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The changing, not dying, role of bank branches

by Marion Williams | 04 Mar 2015

Silicon Valley and London may be fintech centres but research indicates the branch network continues to be where banking relationships are built in the US and the UK.

The UK’s TSB Bank has a wealth of research supporting its strategy to invest heavily in its branch network through refurbishments, longer opening hours and new branches.

To promote competition in the banking sector, it is possible to switch accounts from one bank to another in seven working days in the UK. A survey by GfK Financial Research found that convenient branch locations are the most important consideration of UK consumers when moving their current account to a new bank.

That was cited by 34 per cent of people that had changed current accounts, versus 15 per cent who were dissatisfied with their previous bank. Recommendations from a friend and the telephone and internet banking offering followed, both nominated by 14 per cent as determining their choice of new bank.

This backs up the Office of Fair Trading’s observation that branch presence is crucial to competition in the personal bank account market because it tends to increase account switching between banks.

Reassurance of physical local presence 

Nottingham University found that the UK had lost more than 40 per cent of its bank branches in the last 20 years yet the branch remains TSB Bank’s most used channel – 72 per cent versus 57 per cent online and 18 per cent telephone banking.

Very few of its customers are purely online, with 54 per cent of TSB Bank’s online customers also using branches and 36 per cent of customers used branches exclusively.

TSB Bank believes customers want both the convenience of a sophisticated digital offer and the reassurance of a physical local presence near their home or office.

A survey of 2,010 people conducted for TSB Bank last year found that 69 per cent of people believe it is important to have bank branches close to where they live. Research by Deloitte found that 72 per cent of consumers prefer to visit their bank branch to access financial services.

Accenture’s analysis found a sharp rise in branch usage since 2012, with 52 per cent of bank customers now using their branch at least once a month.

The most pronounced increase in branch usage was among consumers aged between 18 and 24, as they “value face-to-face advice and reassurance provided in branches when starting out on their financial journey.”

The branch comes into its own when purchasing a financial product. At TSB Bank 88 per cent of bank accounts are opened in the branch, as are 71 per cent of personal loans while 85 per cent of mortgage applications are completed fully or in part in the branch.

“When customers are conducting ‘value-added’ transactions of any description, where they want advice or discussion, branches remain as important as ever.”

Enduring value

In a separate study the Federal Deposit Insurance Corporation (FDIC) found that although technology has reduced people’s day-to-day dependence on physical branches, the branch has enduring value.

The number of US bank outlets declined by 5.7 per cent between 1989 and 1995 and by 4.8 per cent between 2009 and 2014 but branch numbers expanded by 22 per cent between 1995 and 2009.

Over the long-term branch growth has outpaced population growth and tended to follow regional migration patterns. The two recent periods of falling branch numbers followed major banking crises.

New technology caused the average number of teller transactions per branch to fall by 45 per cent between 1992 and 2013 yet “consumers continue to value and use physical” branches as part of a diverse suite of retail banking products. At 2.9 branches per 10,000 people in 2014, branch density is greater than at any time before 1977.

By enabling banks to interact with their customers, branches still create real value. New technology has done little to replace traditional branches where banking relationships are built.

“As long as personal service and relationships remain important, bankers and their customers will likely continue to do business face-to-face.”

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