The torrid pace of bank branch closures continues unabated. In the U.S. alone, over 1,700 branches closed in 2017 — a record. This follows several years of rapid reduction in the number of branches. Between 2012 and 2016, for example, Chase, Bank of America, and Citi shrank their branch footprints by 2.4%, 16%, and 28.5%, respectively.
Banking providers have maintained multiple locations for centuries, but the modern retail strategy emerged in the early 1900s as a way to enter new markets, broaden the deposit base, and reach consumers where they lived. Retail financial institutions could offer convenience to people where they were and better serve them, growing a customer base centered around the branch.
Banks and credit unions subsequently doubled down on this strategy. Recognizing that people were busy and couldn’t always make it to their branch, banks opened locations inside of grocery stores so customers could bank while they shopped. This strategy arguably culminated with ATMs, which could be put almost anywhere, reaching customers wherever and whenever they needed the most basic banking services.
But with the ubiquity of mobile apps, many people’s banking habits now rely less and less on ATMs and other forms of physical infrastructure. What then, is the right branch strategy for the digital era? Is the very concept of branches now dead?
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How Does Mobile Affect Branch Strategies?
Given mobile’s dominance, it is easy to assume that the only truly viable retail strategy for the Digital Age must be all about smartphones. New “mobile-only” neo-banks are popping up everywhere, while traditional banking providers are furiously iterating on their mobile experiences. However, a financial institution’s mobile app is not where bank customers are most of the time. To characterize a bank’s digital branch model as simply “mobile” is to see the trees but miss the forest.
Think of the purpose of a broadly-defined “branch,” whether it’s a location people can walk inside, an ATM in a grocery store or a mobile app. When you consider the purpose of any of these “branches,” it’s to reach customers and prospective customers either where they are, where they prefer to bank or both. This means the foundation of a bank’s digital branch strategy is not any single embodiment of a branch but rather the software that allows the banking experience to be expressed across a variety of touchpoints, both physical and digital. That is, the foundation of today’s banking strategy is the API (application programming interface).
How Can Banking Providers Accelerate Their Evolution?
APIs power a bank’s mobile app, putting the bank in its customers’ pockets. APIs power voice assistants, enabling the bank to be present on command. The power the information exchanges that allow a customer to make a transaction on her smartphone, then have it already reflected in the systems of a physical branch she might walk into a few minutes later. The evolution of branches has always been about making banking more accessible and convenient. For a time, that meant a few locations around town, then scores of ATMs. Today, it’s about the API that lets a bank do business in all of those places—and potentially infinitely many others.
But to extend this strategy further and truly harness the power of APIs, banks should externalize their APIs to meet customers wherever they may be. Western Union — a company I’ve worked with through Google’s Apigee team — understands this well. Knowing that many of its customers spend time using social media, Western Union opened APIs to its core money transfer service, then used those APIs to build a Facebook chatbot. Western Union customers can now transfer money from within Facebook. In other words, Western Union opened a ‘branch’ inside a social network!
There are many digital places where banking services can be consumed. Small business owners can interact with their bank for cash positions and financing options from within their accounting packages like Xero or Sage. For example, fintech startup Fundbox is offering financing to small businesses from within Quickbooks or Freshbooks. Controllers and chief financial officers in large corporations may want to interact with their bank from within their Oracle or SAP systems. Consumers evaluate their financial health across providers in personal financial apps and are starting to finance purchases at checkout. From large corporates to individual consumers, wherever the bank customer is, APIs can reach them and power transactions.
While so-called “open banking” and APIs are often viewed as threats to traditional retail financial institutions, when executed as part of an aggressive digital strategy, APIs can actually form the underpinning of a ‘digital branch’ that every bank and credit union should be working towards.