Bank Branches Are Not Dead Yet - Five Reasons

by Svetoslav Dimitrov, Principal Consultant at S&G Technology Services

The rise of online and mobile banking has changed the financial services industry as we know it. Customers have long been able to trade the onetime weekly trip to their local branch for a few easy clicks from the convenience of their home or workplace or even during their commute to work. As commuter trains become the biggest virtual branch, physical bank branches play a less vital role in our financial experiences. According to a recent survey by Temenos and the Economist Intelligence Unit (EIU), 65% of the more than 300 global banking executives polled believe branch-based banking will be “dead” within five years, up from 35% just four years ago. A customer’s perspective reveals a more nuanced view. In the World Retail Banking Report 2021, from Capgemini and Efma, 37% of the 8,559 Voice of the Customer (VoC) survey respondents said branches remain a significant banking channel. Although 55% of VoC respondents said they preferred making transactions via digital channels, they also liked branch availability too. Only 14% said branches were no longer relevant to them. Crucially, the report makes an important point: ‘Although branches may pose considerable operational costs, they remain relevant for customers.’ COVID-19 has accelerated the digitalisation of banking. Even before the pandemic, online banking was an integral part of retail banking, but the pandemic forced customers have been moving online in considerably larger numbers. However, as digital interaction became the norm, we saw queues forming in front of fewer open branches, highlighting the perennial need for branches: There are plenty of times when it is preferred or even necessary to visit your local branch and speak to someone face-to-face.

Here are the most common reasons to stop by your bank:

The human contact

Some lenders and borrowers develop personal relationships. For example, small business owners establish personal relationships with bankers in an effort to secure loans, and lenders build personal relationships with borrowers as a way of gaining access to private information that may affect loan repayment. Personal relationships between them benefit both parties. When borrowers have a personal relationship with lenders, they are more likely to repay their loans on time, whereas those with distant relationships miss more payments. Timely loan repayment is also mutually beneficial: it helps borrowers develop strong credit scores and allows banks to earn money on interest.

Financial milestones

Whether you are in the market for a new house or you are preparing for retirement, you should sit down with a bank officer. These exciting life events require financial knowhow and hard work to go smoothly. They will have major implications for your long-term finances. You want to make sure you follow all the correct procedures and devise cost-effective strategies.

Major and urgent issues

If you have a major problem — such as a case of identity theft or a fraudulent transaction — you may not be able to easily resolve it online or even over the phone. You may get better results by going to a branch in person and working with a bank representative. While technology has come a long way, it is hard to replace the value of face-to-face interaction. If your issue is complicated or requires you to show documentation or proof, you will get faster results by visiting a branch. Speaking from my own personal experience I had to visit my nearest physical branch twice in the last year. First there was a POS transaction in foreign currency that appeared in my account statement more than one year after my vacation in the respective country. The amount was tiny but that could be with purpose to remain undetected. The transaction was marked as fraudulent after I filled the relevant documents with the help of the branch officer. The second major problem that I experienced was an issue with the online banking that was affecting only minor group of the users which makes the troubleshooting harder. I was not able to authenticate and I had to make an urgent transaction so a visit to the nearest branch was my only option.

You need a branch-only service.

Whilst more services than ever are being digitised, some of them are scarcely used by retail customers. For those services, customers remain more familiar with branch processes. Some specific tasks may even still need to be completed in person. Typical offerings include meetings with financial advisers, notarization, and access to safety deposit boxes.

Security

With so much of our banking now done on our computers and smartphones, it is important that those services are secure. Banks have been told to introduce a multi-layered approach to online banking login and online card payments, under new ‘strong customer authentication’ (SCA) regulations. This involves multiple ID checks such as providing a password plus a single-use passcode generated on a card reader, mobile app or sent via text message to your mobile phone. The problem with the latter is that they are vulnerable to Sim-swap attacks. Reports to Action Fraud of a scam known as Sim-swap fraud – where a criminal tricks your mobile network into transferring your phone number to a Sim card in their possession – have rocketed by 400% since 2015.

To protect yourself from this type of attack, make sure that your bank is offering an option to generate the single-use passcode using a mobile app instead of distributing it via text message. The biggest threat to banking security comes from using a compromised device. And this applies whether you’re using a computer or a smartphone. Although phones are more easily lost or stolen, apps are in some ways safer than using a computer to log in to your bank account. This is because apps in the official app stores are vetted by Apple and Google, whereas PCs can run software from any source. It’s also more difficult to plant a keylogger in an Android or iOS device (software used to track every key you press and potentially steal usernames and passwords). Another potential attack vector exploits the fact that some banks support outdated versions of ‘Transport Layer Security (TLS)’, where data is scrambled so that only you and your bank can read it - or they have weak ciphers (algorithms for encrypting and decrypting data). My own experience as a consultant involved in the implementation of multiple mobile banking solutions, shows that nowadays banks prefer to rely on 3rd party companies specialised in cyber security. During the penetration tests most of the possible attack vectors are mitigated so the only remaining factor would be the human error. For example, there was an issue caused by human error with the messaging system of the online banking that I use. It proved that the developers accidentally used the production environment to test a new functionality which is far from desirable.

Summary

Opening a new account, making cash deposits/withdraws, deposit a cheque are not on this list, they are no longer a reason to visit a branch or have become obsolete. Digitalisation will make so that this list will become even shorter. The new generations are more tech-savvy and assimilate quickly online and digital. The number of visits due to major problems is also about to decline, as the level of digital engagement provided by platform such as Temenos Infinity are more mature and solutions like Temenos FCM (Financial Crime Mitigation) use a combination of sophisticated algorithms and expert business rules to block suspicious transactions based on real-time behavioural analysis. Banks, however, can take this opportunity to train branch staff to focus on providing advice and personal service — tasks that are difficult to accomplish well online. When facing a complex financial decision, a ten-minute face-to-face conversation with an expert is much more informative and consultative than the equivalent conversation with a call-centre representative. The branch also offers a tangible brand presence in communities and acts as an institution of trust. As digital transactions gain traction, opportunities arise for banks to transform branches from cost centres to value amplifiers.

References

Laura Doering, “The value of an old-fashioned visit to your bank branch”, June 13, 2019

Citizens National Bank, “5 Reasons To Visit a Physical Bank Branch, Even If You Have Mobile Banking”, January 4, 2019

Kathryn Tretina, “9 Reasons Why You Still Want a Bank With Branches”, August 31, 2021

Deloitte Switzerland, “Digitalisation of banking: Will the move to online banking continue after the COVID-19 pandemic?”, accessed October 21, 2021

Chiara Cavaglieri, “How safe is online banking?”, August, 2021

Chiara Cavaglieri, “Sim-swap fraud: how criminals hijack your number to get into your bank accounts”, April 6, 2020

Joy Macknight, “Is this the beginning of the end for bank branches?”, July 7, 2021