September 12, 2012

If you're honest, you'll acknowledge that when banking customers come to a branch, it's usually because they don't have another choice. They show up when their business requires a physical presence: signing documents, presenting identification, picking up a money order.

These customers don't generate much revenue for the bank. And yet branches are the most expensive channel to run, given real estate and personnel costs.

Bankers know that their branch networks aren't sustainable. But they don't think boldly enough about what should replace them. Modernization—deploying customer recognition technologies, or videoconferencing capabilities, or a place to hang out and use financial management tools—doesn’t go nearly far enough.

To create the branch of the future, you have to start from scratch, as if branches never existed at all.

Trouble is, the retail banking market isn’t giving off obvious danger signals. Consumers still say branches are an important channel. That's true globally, according to the 2011 World Banking Report by CapGemini, Unicredit Group and Efma. But don't let that lull you into thinking it'll stay that way. Here are three reasons why:

-- Disruption is in full swing. The CapGemini study found the Internet to be just as important as branches to consumers. Fewer than 40 percent of consumers prefer to visit a branch to conduct transactions and interest in doing so is slowly declining. Aside from transactions, there's no common banking activity—not even consulting with an advisor—that consumers strongly prefer to do at a branch versus other channels.

-- There are fewer reasons to visit. A recent study of U.S. consumers by the market research company IDC Financial Insights found the Internet had surpassed the branch as the most common channel for conducting transactions. When you can manage your money, send payments and deposit checks online or with a smartphone app, there are few reasons to stop in at the local branch.

-- Face to face doesn't mean in the same room. The mobile channel, while hardly mature, is being embraced by young consumers, according to IDC. Meanwhile video chat technology such as FaceTime makes it possible for individuals to have face to face conversations on the go. Although, according to the CapGemini study, consumers are increasingly likely to turn to a branch to solve a problem or get advice, there's little reason to think they won't prefer the convenience of a video chat once video calls with friends and colleagues become common.

Bankers who aren't thinking hard about their branch strategy, or even better, experimenting with new service delivery models, will soon find it harder to compete. What does your branch of the future look like?

Laurence Leyden is director, transaction banking for SAP in EMEA. Elana Varon is a freelance writer specializing in technology, leadership and business innovation.