Faced with the rapid proliferation of digital technology and a growing Millennial/Gen Z customer base, major banks in the United States and Europe have reduced their physical branch networks over the past decade. While the underlying thought process has certainly influenced global strategic thinking, Indian banks have bucked the trend. Instead, they focused on branch expansion, ushering in one of the best growth periods for the entire Indian banking industry.
Now, U.S. banks such as JPMorgan Chase and Bank of America have outlined plans to open 500 and 165 new branches respectively over the next two to three years, emphasizing the need to build physical branch networks to meet banking needs.
personal style
Research shows that although 70% of consumers are willing to make purchases through digital channels, only 23% of consumers use digital methods to meet their financial needs. When it comes to matters related to finance and wealth management, clients want real interaction with a financial advisor before making a final decision.
Physical branches provide the necessary space for such face-to-face consultations and provide customers with access to knowledgeable staff who can provide personalized advice. Achieving this through digital banking channels is even more challenging. Additionally, communicating online is counterintuitive when customers are faced with too many complex choices. This is especially true when resolving customer-specific issues, allowing branch staff to more successfully resolve issues effectively while maintaining the highest standards of customer satisfaction and loyalty.
While digital banking will continue to gain traction in the near future, traditional bank branches will evolve into “digital” branches – where physical and digital experiences come together to create seamless banking solutions.
business development
While digital disruption has caused brick-and-mortar models to disappear or nearly disappear in several sectors, industries such as banking, education, and healthcare are using digital technologies and analytics to enhance customer experience and further improve operational efficiency.
Aspects such as trust, people engagement and relationship management remain non-negotiable elements in such an industry, explaining the need for retail banking to expand branches to serve existing and new customers. This, in turn, helps banks capture a higher share of available business as new customers rely on human touch and personal assistance to make critical savings and credit-related decisions.
This is also known as the network effect in banking parlance, meaning banks with more physical branches are able to tap a higher proportion of their available business. In an era where retail banking is increasingly dominated by digital transactions, the traditional brick-and-mortar model remains relevant to banks and their customers.
Technology integration
To facilitate this shift, banks are introducing interactive kiosks, augmented reality displays and advanced artificial intelligence systems in their physical branches. This integration of technology not only provides customers with personalized advice, but also provides an intuitive trading experience during every visit. Branch personnel will focus on providing them with relevant information to make informed decisions and work on building relationships rather than just processing transactions.
As a result, banks are already reimagining their branch layouts to facilitate this interaction, with most redesigning internal processes and legacy organizational structures to achieve this. Therefore, the “bricks and mortar” banking model will continue to evolve with the advancement of digital technology, and banks will improve return on assets (RoA) by operating bank branches as separate profit centers.
Currently, 80-95% of retail banking business in India is contributed by physical branches. Banks must continuously upgrade their branch networks to maintain strong brand influence and meet changing customer needs. Achieving this while fostering trust and loyalty will be critical for the foreseeable future as banks innovate new ways to combine technology with human interaction.
Opinions expressed are purely personal. Dheeraj Sanghi is the national head office and FE Banking, It’s a bank.