To paraphrase the late, great, father of Silicon Valley, Andy Grove: “There are only two kinds of companies: Those in a constant state of transformation, and those that are dead.” The truth is, everybody and every organisation is always in a continuous state of transformation. Banks, retailers, towns, cities, businesses, nature…. Everything is always transforming from one state to another. Even us: People.

For nearly three hundred years the nature of the branch banking remained fundamentally the same, as did the somewhat imposing and impressive nature of the branches that were found in high streets everywhere. The branch was where business was conducted. It accepted deposits and loaned out funds. The design of the branch reflected the security it provided.

Since the introduction of ATMs in the 1960s banks have continued to transform the way they deliver financial services and the way they build their branch networks. But the ATM was not alone, there have been other innovations which enabled new types of branches such as Teller Automation with Teller Cash Dispensers (TCDs) and later Teller Cash Recyclers (TCRs) that allowed an open plan branch design.

However, since the financial crisis of 2008, cost reduction has undoubtedly been a key factor in driving change in banking, the crash increased pressure on bank margins and caused them to revisit their business model. 

In this context the challenge for banks in reviewing their branch networks has been how best to meet customer needs while optimising efficiency and reach at a time of declining branch footfall. In response to this McKinsey and others suggested the adoption of a 'Hub and Spoke' approach that would deliver multiple branch formats physically distributed to better serve consumers. At its most simplistic this would involve flagship branches, focussed on experience & innovation, a ring of satellite branches, focussed on relationships and sales; and an outer ring of self-service centres focussed on transactions.

Did it work? 

Not really, it was difficult to implement, and consumers just didn’t understand it: to them a bank branch is a bank branch. Why should they have to go 15 miles to another branch to speak with a particular subject matter expert, or log on to a video call?

While the banks were focused on reducing costs and changing the branch infrastructure, the smartphone arrived and changed the way we live and with it our expectations of service delivery. We live in an increasingly digital environment. Mobile services are embedded in people’s lives, but the banks have not taken full advantage.

Transformation in the Digital Age
We now hear about “Digital First”, or even “Digital Only” consumers, we know that where, when and how people transact and interact has changed forever. So now, as we know, many banks and retailers are undergoing programmes of digital transformation. But the idea of “going digital” is misunderstood, as an article in Forbes magazine explained very well, Digitization, Digitalization, And Digital Transformation: Confuse Them At Your Peril.

Digital has the power to transform and drive change that not only affects the branch, but also across the entire bank. In contrast with Big Techs, banks must use customer data to benefit the customer. This is a fundamental difference and gives the banks a key competitive advantage. They have a unique position when it comes to trust and responsibility for such data. As banks continue to evolve, there is now an opportunity to become a consumer-centric or Responsive Bank – one that provides services that fulfil customer life events. In this respect the bank branch has an important role to play as the ‘custodian’ of the relationship. As Celent has highlighted, ‘the future of banking is human’. The branch could become the channel to harmonise interaction between customers and service providers. Banking is still – at its core – a people business.

Responsive Bank
Previously, Branch Transformation was concerned mostly with changing the transaction distribution – where, and how, can customers transact. But digital and big tech has changed everything. Consumer expectations have changed, and banks will need to catch up. They need to figure out how they can create value for digital first and digital only customers– and this means going to them; putting the customer at the centre of all that they do, not just providing convenient transaction points.

Therefore, this mean the branch does not go away – in fact, the role of the branch evolves to be a community hub, a trust hub – a loyalty hub. They will become the points where banks physically engage with consumers’ lifestyles. Personal solutions driven by responsible data usage and technology, executed by people. The Responsive Bank may be further away, but we believe this is a course and direction that banks will need to start taking.

The Responsive Bank will provide customers what they need, when they need it – before they even realize their own wants and needs—by using data in a responsible manner that benefits the consumer. The impact of branches integrated with digital provides the banks with new opportunities to build customer relationships based on understanding and trust. Both physical and digital channels will have key roles to play as banks continue to evolve and transform in response to the changing expectations and transactional needs of their customers. With that in mind, it’s fair to say we are not in the next phase of branch transformation, we are in the next stage of banking transformation.

For more details about What is next in Transformation read the White Paper Next Steps in Bank Transformation