David Andrzejek_resized
David Andrzejek Mar 28, 2017

To branch or not to branch? That is the (wrong) question

For years, financial services analysts have wondered whether branch banks are wheezing their dying breaths.

It’s easy to see why. Industry services have expanded beyond physical branches since the 1960s, when ATMs kicked off a trend toward increased automation. The advent of online and mobile banking accelerated this trend dramatically.

As the industry’s transactional aspects shift to more automated channels, the cost of servicing customers drops fast. Thanks to this efficiency, many financial service leaders pose this question: Do branches remain necessary, let alone relevant?

In the U.S., for example, approximately 5 percent of branches have shuttered over the past few years. In the U.K., more than 600 branches have closed in the past year alone. Now we even see the rise of mobile-only institutions such as Starling Bank (where the only way to access accounts is via a mobile app).

With the ubiquity of mobile phones in virtually every pocket, and mobile’s superior cost economics, it would seem the days of the neighborhood branch are numbered.

But are they? 

Just as mobile looks to eclipse brick and mortar, Amazon, the bastion of e-commerce, has opened stores and trying the new, cashier-free Amazon Go concept.  Microsoft and other retailers once dedicated to pure e-commerce models have started following Apple’s lead, investing in physical store experiences to reach customers and create new experiences around their products and brands.

The same can be said for branches. In the U.K., Virgin Money has been turned branches into customer lounges, while Germany’s Deutche Bank has experimented with a banking “store” concept

So which is it then? Will branches cease to exist, with once-grand bank buildings becoming trendy bars and most transactions taking place via mobile app?  Or will mobile-only challengers start to open branches when they grasp the wisdom of following in the footsteps of Amazon and other renowned disruptors?

It’s perhaps inevitable that the superior economics, convenience and ubiquity of mobile and ATMs mean that fewer branches will be needed in the future—especially for transactions.

But the mobile/physical divide represents a false choice.

For starters, it fails to account for a third option: using application program interfaces (APIs) as the glue to bind disparate services into cohesive apps and experiences. With an API-centric strategy, financial institutions can create new opportunities that leverage the unique advantages of the digital and physical worlds.

Tune in, turn on: Activating the API banking channel

Ultimately, the function of physical locations will rest on their role in an organization’s full technology stack. So the question financial service organizations should ask themselves is this: “How can we leverage APIs as a banking channel?”

Built right, an organization’s APIs power its website, mobile apps and in-branch digital experiences, as well as any third-party partner experiences. In doing so, APIs can extend the services of financial service organizations to their consumers anywhere they wish to transact.

In addition, the same APIs that drive the organization’s web or mobile experiences can also power experiences for customers beyond the bank’s transactional core. These include:

  • personal financial management tools
  • wealth advisory apps
  • a corporate controller’s cash management system
  • a FinTech partner’s remittance application
  • countless other innovative customer innovations we haven’t imagined yet

Viewed from this perspective, all experiential channels (web, mobile, branch, and third-party) become unique user experiences that build on and expand the bank’s core omnichannel: the API. In this way, an organization’s APIs provide both a unifying conduit for digital experiences and a new channel that weaves services into other customer moments and contexts beyond the branch.

This represents the future of financial services as the world becomes more digital and interconnected. For those who mull and determine the fate of branches, the question to ask is not, “To branch or not to branch?” Rather, it is this: “How do we deliver data and services to our customers no matter where they are?”

The answer: the bank API. And should you want to repurpose those initials to stand for “a powerful innovation,” so much the better.

David Andrzejek is vice president of Vertical Solutions at Apigee, which was acquired by Google in November 2016. David manages Apigee’s go-to-market strategy for data-driven security products. 

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