Are branches obsolescent?

AnvilTRUE STORY: A local business owner recently pulled up to an ATM only to be greeted by an out-of-order sign. Cursing his luck, he was about to speed off in search of another ATM when at the last minute a solution occurred to him. On other side of the wall holding up the ATM was a branch of his bank. He had all but forgotten that he could conduct transactions inside.

Victim of our own success

For years banks did their best to move clients away from the teller line. Bank-by-mail, telephone banking, ATMs, and now digital banking—all were great ways for banks to cut costs of personnel and bricks.

The good news is that it seems to have worked. The services people are comfortable handling on their portable devices boggles the mind. They check balances, view transactions, make intra- and inter-bank transfers, make loan payments, pay bills, make purchases, open accounts, deposit checks, apply for loans, download statements, view check images, search transactions, view statements, invest, apply credit cards, make credit card payments, download data to the likes of Quicken and Quickbooks, text money, split checks at restaurants, and more.

By contrast, the list of transactions you can’t do online is short. You can’t deposit currency online, tuck a digital dollar into a birthday card, or print currency. (Not legally, anyway.) And there will always be certain high-level commercial transactions that demand face-to-face meetings.

The bad news is also that it seems to have worked. Now that it’s possible to conduct the majority of financial transactions via portable devices, it’s equally possible to forget how to do things the old-fashioned way. This has led to a good deal of speculation about the eventual fate of buildings known as “banks.”

Fueling the speculation fire are reports that over the next two years Wells Fargo plans to close 900 branches. Earlier today Finextra reported:

As it books a $3.25 billion fourth quarter pre-tax charge related to the misselling scandal, Wells Fargo says it plans to make savings by closing around 900 branches by 2020.

That’s inflation for you. Ten days ago, CNN Money had it at just 800 branches.

Kodak or Blockbuster moment

As early as 2013, Forbes contributor Tom Groenfeldt questioned the continued need for banks. Reporting on Money2020 in Las Vegas and SWIFT’s Sibos international banking conference in Dubai, Groenfeldt bluntly observed:

I concluded that like the dog that didn’t bark, the absence of persuasive arguments for banks was in itself interesting.

I’ve listened to banks proposing to act as trusted intermediaries between individual buyers and sellers … and wondered if they had ever heard of Craigslist or eBay. Why would buyers and sellers register with a bank to accomplish transactions they can do fairly well through existing platforms?  Others have talked about providing guidance in purchasing consumer goods—something Amazon, for one, already does well.

Last summer, Bloomberg Businessweek quoted former Barclays Chief Executive Officer Antony Jenkins’s prediction that banks …

… could face a “Kodak moment” where they approach obsolescence in five to 15 years at the hands of new financial-technology companies.

Jenkins followed up with another analogy in an interview with CNBC:

Bank branches will be “as common as a Blockbuster video store in a few years’ time,” former Barclays CEO Antony Jenkins told CNBC on Monday, adding that his prediction about mass closures of physical banks is happening faster than he thought.

Jenkins, who now runs a fintech (financial technology) firm called 10X, warned banks of the impact of not keeping up with technological innovation. The ex-Barclays boss, who left the bank in July 2015, said artificial intelligence (AI) will have a profound impact on banking that could mean branches become obsolete.

The first item in GOBankingRates.com’s article “6 Banking Services That Will Be Obsolete in 10 Years” happens to be “bank branches and bank tellers.” And in 2015 ZeroHedge all but gleefully cheered, “And The Good News: Banks Will Be Obsolete Within 10 Years.”

Too soon to despair, not too soon to take heed

But hang on. A building is a feature. The benefit banks deliver is the ability to manage funds.

True, the more people use their portables, the greater the risk they’ll credit their portables rather than the financial institutions underlying their apps. It’s imperative not to let that happen.

Yet the move to digital banking presents an opportunity. People check in with their banks far more often on their portables than they ever did with their feet. Every check-in is a contact, and every contact is an opportunity to build the relationship.

Just as other online businesses pull off solid brands and relationships—like Amazon, iTunes, or or now Bebe, which last year threw in the physical plant towel to become an online-only merchant—so can banks.* If a bank slips into utility status, it will not have been inevitable but the result of failure to seize those frequent contact opportunities.

Relationships have always distinguished banks from parity products and, worse, mere utilities. The move to digital banking may threaten the distinction—but threaten needn’t mean obliterate.

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* For insights on how banks can build strong digital brands, see my posts hereherehere, here, and here.

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