Bank branches on the verge of extinction? Not anytime soon

Over the years, technological advancements have brought about advantages and opportunities for a variety of businesses. The way we stream entertainment, shop for nearly anything and pay for those goods and services has changed thanks to digitization, and banks are among those most impacted by shifts in consumer habits.

For example, according to analysis by the National Community Reinvestment Coalition, the U.S. saw a 5.13% loss of bank branches across the country from 2017 through the third quarter of 2020. With COVID-19 accelerating interest in digital banking services, consolidation within the banking industry and near-zero interest rates exerting pressure on banks’ bottom lines, 2021 is likely to be yet another big year for branch closures.

However, bank branches remain a vital component of the financial services ecosystem — and will evolve to serve future customers for years to come — for several critical reasons.

Evolving to enhance all customers’ experiences

Financial institutions are in the midst of a digital transformation, and many are looking to the tech industry for inspiration. In a world where technology dictates consumers’ expectations, aligning hardware and software to optimize the customer experience is critical to staying competitive. But customer demographics remain very broad — and while younger generations are indeed increasingly digital consumers of banking services, there are still substantial swathes of populations that prefer to bank in person.

Even across generations, bank customers still go into the branch to open and close accounts. Pre-pandemic, 66% of new accounts were opened inside the branch. Customers with more complex financial needs, from discussing a potential mortgage or evaluating wealth management services, are more likely to step into the branch.

For banks, this means integrating digital and in-person banking journeys, allowing customers to transition seamlessly between mobile apps, ATMs, virtual bank tellers and more.

In particular, the self-service channel is paramount to the branch experience. A robust, efficient self-service channel allows staff at the branch to focus on more value-added services and relationship-building activities.

Serving small and medium-sized businesses

Small and medium-sized businesses are among banks’ most common customers, and some of the most complex.

According to a June 2019 McKinsey study, small and medium-sized enterprises represent one-fifth of global banking revenues and generate around $850 billion of annual revenue for banks, with this expected to grow by seven percent over the next seven years.

According to research by my firm, Diebold Nixdorf, in 2019 55% of SMB customers used branch tellers and/or night deposit services at least twice a week, and 59% used an ATM two or more times a week. Particularly because SMBs rely on banks to manage their cash, this customer segment needs reliable access to a physical branch.

Once again, the branch can play an important role in meeting customer needs. Branches or ATMs can allow business customers to deposit cash and coins without having to leave their own businesses or burn valuable time standing in line during normal branch hours.

Branch closures can impact small business lending, which involves complex transactions often completed inside the branch. At a time when small businesses need more support than ever, the role of the branch is critical.

Satisfying the demand for cash

Another driver of branch necessity is the persistent demand for cash. All over the world, cash remains resilient. Even as digital payments proliferate, consumers continue to withdraw bills from branches or ATMs and use cash to pay for purchases — especially at lower price points.

According to the Federal Reserve Bank of San Francisco, nearly half of all payments under $10 and 42% of payments less than $25 are made using cash. And the total value of cash in circulation has risen by 11.6% in the past year, at a rate unseen since World War II, according to Federal Reserve data.

Looking ahead to the future, an important element of the case for cash is inclusion. Major cities like New York, San Francisco and Philadelphia have passed legislation that prohibits merchants from refusing cash. These laws cite cashless policies as discriminatory toward consumers who are less likely to have access to bank accounts and cashless payment options, including low-income residents, people of color and the elderly.

Technology is transforming consumers’ expectations for their banking experiences — and with them, the entire financial services industry. And yet, speculation that bank branches are on the verge of extinction fails to acknowledge the important role they continue to play for numerous customers, including small businesses and older consumers.

Banks’ operations, particularly when it comes to their engagement with customers, are constantly evolving, and financial institutions that integrate the benefits of in-branch, personal interaction within their digital offerings will continue to remain competitive. Bank branches will look different in the coming years, but they are here to stay.