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A cultural revolution is shaking up the banking sector, and despite bank branches hanging on for dear life, digital technologies offering personalised customer service will make the branch network a thing of the past.
Digital lifestyles mean consumers want everything in one place. Not only do people want to access everything from their smartphone, but they want to access it from a single platform on the smartphone. The use of data, online communities and app stores could make a digital-only bank a more personal experience than face-to-face service in a bank.
Traditional banks are eager to talk about the importance of a branch network. And why not? It is one of their major advantages over challenger banks. But others are making swingeing cuts to branch networks to reduce costs and encourage people to use their digital services.
The argument for branches is focused on the need for personal face-to-face services for certain banking products and services. Yet this type of interaction in a bank branch is often less personal than the interaction customers receive online with digital banks, according to one digital bank entrepreneur.
Speaking at an SAP financial services event, Matthias Kroener, CEO at Fidor Bank, told the audience that people are wrong if they believe physical branches offer a personal touch.
“To all you branch bankers that say, ‘Yes, but there is nothing like personal contact’, queuing up to speak to a salesperson in a bank branch is not a personal service,” he said.
Digital community builds trust among bank customers
Fidor Bank, which currently operates in Germany and Russia, is expected to be awarded a UK banking licence soon, and plans to launch in the US in 2016.
The bank uses social media to overcome the cost and complexity of traditional banking, while increasing customer trust through an online community. It developed its open technology platform, which can be plugged into through application programming interfaces (APIs).
Digital banks such as Fidor use social media, communities, data and APIs to better understand and support their customers in an arguably more personal way than branch staff, who might only see customers once a month.
Customers of Fidor Bank can access many services from one place by using its app store, which is accessible from a single account.
“The Fidor account has around 25 functionalities. You can trade foreign exchange, have your precious metals, participate in peer-to-peer lending and get involved in crowd financing in the same account. It is a multi-asset account and open to outside services of partners,” said Kroener.
Technology enables new ways of banking
A Computer Weekly survey of IT industry professionals found the main reason most people go to the bank is to pay in cheques. But this might not be the case for much longer, with banks such as Barclays and Lloyds launching apps that enable customers to pay in cheques using a smartphone. The next most common reason to visit a branch was to transfer money.
On average, survey respondents said they visit a branch once every six months. Almost all believed branches would never disappear completely. This type of attitude could see banks share branches. In the same way consumers can withdraw money from any cash machine, a banking service at the Post Office could be offered to customers of any bank.
The Royal Bank of Scotland (RBS) and the Co-operative Bank are examples of companies closing branches. The Co-operative Bank will close 57 branches as part of its cost-cutting plans, leaving it with around 165 – about one per 8,500 customers. The bank said it was responding to changes in the way customers bank.
Moray McDonald, a senior executive at RBS, told a House of Commons committee that hundreds of millions of transactions, previously completed in branches, have moved online. “We are seeing a revolution in the way our customers want to bank,” he told the committee.
RBS said the mobile banking app is its biggest branch.
Bank branches still have a future
Branches are seen by some banks as an advantage in fighting off competition from new players. In February 2015, Santander chairman Ana Botín said bank branches have value, even if far fewer people visit them.
“Even young people like to go to a branch at least twice a year. That means you need quite a significant retail presence,” she said.
Read more about the bank branch debate
- Advanced Payment Solutions signs agreement to allow customers to access banking services in Post Office branches.
- Banks have reneged on their promise to keep bank branches open, blaming changing consumer habits and digital technology.
- The chairman of Santander is confident banks can fight off the challenge in financial services from tech giants.
“At important times in your life, you want to see a person. You are not going to get married through technology. You are not going to buy a house through technology. I think that is where we are going to compete very effectively – if we can find a model that combines the personal side with the technology,” she added.
TSB Bank published research in February 2015 that found the bank branch was the most used channel, with 36% of customers only using branches of the bank, 22% only banking online and 2% only using telephone banking. Some 24% were found to use a combination of branches and online, while 7% use all three channels.
The TSB study also found 88% of personal banking accounts were agreed, 85% of mortgages were applied for and 71% of personal loans were taken out in branch.
Some challenger banks also see the branch as vital. For example Lintel Bank, which is currently applying for a UK banking licence, plans to have branches and telephone services.
“We are as much digital as the other challenger banks, but also provide a branch and telephone service to provide a quick and easy method of resolution of customer concerns,” said the bank’s creator, Nazzim Ishaque.
Lintel Bank is likely to be based in London, with branches in the city.