Physical branches might not be a lost cause for banks - Business Insider

This story was delivered to Business Insider Intelligence Banking subscribers earlier this morning.To get this story plus others to your inbox each day, hours before they're published on Business Insider, click here.In Business Insider Intelligence's recent Digital Banking Ecosystem report, we showed that physical bank branches are on the decline, in contrast to the rising popularity of digital channels like online and mobile: In the UK, one-third (3,300) of all bank branches closed in the past five years as of September 2019, while in the US there was a net decrease of 9% of branches nationwide in the past decade.

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We project branch usage by US consumers will drop at a compound annual growth rate (CAGR) of -2.01% from 2019 to 2024, based on FDIC and Javelin data.Banks are slashing their branch networks to reduce costs and stay relevant — but they should proceed with caution. Factors behind the falling number of branches include shifting consumer preferences for digital banking (especially as younger generations come to the fore), as well as many incumbents' desire to cut operating costs by reducing their physical infrastructure and in-branch headcount as automated banking options proliferate.However, it's worth noting that for many incumbent banks, branches remain an invaluable source of revenue. At Chase, for instance, the vast majority (80%) of its customer transactions are completed through self-service channels, but a massive 70% of its deposit growth between 2014 and 2018 came from households that frequent branches.Banks can have their cake and eat it too, if they adapt their branches for the digital age. Some leading financial institutions are actually expanding their branch networks, indicating that they still see value in this channel. For the investment to pay off, banks should introduce digital elements to their branches.For example, they could leverage third-party solutions, such as Fiserv's Interactive Branch Kiosk, which is designed to make it easier for consumers to handle transactions within branch lobbies, drive-thrus, or other locations without a teller.They could also introduce mobile and IoT devices at branches, an approach Nationwide tested in its upgraded branch concept by adding a video calling service and iPads to access account information. Such upgrades can help banks reduce operating costs; retain loyalty among customers who prefer branches but want the same conveniences offered to digital-first customers; and make the important branch revenue stream work for them in an increasingly digital banking landscape.Want to read more stories like this one？ Here's how to get access: Sign up for Banking Pro, Business Insider Intelligence's expert product suite tailored for today's (and tomorrow's) decision-makers in the financial services industry, delivered to your inbox 6x a week. /> /> Get StartedJoin thousands of top companies worldwide who trust Business Insider Intelligence for their competitive research needs. /> /> Inquire About Our Enterprise MembershipsExplore related topics in more depth. /> /> Visit Our Report StoreCurrent subscribers can log in to read the briefing here.