In as little as five years from now, banks will no longer use high street branches as part of their customer service channels, according to two-thirds of bankers.
The Covid-19 pandemic has accelerated the use of digital banking services across all age groups and hastened the demise of the traditional high street bank branch.
According to the Economist Intelligence Unit (EIU) report for financial services software firm Temenos, 65% of executives believe the branch-based banking model will be dead in five years.
According to two-thirds of the senior banking executives who responded to the survey, the latest technologies such as cloud, artificial intelligence (AI), and application programming interfaces (APIs) are seen as the drivers of this transformation.
There has been a steady flow of branch closures by significant banks since the cost-cutting measures following the 2008 financial crisis. This has gradually accelerated as digital channels, such as mobile banking and digital challenger banks, came on the scene. But the dam broke when Covid-19 restrictions forced consumers to use digital banking channels, with consumers across all income and age groups now familiar with online banking.
In January, when HSBC announced it was closing 82 branches, it said the pandemic had “crystallized its thinking” in terms of reducing reliance on its branch network to serve customers.
Just last week, Lloyds Banking Group announced the shuttering of a further 44 branches in the UK. The bank said: “Like many businesses on the high street, we must change for a future where branches will be used differently and visited less often.”
Across the Irish Sea, Allied Irish Bank announced plans to cut its workforce by 1,500, merge branches and vacate premises. It attempts to cut costs following a review influenced by digital banking and home working acceleration during the Covid-19 pandemic.
Sweden’s Handelsbanken said it would cut its branch network by nearly half. At the same time, a merger at France’s Societe Generale, with the coming together of its retail business and Credit du Nord subsidiary, will see 600 of its 2,100 branches close.
Unlike during the financial crisis that began in 2008, banks are not closing branches simply to cut costs. They invest heavily in technology to improve customer services through digital channels and financial technology (fintech) products. According to the survey, 38% of banks are innovating through investing in or acquiring fintech startups, according to this year’s survey, while 24% report participating in sandboxes to test new propositions.
“Burdened by physical branches and legacy systems, and with challengers offering attractive auxiliary products and often superior customer service, many established banks are opting to partner with fintechs,” said the report.
Banks will focus on improving customer service levels and use various partners for products and services for customers. Nearly half (47%) of executives expect their businesses to evolve into ecosystems in the next two years, with third-party products and services offered as well as their own.
Most (80%) of the bankers interviewed said banks would differentiate on service levels rather than products.
Aalishaan Zaidi, global head of digital banking at Standard Chartered, said the change in attitude and culture resulted from the pandemic. “The big shift for us was our belief that we could change fast if we wanted to,” he said. “We would have never done the partnerships we are doing now.”