Banking at branches in the digital and fintech age

The rise of fintech and the digital age has had a negative impact on both the perception and the reality of having physical bank branches. We have largely seen in developed countries that a large number of physical branches are being closed. But on the contrary, in countries like India, the number of physical bank branches is increasing.

This can be somewhat logically understood by the fact that the penetration/reach of banking is already low in many developing countries and more so in least developed countries. While the developed countries have a much better banking reach.

But the reality is much more complex than that. So let us consider the following:-

1. Recently, regulators in the UK have made some stern observations regarding the closure of brick-and-mortar branches and the impact it has on local communities.
2. Banking is also about financial inclusion (especially with remote communities) and having a physical branch enables inclusion and in turn reduces the social divide.
3. Banking is a trust business, especially on the deposit side (Debt). So, having physical branches gives a great amount of trust and credibility besides adding convenience.
4. Having local bank branches also ensures a good connection with customers, an understanding of the local economy, and in turn helps to offer products and solutions that are tailored to local needs on the ground.
5. Localized branches also have a major impact on MSMEs (Micro Small & Medium Enterprises) in that region and in turn positively impact the local economy.

That said, we can also understand the need for banks to rationalize property and operating costs, given competition (especially new-age digital fintech) and the rise of automation and technology. This also helps to reduce unit costs and thus in a way contribute to financial inclusion.

So we need both presence, reach and rationalization in branches. Contradictory but true. So let’s look at some thoughts on how this is done, or can be done.

1. The UK is trying to get the banks to share their branches. This is a good move, although this needs to be implemented in a way that doesn’t cause confusion or a lack of walkins (footfall).
2. We can also have local banking centers (such as business centres, shared rooms etc) where bankers can invite customers to physical meetings and service. This can be on salary that you use (driven by the number of seats and/or time the infrastructure is used for)
3. A few decades back (almost 30 years back), a local bank in India had a mobile branch (modified bus) which used to drive and stay for a few hours in surrounding localities. This mobile branch was adjusted to a regional anchor branch.
4. Have local agents who will offer banking services such as deposits, loans, money transfers, savings, sell insurance etc. by visiting customers or be locally based with a small office / physical presence. India has a concept of BC or Banking Correspondents. which basically enables such activities. They can be helped by platforms such as tablets, mobile apps etc.
5. Provide local kiosks and ATMs with features such as video conferencing / meeting with bank employees to address customer service needs / or requests. While kiosks and ATMs exist, there is much work to be done to access employees via digital means (beyond just call centers).

By using a good mix of technology, physical branches and employees, banks can therefore achieve a fine balance between physical presence and reach, while rationalizing branches and related costs by leveraging technology.

Finally, crucial to the success of such an effort is not only to classify products and solutions among physical and digital channels / avatars. We need to have an integrated approach, where customers/user journeys can smoothly pass across channels, rather than just having multiple channels that don’t talk to each other.

Glad to hear your thoughts and also about other innovative techniques used by Banks that you have heard.