Faced with the rapid proliferation of digital technologies and an ever-increasing millennial/Gen Z customer base, major banks across the US and Europe reduced their physical branch network over the last decade. While the underlying thought process did influence strategic thinking globally, Indian banks bucked the trend. Instead, they focused on branch expansion, resulting in one of the best growth periods for the Indian banking industry as a whole.
Now, US banks such as JP Morgan Chase and Bank of America have outlined their plans to open 500 and 165 new branches, respectively, over the next two to three years, underscoring the need for a physical branch network to satisfy the banking requirements of the typical retail customer.
Personal touch
Research shows that while 70% of consumers are open to buying through digital channels, only 23% fulfil their financial needs digitally. When it comes to matters related to finance and wealth management, customers look forward to real interactions with their financial advisors before arriving at a final decision.
Physical branches provide the space necessary for such face-to-face consultations and offer customers access to knowledgeable staff who can provide personalized advice. This is more challenging to achieve through digital banking channels. Also, online communication is counterintuitive when customers are faced with a plethora of complex choices. This is especially true when addressing customer-specific issues, with the branch staff being more successful at effectively resolving concerns while upholding the highest customer satisfaction and loyalty standards.
While digital banking will continue to gain traction in the near future, traditional bank branches will evolve into “phygital” branches—where physical and digital experiences converge to create seamless banking solutions.
Business expansion
Even though digital disruption has made the brick-and-mortar model extinct or almost extinct across multiple domains, sectors like banking, education and healthcare have instead used digital technologies and analytics to augment customer experiences and unlock further operational efficiencies.
Aspects such as trust, human engagement, and relationship management continue to be non-negotiable essentials in such industries, explaining the need for more branch expansion to serve existing and new customers when it comes to retail banking operations. This has, in turn, helped banks capture a higher share of the available business as new customers rely on human touch and personal assistance to make key savings and credit-related decisions.
Also known as the network effect on banking parlance, this has meant that banks with a larger number of physical branches have been able to capitalize on a proportionately higher share of the available business. In an era where retail banking is increasingly dominated by digital transactions, the traditional brick-and-mortar model continues to remain relevant for both banks and their customers alike.
Technology integration
To facilitate this transformation, banks are introducing interactive kiosks, augmented reality displays, and advanced AI systems across their physical branches. This kind of technology integration will not only empower customers with personalized advice but also deliver an intuitive transactional experience during every visit. Branch personnel will focus on providing them with relevant information to make informed decisions and work on building relationships rather than just handling transactions.
As a result, banks are already reimagining their branch layouts to facilitate such interactions, with most re-engineering internal processes and legacy organization structures to meet this objective. Thus, the “phygital” banking model will continue to evolve in line with the advancement in digital technology, with banks working to improve the return on assets (RoA) by operating bank branches as individual profit centres.
With 80-95% of the current retail banking business in India being contributed by physical branches, banks will have to constantly upgrade their branch network to maintain a strong brand presence and meet ever-evolving customer needs. Achieving this while fostering trust and loyalty will assume paramount importance in the foreseeable future as banks innovate new methods to integrate technology with human interaction.
Views are personal. Dheeraj Sanghi is country head-branch and affluent banking, Yes Bank.
