Is Digital Banking Killing the High Street?

Fintech is the buzzword in banking right now. Even though the likes of Atom Bank and Monzo are in the early stages of their banking careers they represent a clear sign of the changing financial services landscape.

Mobile banking has been on the rise for years now and doesn’t show any signs of easing up. Accenture recently reported 80% of financial services organizations currently invest moderately or significantly in new digital technologies and channels.

The everyday high street banks are seeing the dynamics of financial services changing shape before their eyes and they all want a piece of the action. Fintech represents a trendy and cost-effective solution in troubling times for retail banks where both consumer trust and engagement are at record lows. Despite the initial investments banks will have to make in digital infrastructure, online and mobile banking transactions come at a fraction of the cost compared to those carried out at a high street branch.

So, does this mean the banks should completely scrap all bricks and mortar branches and dive head first into the world of digitalization? Probably not.

The issue for banks with large branch networks is how the existing account holders would perceive such a restructure. If branches were to disappear completely ATMs could easily plug the gap for cash demand and other simple processes, but what about other banking services which lend themselves to talking to a person or can’t be carried out by an ATM? Alternatively, the customer may simply prefer to carry out their finances with a person rather than a screen.

There are a number of reasons why some individuals may prefer to bank in-branch, and the fact of the matter is that branches are still being used. CACI reported that on average people visit their bank branch seven times a year. Even though this figure is predicted to fall, banks must tread carefully when tinkering with branch numbers or they run the risk of alienating entire demographics. The branch may no longer be the first port of call when it comes to bank transactions, but the reassurance it provides to customers, and the added value is still there.

How then do banks proceed? With branch costs per transaction increasing and the conventional branch still having a use, there is a general consensus that an optimization process needs to be undertaken. RBR’s recent forum, ‘Self Service Banking Europe’ demonstrated that many have already begun this process.

There were two clear movements on display:

  1. Increased reliability on ATMs, not only as a cash dispenser but also as a processor of other basic branch transactions – Aimed at reducing staff costs and reducing the requirements for new branches.
  2. Network-wide restructuring and reshaping of traditional branches to accommodate different regional preferences and cost-effectiveness – A focus on developing fewer, larger branches specializing in more complicated bank transactions and lending processes.

Unfortunately, the tendency is for banks to overestimate branch costs and underestimate the benefit to customers. As much as the rise of digital banking has drastically boosted the competitiveness of the banking industry, the consequence is that it pushes the poorest members of society further out of the financial loop. Hopefully, banks will ensure their operations are as efficient as possible before looking to ax more branches.

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