The COVID-19 pandemic has fundamentally changed the way customers and members interact with their financial institutions (FIs). Though many FI branches have remained open, the combination of social distancing requirements, lack of commercial activity and customer hesitancy has dramatically reduced foot traffic. This decline has many institutions planning for, or already working on, a digital solution to augment the demand for brick-and-mortar locations. As countries are emerging into the new normal, post-COVID world, institutions are asking, “what does the future of our branch look like?”
While widespread branch closures due to COVID-19 were expected, recent data shows a net decline of 1,463 branches in the U.S. alone, a figure that is up only 12% from last year’s change. Clearly the need for branch locations is here to stay, but in what capacity?
In a poll conducted by Boston Consulting Group, just 3 percent of Americans said they would stop using branch banking altogether in response to COVID-19 while globally, 24 percent of banking customers said they would be less likely to visit a branch. Additionally, over 98 percent of customers that switched banks in 2019 in the UK chose to move to a bank with branches. Though branches come at an additional cost to legacy banks, they remain one of the main positive differentiators they have over digital challengers as they portray stability that keeps the FI top of mind for members and customers.
One example is the National Bank of Arizona, which closed its branch doors in July 2016. The branch closure was a major blow to local residents, who no longer had a place to deposit cash or apply for a loan, as well has the town itself, as chairman Richard Lunt said it has been harder to attract new residents with the absence of a branch. The main takeaway – branches are a central component to the success of legacy institutions and the communities they serve.
As banks and credit unions plan to capitalize on the existence of their branch networks, they must consider how they can offer the most consistent customer experience possible, both digitally and in-branch, if they hope to compete with digital challengers. Throughout the pandemic, customers and members have become much more digitally proficient and mobile, leveraging digital capabilities for loans, opening accounts, bill pay, money transfers and more. This surge of adoption in online and mobile banking has simultaneously triggered a need for branch network optimization. While branch closures and consolidations have taken place, branches still provide the personalized, trusted advisory services that customers expect. Branches also continue to play an important marketing role that keep the institution top of mind for the customer. Thus, institutions must work to integrate both digital capabilities as well as a physical branch presence to maximize their members’ and customers’ experience.
FIs are also under immense pressure to reconcile various regulations but are often burdened by disparate legacy systems with limited ability to capture, measure and report on data. Additionally, loan adjustments brought on by COVID, such as payment extensions, have underscored the need to accurately track loan changes for audit review. To best prepare for the changes brought on by COVID-19, institution leaders must reevaluate their siloed risk management practices and implement a solution that can convert siloed data into analytics to inform reports. According to PWC, FIs will need to respond to customers’ expectation for individualized offerings, and leaders will need to leverage data in order to fine tune their customer, product and pricing strategy. By leveraging a tool that combines robust compliance and analytics with reporting capabilities, FIs can not only be prepared to address anticipated compliance mandates post-COVID, but analyze consumer behaviors in the branch in order to tailor their offerings to exceed customer expectations.
Finally, when it comes to true digital transformation across the institution, the last and arguably most crucial component is culture. More often than not, the success or failure of a digital transformation effort may depend on cultural issues rather than technical ones. To ensure the success of their digital transformation efforts, leaders need to develop a vision for how to best combine technology, people and processes to deliver an exceptional customer experience. By adopting a cultural embrace of technological change and providing adequate education about how to leverage digital tools, FI employees will be equipped to best service their customers.
The COVID-19 pandemic has created an imperative for FIs to address the future of the branch network given the overwhelming cost implications. While I believe physical branch locations will continue to play an integral role in bank strategies, the way branches operate will fundamentally change, offering consistent experiences across loans, deposits and onboarding to complement their digital offerings. Additionally, these branches will be augmented with compliance, analytics and reporting tools that allow them to analyze customer trends and behaviors in order to best anticipate and service customer needs. Finally, these branches will be staffed with employees who are educated about how to leverage digital technology and use these tools to their customers’ benefit.
The changes brought on by COVID-19 are unprecedented, but this pressure also creates the opportunity to augment the future of the branch network, combining more personalized, digital and compliant experiences with worker, customer and member safety.
– Kendra Tolley, Director of Retail Product Management, nCino