Financial Institution Trends: Tension Over Branch Networks

While the past few years have seen record numbers of branch closures for banks and credit unions, recent banking trends suggest that physical branches are still important for financial institutions and their customers.

Many financial institutions report a desire to eliminate most, if not all, of their branches. However, doing so would be a great disservice to their clients.

As shown by other banking trends over the past couple of years, digital financial services are essential to give the most access to customers. Still, customers increasingly seek out more opportunities for human interaction.

Let’s take a closer look at the critical financial industry trend of tension over branch networks.

The Branch Debate

One of the hottest debates in the financial industry is if banks should or should not have branches.

Operationally, it makes sense to nix the branches and focus on digital solutions. For financial institutions, this is less expensive and more efficient. Furthermore, cutting down (or eliminating) branches gives financial institutions more time and resources to compete with digital competitors.

But is it the right move to get rid of branches?

A report from EPAM suggests that it may not be. The report found that banking customers plan to visit their bank branch over 40 times a year moving forward! While the actual visits may not match this estimation, it still raises the suspicion that people may not be done with bank branches after all.

Is It Necessary to Have Branches?

Customers worldwide (35 percent) still report that they plan to visit their bank branches at least once a month. There is still consumer interest in bank branches. But does this mean they are necessary for success?

The simple answer is that yes, having bank branches will help you find success.

So, should you be adding branches?

And is there a magic number?

How Many Bank Branches Do You Need?

According to Jon Voorhees, the Director of Distribution Strategy & Business Development at TerraStrat Group, you need a 6 percent branch share locally.

He carefully studied all bank branches in MSAs around the U.S., ultimately finding that a more extensive branch network boosted the chances of gaining a larger market share for banks. Specifically, he found that denser networks capture a greater percentage of the share, demonstrating the “S Curve” impact.

Digital Growth vs. Bank Branches

It’s true; many banks are closing branches. However, many are also opening branches. Undoubtedly, digital solutions continue to grow, but this does not yet signify the end of branches.

During COVID-19, digital banking boomed. Customers and employees followed social distancing guidelines, and many branches were closed or required appointments. To many, this suggested a huge step toward a new normal. While it’s true that COVID-19 and the associated branch limitations contributed to 2,300 branch closures, the future of branches is not extinction.

Right now, people still plan to and want to visit bank branches. They also want to leverage digital solutions. The key difference is that they will use branches for financial advice, rather than the services they used to. Based on this shift, branches don’t need to be as abundant or as large as before, but having branches is still a competitive advantage.

The best way banks can proceed is to monitor their customer data. Keep track of branch visits and common questions. Ask your customers what they want to see in terms of branches. What services are most important to them digitally vs. in-person at a branch?

At the same time, financial institutions should invest in their digital solutions. Adaptability and monitoring the market will be essential for success during the tension over branch networks.

Find a Digital Banking Solution Today

There’s definitely tension over bank branches. Many in the industry have contradictory opinions about the future of branches. As of right now, it’s clear that branches still hold a place. Elimination may not be the best solution. Instead, it’s crucial to place and run your branches alongside digital solutions strategically.

Teksetra is here to help support the technology of your financial institution. We offer comprehensive technology solutions for financial institutions, including IT support, device repair/ maintenance, and project services. We can also help decommission or commission technology as you eliminate or add bank branches. We have over four decades of financial tech experience and are here to help your bank succeed. Contact our experts to find out more about the services we offer.