Balancing Act: Branches and Digital Banking

In 1964, Barbra Streisand starred in the Broadway musical “Funny Girl,” where she sang the song “People,” composed by Jule Styne, with lyrics by Bob Merrill. The song’s recognizable line “people who need people are the luckiest people in the world” resonated so much with audiences that it became synonymous with Streisand. Her version of the song was inducted into the Grammy Hall of Fame in 1998, and in 2004, it landed at #13 in the American Film Institute’s 100 Years…100 Songs, a ranking of the top 100 songs from American films of the 20th century.Musical tastes have changed over the years, but the sentiment of Streisand’s song is as applicable today as it was when it was first written. Despite the fact that people have embraced the convenience of digital banking channels and solutions, they still want the ability to interact face to face with bank employees, particularly when they are frustrated — a dichotomy that has some of the country’s largest financial institutions carefully weighing their strategies to determine what it takes to “get it right” on the customer service front. In this article, we provide examples from large banks that support both schools of thought: opening branches to foster that personal touch versus closing branches and focusing on the convenience of digital banking. Branch Resurgence Following a decade of branches being shuttered around the US, 2023 marked the first time banks added more net new branches. That momentum has yet to let up.Several major banks have announced plans to open multiple new branches this year:

At the same time that banks are opening new branches, in many cases they are shuttering others in regions with low activity or those that were acquired through acquisitions and are redundant. Opening new branches amidst people’s ever-increasing reliance on mobile banking apps may seem counterintuitive, but a bank’s reasons for doing so are twofold. First is the simple fact that customers want the ability to speak with actual people face-to-face when they are unable to resolve problems digitally. In fact, not only do younger customers want the ability to visit branches when desired, but they also want account managers. Research from Cornerstone Advisors found that 43% of Millennials and roughly a third of Gen Zers have account managers at their bank, and roughly 40% would leave their current institution if they could no longer access their account manager. Similarly, “Banking’s Evolution from Digital-Plus-Physical to Digital-Everywhere,” a research report from PYMNTS Intelligence and NCR, found that 55% of bank customers said human interaction is a major factor in loyalty to their banks. Not surprisingly, the second driver behind new branch openings is a push among larger players to bolster their wealth management services and lending to small business customers, particularly for bulge bracket institutions likely to be met with opposition from antitrust regulators should they seek to expand these areas by acquiring rival banks. Bank of America recently completed renovation of its existing locations to focus more on financial advisory services, eliminating teller lines altogether and replacing them with offices and reception areas where customers can meet with financial specialists. Branches also remain the most popular way for customers to seek out new loans or account openings, particularly among younger customers. Ongoing Closures Despite new branch openings among the bulge bracket banks, announcements of branch shutterings are ongoing and unlikely to stop anytime soon. US banks informed regulators of 36 branch closings in just one week in April, with TD Bank and Wells Fargo leading the way. Though people want to know they have the option to visit a branch in person, customers are also increasingly embracing online banking offerings, and traffic within many branches has slowed to a crawl — making it difficult for institutions to justify keeping certain locations open. Even when banks take extreme measures to make branches more appealing, such as Capital One Cafes, some services are no longer available in person. In the case of Capital One, customers who want money orders must order them electronically and wait to receive them through snail mail. Cost and convenience remain major factors driving customers to mobile and online banking. Absent the overhead of physical locations, fintechs are often able to provide more attractive product pricing options and rates. The main services people want from financial service providers are savings vehicles, bill management, subscription management, automated investing and savings, and credit score monitoring — many of which are unavailable at traditional banks. In many cases, even when customers want a physical location, they aren’t looking for services like a traditional drive-thru with tellers. This realization motivated Bank of America to eliminate drive-thru lanes at its newly renovated branches in favor of drive-up ATMs.  While the biggest banks are building more net branches, their strategy is really more about adjusting what amenities and services branches can offer customers. As community financial institutions seek to find the perfect customer service formula to attract new customers and keep existing ones happy, the answer may well differ on a case-by-case basis. If building more branches is not right for your institution, the answer may lie in adding and upgrading technology to offer the financial services your clients want while also ensuring they have timely access to account managers who can provide solutions beyond what technology can offer.