When most people are asked whether they think there will be more or fewer bank branches five years from now, the safe bet is on answering fewer. One interesting way to change the question is to first ask whether bank branches will be bigger or smaller in the future.
Suddenly it seems like it's smarter to answer that there will be more, yet smaller, branches. Imagine a future of 500 ft. branches in more convenient locations with a customer-centric omnichannel approach.
There are an abundance of “biggest problems facing the industry,” but looking at the hard bottom line should convince anyone in the know that the faltering branch network deserves special attention. Let’s examine why this might be and what needs happen before we reach that beautiful 500 ft. future.
Poor Location, Location, Location
Go to the oldest part of town and what you’ll likely find is that banks are in pretty lousy physical locations. This happens because prime locations have always and continue to be expensive — and bankers tend to be very careful with their money. The ROA percentages on location haven’t fluctuated much in the past several decades and bankers used to take pride knowing they only missed out on a little profit and saved buckets of money by taking the lot three blocks from the thoroughfare.
But there is a problem with banks valuing cost over convenience, especially considering how increasingly valuable convenience has become in the last few years.
So now that banks and credit unions are trying to position themselves in more convenient parts of town they find themselves competing with Walgreens on every multi-million dollar corner lot. The bad news is that with a price tag like that it is all but ensured that a financial institution will suffer a loss of profit.
This Could Change Everything
The reality is that banks and credit unions need to cut back and focus on smaller branches.
The network of branches and customer-facing employees across the industry have diminishing economic value. Furthermore most financial institutions do not have the money to invest in training their employees to really be what consumers are demanding from the average teller.
What should the solution be? One of the most promising solutions out there tout micro branches with self-service banking powered by tablet and video tellers. In a system like this an interactive teller trained as a mortgage specialist or transaction specialist could be available 12 hours a day.
Imagine a place a bit bigger than your average hotel room. Inside you find maybe two tellers and a few video chatting stations. Everything is clean, tidy and minimal with no wasted space. Gone are the massive real estate costs. Gone are the substantial personnel costs.
It’s already happening — even though there are some roadblocks ahead. The FIs with the most assets and deepest pockets will need to drive this movement, but internally they’re locked in on legacy banking and the branch network system. The moment they decide to address the problem of physical space they’ll essentially be in competition with themselves as they make the transition.
Threading the needle to make all this happen is a herculean task, primarily because FIs deal with all kinds of account holders and because “omnichannel” means different things to the varied customer segments they serve. Customer A may want to bank digitally at 2 a.m. while Customer B prefers comes into the branch during their lunch hour to talk to the banker they know personally. Unless FIs anticipate trends or focus on more valuable customers, like Moneyhawks, this problem will only become more pronounced.
Looking down the road five years it will be interesting to see if any high-aspirational growth FIs take an optimistic approach to these challenges and start making big changes across the board. Make no mistake, every bank and credit union will need to figure out how to monetize a physical distribution network that is undergoing significant behavioral changes as millennials age and become more valuable to FIs.