Bank branches - lessons from history
Paul Race

Glyn Davies' book A History of Money is a mine of information for anyone with anything more than a passing interest in the evolution of financial service provision. In considering the continued use and purpose of bank branches I thought it might be useful to consider how and why the concept came into being and whether there are lessons to be learned. As someone with links to Scotland I was also interested as to why the country is considered to have been at the forefront of branch banking, being 'the first in the world to establish an almost nationwide branch banking system '.
One thing I discovered from the Davies volume was that 'the 'agency ' system was a distinctive feature of Scottish banking, whereby 'a small sub-branch could discreetly and most economically be set up in part of the premises of some other prospering business e.g. a draper's shop or a solicitor's office, and if it proved itself a success, could be hived off into a full branch'. A smaller footprint could be advantageous, even in the early days of branch banking.
So, for those of us who think of early bank branches as imposing buildings reflecting the bank's status there is already a lesson. Even in the nineteenth century, branches fit to the community's needs were sometimes small and involved shared premises.
Meeting the needs of consumers in remote communities has always been a challenge and in this context the mobile branch, too, is far from a new concept. The first mobile bank was launched by National Bank (described as a constituent of Royal Bank of Scotland) on 5 November 1946 and the van used was an American Studebaker, left behind by the US army at the end of the war. It was used to service the needs of the bank's customers (many of whom were crofters or tweed weavers and very few of whom owned cars) across Lewis and Harris. As the 2016 article explains, later developments included a boat branch service that serviced Orkney and later a flying branch.
Of course, the nature of branches has changed. They were once seen as the only means of attracting new customers and funds. Competitive reasons too were given for opening a branch in a new area. Writing in 1885, George Rae's advice was that 'it may even be necessary sometimes to plant a new branch at a given point on purely strategic grounds. If on the line of towns A, B and C you have branches at A and C only, you could not allow another bank to occupy B. You would have to do so yourself, although you might have to work the branch at a loss'. Loss leader branches in order to meet the wider needs of the bank? Now that's an interesting 'new' concept. Perhaps it has relevance today.
So why is a branch presence still an important element of service delivery and how can banks lower the costs associated with a physical presence? New technologies bring new challenges but also new opportunities. A 2018 McKinsey report explained that 'far from rendering the bank branch obsolete, digital technology holds the key to the branch of the future'. Their research shows that 'even in digitally advanced European nations, between 30 and 60 percent of customers prefer doing at least some of their banking at branches'. They go on to talk about the advent of the 'smart' branch and how it can boost sales and improve customer service delivery. Indeed, it is claimed that when done right, smart banking can result in '60 to 70 percent improvement in branch effectiveness as measured by cost savings and increased sales'.
These days technology has an important transformative role, but some things haven't changed from the early days of banking. Effective branch banking is still about personal service and it's about giving customers what they want where they want it. That involves being flexible while keeping costs to a minimum. Perhaps not that different from the challenges retail banks have always faced!