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We Are Still Banking in a Physical World

In the movie "Monty Python and the Holy Grail," there is an often quoted scene where the town officials are picking up the deceased from the plague and loading them into a cart as the official screams out "bring out your dead." One particular old man is being loaded into the cart who is not exactly fully deceased. The dialog goes like this:

Cart-Driver: "He says he is not dead."
Townsman: (with old man draped over shoulder): "He is quite ill."
Old Man: "I am getting better."
Townsman: "No you are not, you will be stone dead in a moment."

It is easy to compare the old man to today's branch network. Everyone keeps saying the branch is dead, that there is no need for it anymore with all the advances in technology. From a technical standpoint, there is some truth to those beliefs. However, year after year, the branch continues to defy the critics and is in fact not going to be "stone dead" anytime soon.

Let us look into why the branch is in fact not dead yet. In IDC Financial Insights' Consumer Channel Preference Survey, we asked our respondents to identify how they have interacted with their financial institutions over the last 30 days. The 2012 survey had 2,663 respondents; the 2011 survey had 2,560.

The most often cited transaction type in 2012 was at the branch with a teller. In fact, across all age groups, the teller transaction was still being used at least once a month. This despite the fact that nationwide branch foot traffic continues to dwindle and new technology continues to decrease our need to interact with a human. In fact, all channels, with the exception of online, saw an increase in individuals using the channel at least once in the last 30 days. Interestingly, the main reason for the decline in online is the rise of mobile, so perhaps at some point we will hear the battle cries that online banking will be "stone dead" just like the branches! It is unlikely either will be obsolete any time soon.

This particular survey has been conducted annually for the last four years and the results speak for themselves. The trend continues to be that each channel is seeing an increase in customer interaction, but not necessarily in number of transactions conducted with each channel. For example, the branch transaction for many has contracted from once a week to twice a month or less. If this were the case for all customers, then the total number of branch transactions would have decreased by 50%, but the same number of people will be conducting transactions at least once a month in a branch. This still requires that the banks and credit unions have a physical presence, despite all the access to technology that helps us skip the teller line. This actually makes staffing the branch more of a challenge, not knowing when those transactions may occur and ensuring a good experience for the customer once at the branch.

If customers were not interested in branch networks, we would see a much higher penetration of customers willing to use 100 percent online institutions. Time will tell if the recently launched Simple (formerly known as BankSimple) will be successful with their "leave your bank" program, which is a product basically built around a debit card with online and mobile banking.

If history is an indicator, Simple will encounter significant head winds without a teller network. It is not just a physical ATM that customers want, they want a teller or platform representative when they walk into a branch. In fact, with remote mobile deposit, even making a deposit has become easier, thus it may put even more of an emphasis to want to bank with an organization that has a physical presence.

From a psychological standpoint, let us look at the way most people digest information and educate themselves on any particular topic. There are three modes of learning styles that define most customers. This research has been around since the 1920's and still resonates today. Your customers are visual, auditory or kinesthetic.

The visual learners like to see things, the auditory learners like to listen, and the kinesthetic learners like to touch. While most people have a dominant characteristic, many people need a combination of two or more modes before making a final decision.

This holds true in banking and financial decisions. On the banking side, one may start a process based on something they have seen - this could be an electronic message from the ATM, from online banking, or driving by a branch and seeing a great rate on some product. They may have started learning from the visual side, but need more input. They then hear a friend talking about the great rate that they got from the same institution, and now it resonates that this may be for them.

They go online, look up more information, then head into the branch to apply for that product. Why didn't they go online and finish the transaction? Perhaps it is because to them it is more important to be able to talk to someone, particularly if it is a complex transaction. This has not changed, no matter how much technology we throw at the customer.

As we continue to see new channels added in banking, the reality is that we are just increasing and spreading out the transactions across both physical and digital worlds. The ATM took some transactions away from the teller, online took some from the ATM, and mobile is taking some from online. What is not changing is that at the core, the face-to-face meeting cannot be ignored. If you know how the scene ends in "Monty Python's Holy Grail," you know that ultimately the old man ends up in the cart. I don't see a similarly gloomy ending for our branch network — at least not for a long time.

Marc DeCastro is research director, Consumer Banking at IDC Financial Insights.




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