Branch banking has been an essential form of banking for many years, enabling banks to have a physical location and directly engage with clients. Nevertheless, the emergence of digital banking and mobile applications makes people doubt the sustainability of branches. This article will look at the current prospects for branch banking and review innovations from leading supply chain members as to how they define the future of branch banking in a progressively more digital environment.

The Decline of Branch Banking

Branch closures have accelerated in recent years, with the number of bank branches in the US dropping from almost 100,000 in 2009 to under 72,000 in 2024.

Several factors are driving this decline:

  • Shift to Digital Channels - Customers now conduct more basic transactions online or via mobile apps, reducing foot traffic. For example, the percentage of consumers who use mobile banking as their primary account access has risen from 15.1% in 2017 to 48% in 2023.
  • Profitability Pressures - Maintaining a traditional branch network necessitates significant fixed costs at a time when banks face profit margin squeezes.
  • Changing Consumer Preferences - Younger demographics are especially inclined to favour the convenience of digital banking. Surveys find that 60% of millennials almost never visit branches.

While this suggests a bleak outlook for physical branches, their complete disappearance is unlikely, given the enduring need for human interaction in more complex financial matters. However, the role of branches must evolve, with the help of Finastra software solutions or other options, to align with modern customer expectations.

The Branch of the Future

While reducing their overall footprint, leading banks are reimagining branches to optimize the in-person customer experience:

Advisory-Focused Layouts: As there are fewer chances of cash transactions happening at the branches, the focus is now on more open space planning of the branch to deliver financial solutions through dedicated bankers.

Integrated Technology: Branches are adapting to include smart screens and virtual meeting systems to allow customers to have physical and virtual interactions.

Emphasis on Convenience: Branch relocation and operating time adjustment make branches focus on the convenience and accessibility of consumers. Other trends include the use of self-service kiosks and drive-throughs.

The idea is to preserve the value of face-to-face consultations and improve the spaces to look as contemporary and technologically connected. When customers do come in physically, everything has to appear as though it is easy.

Emerging Branch Banking Innovations

In addition to general layout changes, major industry players are pioneering new branch concepts that could profoundly alter their functionality:

AI-Driven “Phygital” Spaces

Banks like Capital One are opening next-gen branches housing advanced on-site tech. Interactive screens let customers self-navigate products or connect to remote specialists in a seamless “phygital” environment fusing physical and digital. Integrated AI tools can provide personalized product insights without needing in-branch staff.

Hyper-Local Mini-Branches

Large banks are introducing smaller footprint “micro” style branches in high foot traffic areas like malls or grocery stores. Outfitted with video tools and remote tellers, they provide basic services with fewer on-site staff - at a fraction of the operating costs of a legacy branch.

Digital Banks’ Pop-Up Spaces

Fast-growing digital banks like Chime, operating without traditional branches, are opening temporary pop-up locations to put a physical face on their brand. Staffed by banking experts, they offer in-person account openings, shopping discounts, and community events - then close up within months. The flexibility allows for capturing localized demand at a given time.

Specialty Branches

Some banks now provide specialized branches tailored to distinct customer groups. Standalone small business branches assist entrepreneurs with tailored services. Student banking branches on or near university campuses simplify financial processes for the college demographic.

The customizable hub approach extends branch convenience to customers with specific needs.

The Human Element

While emerging formats involve fewer on-site employees, the consensus is that branches will always rely on human expertise - just in more targeted roles aligned with digital enablement:

  • Digital Concierge Staff: Friendly branch staff will act as roaming assistants, guiding customers through on-site technology and facilitating connections to off-site experts when specialized guidance is required.
  • Financial Consultants: Banks plan to enhance the capabilities of in-branch financial consultants, allowing them to offer sophisticated product advice beyond routine transactions better handled digitally.
  • Remote Specialist Access: Branches will provide customers with access to licensed professionals working remotely - like investment advisors or mortgage officers - via integrated digital tools, enabling two-way visual engagement.

The goal is to optimise the expertise of branch staff by focusing on providing irreplaceable human guidance while leveraging technology to connect customers to the best available subject matter experts.

The Branch as a Marketing Asset

Interestingly, some major banks expanding their physical footprint see the reinvented branch primarily as a customer acquisition tool. In an increasingly digital banking landscape, a physical space serves as a marketing asset - a billboard for brand-building in the community.

By providing a public site for customers to engage the brand via on-site technology or human experts, upgraded branches showcase a bank’s omnichannel capabilities and modernized experience compellingly. The value is less about conducting high volumes of transactions than about fostering positive perceptions. For regional banks especially, an impressive branch signals their competitiveness relative to national players - even if most actual banking is now digital.

This “billboard effect” means many banks will retain branches as analogue symbols communicating their technological readiness and commitment to personalized service - even as products are consumed digitally. The branch evolves into more of a showroom and less of a transaction hub.

External Branch Solutions

Major companies beyond traditional banks are also now reimagining the physical banking experience via emerging external branch solutions:

Retailers as Banking Hubs

Walmart recently opened several in-store bank branches, which other retailers are likely to emulate. With floor space to spare, big box retail outlets are logical homes for cost-effective mini-branches. Banks can be integrated as another form of on-site customer service.

ATM Innovations

Firms like Cardtronics are developing “branch transformation” ATMs with video chat abilities and smart terminal features allowing customers to open accounts, apply for loans, and access remote specialists - all within a familiar self-service format.

Workplace Banking

Banks are placing satellite branches inside major corporate campuses to offer employees banking access at their own offices. On-site financial representatives can engage workers during their breaks with tools like food trucks or coffee carts used to draw interest.

These solutions hint at a decentralized future for branch banking spanning non-traditional venues beyond banks’ owned real estate. Ubiquitous access may replace the traditional centralized branch model.

Implementing Phygital Banking

Transforming traditional branches into fully integrated “phygital” spaces, enabling seamless toggling between physical and digital interactions, involves overcoming some technology implementation challenges:

  • Transition Costs - Major spatial, staffing and tech investments required to enable hybrid engagement could deter banks still reliant on legacy infrastructure.
  • Cybersecurity - Connecting physical and digital environments heightens data vulnerabilities banks must address when revamping networks and devices.
  • Change Management - Getting branch staff up to speed on new tech-enabled roles is crucial for smooth adoption. Over 50% of bank employees will require retraining due to digital tools. Ongoing learning programs are key.

Despite hurdles, the phygital transition is imperative for branches to remain viable sales and service venues. Consultancy McKinsey estimates that phygital operating models could reduce branch costs by up to 40% while boosting sales conversion rates. Banks able to skillfully bridge tactile and virtual realms will gain an edge.

Conclusion

While the prominence of brick-and-mortar branches will continue declining, their total extinction seems unlikely, given people’s enduring need for in-person banking support. However, fulfilling that advisory role in the future depends on branches evolving from transactional centres into technology-enriched environments fusing physical and digital.

Banks who proactively transform branches around expert guidance and omnichannel integration - while leveraging external solutions to fill geographic gaps - can retain the human touch for decades to come. The ultimate survivors will be those positioning branches not as banking’s past but as its phygital future.