Getting branches ready for their extreme makeover

A little over a year ago, with the arrival of COVID-19,  banks began shutting down branches or at least vastly scaling back the services they offered in person. Customers who didn’t know how to use digital services quickly became regular users of websites and mobile channels.

According to a study by Celent, banks reported their branch traffic declined by as much as half during the 2020 lockdown. But as many banks began reopening their branches late in the year, a majority of activity returned. The key takeaway: Despite the fact that customers had learned to function without full branches for months, “customers still want to use branches,” says Robert Meara, a senior analyst at Celent.

So if customers still want to use branches, but their experience during COVID changed how they bank, a new question arises: Will the branches that customers are coming back to ever look the same? And, more importantly, do these more technology-savvy customers even want the same old branches?

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“Banks cannot open branches that are identical to the way they were pre-pandemic,” says Myron Schwarcz, executive vice president at Strategic Resource Management. “Small businesses and retail customers learned to conduct financial transactions differently.”

While some have predicted decimation of branch networks after COVID, many branch experts say evolution, not elimination, is the better path. Pete Redshaw, vice president of the financial services practice for Gartner Inc, points out customers will need more advice during uncertain times, and “person-to-person” is still the best channel for covering those needs.

It is a mistake to describe COVID-19 as an isolated disruption to an otherwise stable financial services industry, Redshaw says, pointing to other pre-pandemic factors – including aging populations and changing consumer preferences – that had been motivating the need to alter the look of branches.

Most experts expect banks will have fewer, smaller branches, but that these locations will focus more on advising customers about financial needs rather than on conducting transactions. Staff will be trained to handle a wide range of financial services, and not just specialize in one or two. Self-service technology will be better integrated into the branches, making for a more consistent brand experience. Schwarcz, for instance, sees a greater use of video-conferencing kiosks located inside branches so that customers can talk to financial specialists not based in the branch.

Investing in technology will also help branch personnel assist customers, says Alyson Clarke, principal analyst at Forrester Research. Banking tools that customers use at home to analyze their financial situation and determine a course of action should also be in the hands of branch employees. Then, Clarke says, bankers and customers can view the customer’s situation together and arrive at recommendations.

But changes in branches won’t look the same in all places. The Celent study found that urban branches suffered much greater traffic losses during the pandemic than suburban and rural branches did. Big banks also suffered greater losses than community banks. Meara says this suggests that we may see some of the biggest transformations in urban branches, particularly those of the big banks.

Additionally, many employment experts are now predicting that, since many companies have become used to having employees work from home, all their employees may not return to the office after the pandemic ends. This could result in smaller foot traffic in urban center branches where the employees had worked and greater foot traffic in suburban or rural areas where employees live, Meara says.

Clarke also believes banks may need to rethink some of their strategies when it comes to serving rural areas and small towns. “Before, there was almost a race to not be the last bank in town. But banks need to look at rural branches, not just in terms of the P&L statement, but in terms of their brand. What does closing branches say about the bank’s brand in terms of its commitment to these communities?”

The use of technology and multi-skilled staff can often help banks lower their costs in rural branches, while still keeping a commitment and interest in the community, she says.

But whether we’re considering branches in small towns or urban centers, most of them will never look the same. And the COVID-19 pandemic will likely have played an important role in accelerating those changes.

Lauri Giesen is a BAI contributing writer.

Get more insights on the future of branches in the BAI Executive Report “What’s in store for bank branches?”