EUROPEAN BANK BRANCHES ON THE DECLINE: European banks cut over 6,000 branches last year, led by a steep decline in Spain, marking a 3% annual decline and a 21% decline from 10 years ago, according to a European Banking Federation (EBF) report covered by Finextra. At the same time, banks are also cutting down on staff, with staffing totals at their lowest since the EBF began reporting in 1997.
This is reflective of a trend we’ve seen worldwide. A study from Which showed that UK banks have closed nearly 3,000 branches since 2015, at a rate that is increasing rapidly on an annual basis. Major banks in the US are seeing similar shifts, though at a slower pace — Bank of America (BofA) has closed over 1,500 branches since 2009, and Wells Fargo will close 450 by the end of this year.
For banks, shuttering physical branches can enable a digital transformation. Operating brick-and-mortar branches is expensive for banks. Closing branches frees up capital that financial institutions can invest in two key ways in order to better engage customers and meet their needs in a more cost-efficient manner:
- Hybrid branches. Branch banking is still important to consumers and valuable for banks: Chase’s branch network, for example, drives over 75% of its deposit growth. So, while banks are shuttering branches, these closures are often in low-traffic areas. This can allow firms to instead reopen fewer branches in more lucrative, urban hubs, which might generate sufficient engagement to offset costs. Chase is already doing this, by opening new branches in busy markets. Or firms can build new, digital-focused branches or banking centers — like the humanless branches that BofA is piloting or the full-service kiosks that OCBC is testing in Singapore — in order to appease customers’ desire for in-person banking access, but doing so at a lower cost.
- Digital solutions. Mobile and online banking usage is on the rise worldwide — in the US, major banks are steadily adding mobile banking users quarterly, and in the UK, mobile banking app usage rose 356% between 2012 and 2017. And engagement figures indicate that digital banking is replacing in-person banking: in Q2 2018, Wells Fargo saw 1.7 billion digital interactions, up 17% annually, but just 351 million teller and ATM transactions, a figure down 5% year-over-year (YoY). Banks can reallocate funds saved in bank closures to digital solutions and technology that can help replace the branch, such as virtual assistants that can perform customer service tasks. Banks can continue to invest in developing in-demand digital features that can replace branch banking and grant customers access to a full suite of banking solutions from their computers or tablets.