The hardy perennial discussion of whether we need branches or not comes up again this week. It’s a regular debate on the blog and in the Financial Services Club, with various entries that are relevant to contribute towards the debate:
- To dump or not to dump the branch (2007)
- Branches Wanted: Dead or Alive? (2009)
- The branch-based banking model is dead, Part One (2009)
- Branch-based banking is dead, Part Two (2009)
- Bank branches are not dead (2011)
- Do banks need branches? (Financial Services Club Debate, 2012)
It is a discussion that never goes away because no-one knows the answer.
In one corner, you have the techno geeks who think everyone will do banking in an app; in the other, you have the humanitarians who believe people want to deal with people.
Somewhere in the middle is the truth, as I have discussed often (as demonstrated above).
My own view is that banking will be performed through a smaller number of super-sized branches, where service, advice and sales are the focus (not transactions, administration and cash).
We have already seen this move, and we will see more of it.
So why am I blogging about this again?
First, because I am chairing another healthy debate on the subject tomorrow at the Building Societies Association’s annual binge; and second, because I started a twitter storm when posting a note from John Ryan – an American firm who design bank branches – that showed banks see branches today as more important than ever before. This is based upon a survey of over 200 banks worldwide, which showed that two-thirds of bankers believe branches are more important today than five years ago.
The reactions were swift and dismissive:
There was more, but you get the idea. The twitter storm finished with a few insights wroth repeating:
Again, there’s more, but the whole discussion boils down to a few core essentials.
First, branch square footage versus return on investment is a key balancing act, with a definite need to decrease the transactional space and increase the sales and service space.
Second, why do we still call them bank branches? These have nothing to do with being branches on a tree anymore, but are retail outlets or bank stores, not branches.
Third, these stores may not be popular in some countries, but are essential in most emerging and developing economies as a place to socialise money matters.
Even in developed economies, stores are still viewed as essential; why else would RBS have been able to get Santander’s interest in burying their stores and Co-operative in Lloyds if bank stores were redundant? OK, these deals fell through due to economic circumstances, but that had nothing to do with the store viability. If anything, these moves prove the viability of bank stores for effective financial servicing.
Fourth, it is notable that for all the dialogue about the move to digital, which has killed most physical store distribution, digitised stores are opening physical outlets. Apple was the first, but we also see PayPal moving to the physical world (in part, prompted by Square) and others. A great example is Oak Furniture Land, an eBay store that announced this week it is to open physical stores in Britain.
For me, it comes back to two key areas.
One, when the internet wave first started in the 1990s, my manager said the one thing you cannot get through the internet is fuel (oil, gas, diesel, petrol). This is still true. There is a need for physicality in some areas of life. Not everything can be digitised and, for bankers, the core here is that you cannot digitise the whole psychology of our relationship with money.
We need a place to go to engage, talk, get knowledge about and understanding of money. For those who are confident with their lives, they may never visit a branch but, for the majority of the population, they don’t understand simple math let alone debit or credits. So they need financial stores to give them that understanding (note, this is where the gullible gimp opportunity arises).
Two, being a bank isn’t cheap, and the branch is viewed as the key to gaining customers. This is demonstrated by Metro Bank, in the news last week for losing over £100 million in the three years since they opened.
This may seem shocking, but it’s not at all.
Metro Bank is sinking money into the UK to create a physical space to compete. Their strategy is clear: we will be the #1 retail financial stores in Britain by 2020, with new bank branches opening apace. 17 opened so far and a new drive-through store in Slough opened on Friday and, if you want innovation, that might be seen as innovation as Britain doesn’t have any drive-through bank stores!
So this is a big loss-making business, based upon a retail store model?
Maybe, but long-term is the focus here. Not the short-term.
If you focus long-term, take note of these numbers:
- Metro Bank, now in its third year as the new bank on Britain's high streets, almost trebled the number of current accounts it runs last year from 48,000 to 136,000.
- The amount held by savers rose by 279 per cent to £576m while loans increased fourfold to £168m.
- Dissatisfaction with established banks saw the number of current accounts rise by another 25 per cent in the last three months.
And the guys backing this business are no dummies either. They know they have to seed this funding to growth their footprint to build their banking business to make money. After all, they’ve done it before.
So, for all our debate and bluster about bank branches, I think they’re here to stay. Not in any shape or form like they were in the past, but in a new form of retailing and service.
Let’s see what this week debate says.