The role of the branch in the digital age
The soon-to-launch Atom Bank, an online-only financial institution focused on delivering its products and services purely through smartphones and tablets, would appear to be further compelling proof for the growing redundancy of physical banking branches.
But while the Atom model is in many ways the inevitable consequence of a digitally focused economy, evidence for the decline of bricks-and-mortar banking has been building for a long time. BBA’s World of Change highlights an overall 6% decline in branch transactions since 2014 - one major bank is singled out as experiencing a 40% fall in branch transactions since 2009 - while HSBC announced only 2% of payments and transfers are now conducted in store. 1
However, at the same time that Atom gears up for business, RBS and Natwest reportedly earmarked a far-from-insignificant £400m to spend on branch refurbishments this year. Meanwhile, TSB announced impressive levels of customer acquisition in 2014 - half a million new accounts– which, according to Paul Pester, TSB's CEO, was driven by an “appropriate mix of customer access”, of which the branch was deemed integral:
"TSB believes the future of banking lies in branches and technology - enabling customers to bank where they want, how they want and when they want".
Indeed, branches remain TSB's most used service channel: 72% of customers have used a branch in the past 3 months; with over a third (36%) solely using branches to access their accounts. 2
So, which of these perspectives on the humble branch seems most viable for the future?
An easy assumption to make would be that the institution’s highlighted above are maintaining their branches purely to meet the needs of lower confidence, less tech-savvy and, at the risk of sounding glaringly ageist, older customers wedded to paying-in physical cheques and other antiquated services. To some extent this prejudice is justified: existing data suggests that the affluent and young do indeed tend to exhibit a weaker preference for using physical branches, while it’s important to note that 55% of people over 65 in the UK are not online in any real capacity. 3
However, if existing branches were being maintained purely to offer an outmoded experience to a small group of citizens, then such impressive growth or extravagant investment of the sort highlighted above just wouldn’t be feasible. So, the alternative argument, then, is that branches do indeed still offer something of real value in the digital age, to customers of all persuasions.
Let’s not forget that banks aren’t the only institutions whose retail business has been disrupted in the last decade. But by adapting to the digital age, expanding the possibilities of the physical environment and creating seamless interaction with online channels, many traditional bricks and mortar retail businesses have continued to flourish; there’s no reason this shouldn’t also apply to the banking sector.
It helps that the new generation of millennials and digital natives, far from being repelled by human contact, actually appear to relish the store environment. This creates opportunities for retailers to challenge purely online players, some of which – like eBay and Amazon – are responding by migrating out of their online comfort zone and dipping their toes in the high street. 4
Furthermore, it’s undeniable there are some services that are just better experienced in person. Retail stores are still seen as the optimal place to go for customer support, for example, and the same is undoubtedly true for more complex financial products, such as mortgages. It’s worth remembering that young, digitally savvy individuals aren’t always the most financially confident: they have never had a mortgage, are often laden with debt and just starting to earn a salary - the branch can still play a role for anyone like them who seeks greater support in decision-making.
Taking a broader perspective, as the UK has moved towards an experience-led economy we also shouldn’t overlook the impact that positive in-person interactions have in building customer relationships.
The idea that experiential purchases are more satisfying than material purchases has been widely accepted in behavioural sciences circles for a number of years now. In a number of retail environments people have been shown to take more pleasure in buying things if the experience can be blended with something that feels like friendship and gift-exchange.
Cornell doctoral candidate Amit Kumar: "Social interaction is one of the most important determinants of human happiness, so if people are talking with each other, being nice to one another in the line, it's going to be a lot more pleasant experience than if they're being mean to each other which is what's (more) likely to happen when people are waiting for material goods."5
As marketers see it, payment is one of the unfortunate pain-points in a customer relationship which is best anaesthetised with a more social experience. Ideally, the role of money must be “airbrushed out of the picture wherever possible”: 6
Airbrushing money out of the picture is naturally going to be a little tricky in a banking environment, but understanding and building the principles of a social experience into branches is likely to generate positive returns in customer relationships.
The US-based Umpqua bank has been doing this for a number of years. In the early 1990s, Umpqua had only six branches. It now has 364 spread across Washington, Oregon, California, Nevada and Idaho.
Marketeer Adam Morgan explains that Umpqua has achieved this growth "precisely by not looking and acting anything like a traditional bank", with Umpqua branches the physical and highly visible manifestation of this ethos. 7 Treated as community centres - complete with art exhibitions, yoga classes and "stitch and bitch" sessions (group knitting) - the branches are designed to build customer relationships, leading in turn to a positive uptake of products.
Ray Davis, the Umpqua president, believes branches are vital for bringing in cheap funds through current account deposits, but they also provide the opportunity to market more profitable products. Rather than a soul-sapping experience of queues, paperwork and ballpoint pens attached to chains, cross-selling is easier when customers enjoy visiting the bank.
Continuing this focus on environment and experience, Citi, the US group, has opened over 100 Smart Banking branches across Asia and is now rolling out elsewhere in the world. Bright modern spaces (designed by the same architects as Apple’s) these retail branches embrace modern technology and include interactive work benches, media walls and sophisticated ATMs. Critically, though the technological innovations are supported by in-person consulting rooms.
This last point is important: bringing new technology into branches actually helps to free up the staff to spend more time with customers. This is critical: “Delivering winning customer experience has become the single most critical differentiator available to banks in today’s commoditised market. In this rapidly changing environment, it is more important than ever for brands to be close to their customers.” 8
Branches clearly can and should be a key component of this narrative.
The rapid take-up, growing sophistication and sheer accessibility of digital banking services means customers can have a closer relationship with their bank than ever before. But fundamentally, branches provide customers a choice within this new digital environment: done correctly and with a focus on individual experience, branches are a way to connect with people on a more personal level, combining the human touch while delivering the expected digital age levels of customer service. In many ways then, the branch is the key to building a bank with lots of heart and plenty of soul… which is exactly the vision articulated on the Atom website.
 Adam Morgan “Eating the big fish: How challenger brands can compete against brand leaders” (2009, p. 223-226)