Horton, Managing Director, Global Head of Innovation for Thynk Digital: “In a financial downturn, if people fear for the security of their money, then branches will again show why they are a cornerstone in people’s perception about how trustworthy a bank is. Digital-only banks, particularly those that make it very easy to transfer funds out of the account, will face an upward battle to remain in business.” In the 2019 World Branch Report, which Horton conducted in partnership with The Financial Brand consumers had a 51% higher level of trust in financial institutions with branches.
Branches’ Role Will Be Very Different
Just as the pandemic has moved branches to the transactional sidelines, going forward their advisory role should remain, or increase. “Long term, I do not see too much [downward] impact on the role of the branch when providing advice on complex financial products like mortgages, insurance and investing, as the ‘human’ element is still very much in demand by the consumer,” Horton states.
“Money is a sensitive, emotional and complex topic. People will continue to value traditional face-to-face interaction for such matters.”
— Bob Meara, Celent
Money and finance will remain a “sensitive, emotional and complex topic,” Meara believes. “People will continue to place value in traditional face-to-face interaction for such matters, but just not everyone nor every time.”
“The pandemic will force banks and credit unions (especially the smaller ones) to reinvent the branch and customer experience in ways that we have been talking about for years,” Sullivan observes. “Lobby tellers will become nearly irrelevant, for example, leaving the branch for more consultation and problem solving.”
“Personalization and customization is one way of showcasing expertise that consumers have come to expect,” according to a white paper from LaMacchia Group. “This may lead to increasing expectations that financial institutions will have all the relevant data about the consumer and provide a seamless connection to it.”
Indeed, the crisis has given consumers the opportunity to try out digital financial tools, such as those offered by Moven and other fintechs. Branch personnel operating in an advisory role will have to have access to the same data and analytics, incorporating machine learning, as these tools. Otherwise the human interaction will not prove satisfactory.
Is Branch Vs. Digital Debate Over?
“No, I will bet my house on it!” says David Horton. “It is a topic that provokes a lot of passion amongst fintech influencers and bankers and the arguments for and against branch versus digital banking are still very compelling on both sides.”
“I don’t understand why there is a debate at all,” wonders Alex Jimenez. “Branch use is waning and will continue to wane in the future. The extinction of the bank branch is taking longer than many of us expected but someday they won’t exist. I see this crisis accelerating that trend but not to the point that in three years branches will be gone.”
“The debate has been over for a while,” Bob Meara observe. ‘The branch is dead’ has never come about and we don’t expect it ever will. Branches are changing and networks thinning. That will continue.”
Joe Sullivan says the debate will continue among financial institutions under $500 million in assets. “There is just so much emotional energy wrapped up in the concept of bricks and mortar. The resistance to branch consolidation recommendations is due primarily to fear, entrenched/outdated mindsets and insufficient resource allocation.”
According to Kevin Blair, “There will always be a role for the physical experience although the branch as we know it today will be profoundly different three to five years from now. The industry is obsessed with branch versus digital and not looking ten years down the road and developing their solution today to fit the future needs, not present, of the consumers they serve. Those institutions that transform their current contact center, for example, into digital experience centers are the ones that will become the Amazons of banking. Those that continue to focus only on the branch will be like the dying retail centers with closed stores of tomorrow. It’s not about the branch, it’s about the experience.”
The Branch Space Must Be Safe
Whatever the reason a consumer chooses to come into a physical location, the coronavirus will have a lasting impact on how these facilities are set up and managed. “If we go back to how things were, with no modifications to our physical spaces, … people will be forced to act in a way that may make them uncomfortable,” states LaMacchia Group.
” Touch, smell and the pure simple optics of a branch will be critical. The institutions that take it seriously will be the winners.”
— Steven Page, SafeAmerica Credit Union
Consumers will expect financial institutions to have safety precautions in place, observes SafeAmerica’s Steven Page, “especially in the first couple of months of normal business.” That could involve different sanitizing procedures, hand sanitizers and possibly even continued social distancing wherever people may gather. “Touch, smell and the pure simple optics of a branch will be critical,” Page states. “The institutions that take it seriously will be the winners with the public.” That could include modifying policies on wearing face masks in a branch.
Appointment-only interactions may continue to be the norm even after the crisis recedes, with drive-through stations handling consumer and small business transactions. “Touchless” interactive teller machines are being developed to help make the drive-through experience safer, as well.
One other point about safety is worth noting: “What if the next virus is digital and not a public health situation?” asks Joe Sullivan. “This will be one of the elements of the ongoing debate over branch versus digital, because there are still a number of folks concerned about the safety of digital.”