Is this the beginning of the end for bank branches?
The death knell for physical branches has been tolled before. But the global pandemic has fast-tracked the closure of banks’ brick-and-mortar operations.
The ongoing decimation of bank branch networks has only accelerated during the Covid-19 pandemic, as more customers switched to digital channels under lockdown restrictions and banks intensified their cost-cutting exercises.
Unsurprisingly, European lenders are among the most active when it comes to shrinking their branch estate, as they attempt to improve waning profitability. According to The Banker Database’s research among the largest 50 banks by Tier 1 capital worldwide, European banks occupy six of the top 10 positions for the largest percentage in branch reductions.
UniCredit is the only bank in the top 10 cohort to lose more than 20% of its branch network during 2020, partly due to selling its stake in Turkish lender, Yapi Kredi, as well as its restructuring programme. In December 2019, the Italian lender announced plans to close around 500 branches over the following three years, as part of its ‘Team 23’ programme to boost shareholder value.
Other reductions were less severe. Société Générale (SocGen) closed about 7% of its branches, Banco Santander decreased its network by 6%, and BBVA, Crédit Agricole and Deutsche Bank reduced their branch footprints by 4% or less.
However, it is not only European lenders that are closing branches. Chinese banks are also among the top 10: China Minsheng Bank and Bank of China reduced their networks by about 7%, while Agricultural Bank of China closed just over 2% of its total. Additionally, Commonwealth Bank of Australia makes the top 10 list for branch reductions, with a 5% cut to its network.
And many have plans to cut much more. In December 2020, SocGen announced it was merging its two domestic retail bank networks and closing a further 600 branches. One month before, Reuters reported that Banco Santander had plans to close down as many as 1000 physical branch locations in Spain. In June this year, its compatriot BBVA also announced the closure of 480 branches in its home market. In Germany, Deutsche Bank has plans to shutter another 150 branches.
Is this the beginning of the end of bank branches? Yes, according to a recent survey by Temenos and the Economist Intelligence Unit (EIU), which found that 65% of the more than 300 global banking executives polled believe branch-based banking will be “dead” within five years, up from 35% just four years ago.
Interestingly, four in five bankers believe that banks will seek to differentiate on customer experience rather than products.
However, some still believe that there is a future for branches. In the World Retail Banking Report 2021, from Capgemini and Efma, 37% of the 8,559 Voice of the Customer (VoC) survey respondents said branches remain a significant banking channel. Although 55% of VoC respondents said they preferred making transactions via digital channels, they also liked branch availability, too. Only 14% said branches were no longer relevant to them.
The report raises an important question: “Although branches may pose considerable operational costs, they remain relevant for customers. The branch also offers a tangible brand presence in communities and acts as an institution of trust. The question remains, how can banks strike a balance between branch volume and value?”
The answer? To reimagine branches as experience centres, suggests the report. “As digital transactions gain traction, opportunities arise for banks to transform branches from cost centres to value amplifiers. Consider these five Cs – connection, convenience, connoisseur, concierge, and captivation – to transform branches into experience centres.”
Banks take heed: there may yet be value to be gained from the branch network.
Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight
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