So many articles are being written about the end of branches today. Having read many, I began thinking about what life with no branches might look like…
It’s 2035. Mary Bond works for Smith’s, a downtown retailer, selling high-end home office equipment. Mary has worked there since graduating from college seven years earlier in 2028.
Today was payday, but the store’s automated payroll system had a software upgrade go bad last night. Mary is worried as she has just moved to a new, larger apartment and rent was due today. With so many additional expenses in setting up a new apartment, Mary had tapped her meager savings to buy new furnishings and needed her pay to make the rent.
The store manager listens to Mary’s pleas for help and offers to do an electronic transfer via Zelle, but she discovers she has already reached her monthly limit. Instead, she writes Mary a check in the amount due.
Feeling relieved, Mary reaches for her phone to deposit the check remotely … only to realize she doesn’t have her phone. Did she leave it at home or on the bus to work, she wonders. No problem, she’ll go to her bank branch to make the deposit … but Mary now remembers that the last bank branch in the area closed last year.
Back at work she calls the bank’s customer service line for help. Before she can even describe what she needs, the automated recording asks Mary to authenticate herself three different ways. Finally, Mary gets to the menu of services.
It takes Mary another 15 minutes to get routed to the right department. However, she then learns that she is 108th in line and wait times are expected to be more than an hour.
It’s growing late in her office. Half an hour into the call the building’s automated energy-saving system shuts off the lights.
And So She Waits…
Mary sits in the dark waiting for someone to come on the line and help her figure out how to deposit the check so she can pay her rent.
Is This Really the Future for Financial Institutions’ Customers?
Probably one of the most extreme of the articles I referred to at the beginning was the one quoting a study putting a date to the extinction of branches: 2034.
Now, people who read my columns for The Financial Brand regularly know that I am a big believer 1. that branches must change functionality but 2. that they aren’t going away anytime soon.
For an indicator, I look to my own consumer experience. I’m a multi-channel user for the financial services firms that I use. It all depends on the issue I’m trying to resolve. For most routine things I use either the mobile or online channel. I still use ATMs to get cash, sometimes at a branch and sometimes from a remote ATM site. When none of those channels work for a particular problem, I usually try the call center channel first (although reluctantly).
My last stop is to consult branch staff, which is not a big deal for me as it means a drive of ten minutes to my nearest branch.
Yet many think that banks and credit unions will not only actually close all their branches, but that they should. Where would that leave things?
What Would Change If We Shuttered All the Branches?
Historically, most new account openings have occurred within branches. The process can take 30 minutes and lends itself to many questions. In recent years, though, online account opening has grown rapidly. Research by Cornerstone reported that online checking account opening surpassed in-branch openings in 2020 as Covid restrictions on branch lobby traffic changed the dynamic.
For secondary checking accounts it wasn’t even close with in-branch checking account openings falling behind online and mobile channels in that same study.
One big caveat in applying that study is that the big three banks — Chase, Bank of America and Wells Fargo — dominated account openings in 2020, capturing more than 50% share collectively. These banks have sophisticated online and mobile channels that cost billions to develop over years.
Community banks and credit unions can’t make those type of investments and accounted for only 15% of new accounts in 2019 and only 10% in 2020. If branches vanish, how will the smaller firms that make up the vast bulk of the nearly 10,000 retail financial services firms in the U.S. survive? Will the industry shrink to just a few dozen firms?
A Dose of Reality:
Branches aren’t just a place to open new accounts. In fact, the majority of branch platform staff’s time is spent servicing existing accountholders.
These folks are often called relationship managers, and for good reason. When a customer has an issue or a question, they will often show up in person to get it addressed.
It may not seem important to the branch staff, but if it’s important enough for the customer to disrupt their day and spend the better part of an hour getting answers it must be important to them.
Some estimates show that up to 80% of the relationship manager’s time is spent in this role, now being referred to as advisory. Keep that in mind when you hear about branches becoming “advice centers.” If branches vanish, how will this highly valued customer interaction be handled? Most likely it will migrate to the call center channel — and that could be problematic.
Call centers today represent the other channel customers go to when they need to speak with someone about an issue. However, they are tightly managed to maximize the number of calls a staff member can handle, often with strict guidelines for call handling times.
2020 Was a Taste of the Future (Bleah!!)
When branches closed suddenly during the height of Covid restrictions in 2020, we got a preview of what the “no-branch” call center experience might look like, with exceptionally long wait times to get to a live person.
In fact, larger firms have been investing in automated phone systems to migrate calls from humans for years, just as they did with routine branch transactions in years past. All these efforts were driven by cost-cutting goals.
It started with self-authentication so your account information could pre-populate on call center staff’s screens, then evolved from there. Today, some firms have added so many layers of screening questions you may need to make ten selections before getting the chance to speak to someone. These automated systems remind you that the online system can handle most issues and that wait times to talk to a human may be long — basically anything they can do to throw up a roadblock.
“Efficient” Doesn’t Equal “Great”
What the planners behind call center efficiency don’t understand is that most people will have already tried those alternative channels and couldn’t get the answers they needed. That’s why they brave the menus and the waits.
I’m sure some of you are like me and end up yelling into the phone “Agent! Agent!” in utter frustration. Now, imagine if that is your only option for problem resolution.
Is It Possible to Prune Beyond the Point of Common Sense?
Over the past several decades banks and credit unions have introduced new ways to handle routine transactions to reduce costs, with a byproduct being reduced branch traffic. But not all transactions can be migrated. For example, how will people, who don’t have an account with your institution, cash a check drawn on it? These types of transactions are common and make up a large percentage of remaining teller transactions. If branches go away, do checks need to go that same route? Will we be migrating all payments to digital?
Small business owners have similar challenges in that for many they need access to teller/merchant services if they are cash-intensive firms. How will they make deposits? Drop boxes? How will they gain access to necessary coin and currency to operate their businesses?
Or are we assuming a cashless society by then?
Pew Research reports that nearly all U.S. adults own or have access to a cellphone, but only 85% have a smart phone, which is a requirement for mobile banking. About 5% of US households are completely “unbanked,” as in no accounts, and another 20% have access to limited bank services. This group likely overlaps with the check-casher group. Going cashless will have big impacts.
CRA guidelines for banks have been around for decades. These rules have helped correct past industry practices underserving certain portions of the population. How would the government assess parity in servicing different income groups in a branchless environment?
Five Ripple Effects If Branches Actually Go Away
Closing the remaining 100,000+ bank and credit union branches has serious implications, some known and some unknown. Let’s look at a few:
- Increased glut of retail space (over 400 million square feet), with somewhere between 30%-50% owned, driving down real estate prices for a long time.
- Increased unemployment as about 750,000 people work in branches today, not counting branch support. What do you do with them, staff up call centers?
- Increased disenfranchisement for the 15% of the population without smart phones, or those folks living paycheck to paycheck.
- Worsened customer experience, as online account opening processes often fail, especially for more complex products. Where do people go when that happens?
- Increased industry consolidation as barriers for mergers (branch consolidation, divestments, etc.) are reduced.