As Banking Becomes Digital: Would Bank Branches Remain Relevant?
Highlights:
- Over 1000 bank branches have been closed in the past 24 months
- 20 million adults in the UK do not know how to use online banking
- Millennials still use bank branches & tellers
- Banks may soon become irrelevant
Digital transformation brings about numerous opportunities and benefits, ranging from revenue growth to increased levels of customer satisfaction, advocacy, competitive advantage, cost containment, and agility (Bain, 2016). There are also inherent risks associated with digital transformation and becoming digital, some of which are discussed here. However, if well managed, some of the inherent risks could become opportunities.
In the UK banking sector, there has been a rise in the race to become digital. Major banks have made big investments to transform their organisations — moving away from legacy infrastructure, tools and processes, and culture to adopting digital tools, practices and systems which spur innovation. However, such large-scale and sometimes complex digital transformations result in organisations changing the way they function. For example, there has been an increase in the rate of bank branch closures with HSBC closing a quarter of its branches, that is approximately 4 branches being shut down in a week. Furthermore, other banks like the Co-operative have closed over 50% of bank branches as shown in the image below.
Which? opines that over 1000 bank branches have been closed over the past 24 months. They also imply that while there has been an increase in the rate of digital banking adoption by customers in the UK, there are still 20 million adults who don’t — or can’t — use it. This clearly highlight gaps which can been referred to as a digital divide. However, it also presents potential opportunities for other forms of banking or exchange to cater for the needs of the ‘20million unbanked’ (could fintech bridge this gap?)
Furthermore, the shift from physical to other channels provides a glimpse into the possible future of banking — banks without branches (i.e. digital banks), with cheque paid-in via mobiles enabled by retina scanning (cybersecurity), controlled by robo-advisors (robots) and influenced by cognitive banking (artificial intelligence). Available information for some banks already indicate that there’s a shift in the nature of customer engagement — from physical to other channels including mobile and online banking. For example, an HSBC spokesperson suggested that “overall footfall in our branches has fallen by over 40%, with 93% of contact with the bank now completed by telephone, internet or smartphone, plus 97% of cash withdrawals are made via an ATM”. However, Bain (2016) suggests a somewhat divergent view, as their research which surveyed over 5000 customers revealed that over 86% of customers across all age groups still visited a teller as depicted in the image below.
The proponents of digital or banking transformation could argue that there are various factors which could influence these findings (i.e. demographics or culture) whilst the opponents could highlight the ‘limitations’ or social divide caused by the closures as described in this report presented to the house of commons. On the other extreme, we have senior bankers such as Hazel Moore, the chairman and co-founder of international investment bank FirstCapital opining that ‘banks would soon become irrelevant because of bitcoin’. These views all seem logically sound, and depending on perspectives and contexts, anything deviating from your point of view may seem illogical.
No matter where we stand on this issue: one thing is certain — the banking industry, like all industries, is undergoing a transformational shift because of rapid advancements in technology. These changes require all organisations, banks inclusive, to continuously undergo digital transformation in some shape or form and this can be achieved in 5 simple steps:
#1. Create a digital vision
#2. Review legacy systems and practices
#3. Design a target operating model
#4. Automate selected business processes
#5. Manage change
As highlighted above, digital transformation can bring about numerous benefits or threats. However, the ability to see opportunities where others see threats, would determine who takes it all at the end.
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If you are interested in all things digital and want to learn more or collaborate, you can find my previous LinkedIn articles here. Additionally, you can also follow me on Linkedin or Twitter at @tabinusawa
