By Chris Kapfer
The decline of bank branches in the Middle East, Asia Pacific and Africa region highlights the increasing demand and adoption of digital banking.
In the debate over the role and future of the branch, ultimately the only opinion that counts is the consumer’s choice. Customers make decisions on primary banking relationship based on assumed need for multiple network point convenience, even though they may patronize one point most often. In emerging markets, customers who are more predisposed to digital channels often take into account how to select a bank based on the perception of being able to go to a branch. Data shows that while consumers use physical branches less often than they once did, they still use them quite a bit, even as they have adopted digital banking. For instance, at JP Morgan US, about 21 million different customers will visit a JPMorgan branch each year, while the bank has more than 50 million digital users.
While physical branches keep to be relevant channels in the offline online mix, they are remoulded for a digitised future in cash light economies, and technologies having a massive impact on how branch staff interact with customers. Banks imagine their branches with less teller, more self service options and as advisory centers.
Yet, the shift towards digital and the impact on branch networks varys by markets. For instance, Malaysian banks present are cutting down the number of branches as they automate customer servicing and acquisition through AI and chatbots, while in Taiwan banks which have also launched chatbots and seemed farther down the line are keeping their branches.
One reason is to stay engaged in the community and to maintain a physical ecosystem around the community banks serve.
In Hong Kong and the UAE, the trend has seen lesser number of branches, smaller and more efficient formats, and larger areas for customer self-service. In China and Thailand banks believe that the fix costs branches absorb becoming economically unsustainable in the wake of fintech competition.
However, despite branch declines across mature and increasingly emerging markets, banks not only benefit from strong physical franchise footprints compared to fintech/tech companies such as the case of India highlighted. In particular a part of mid and smaller (foreign) banks continue to expand their physical presence across a couple of observed markets.
In the US, half of top 100 banks cut network by more than 50% over the last five years
The number of bank locations in the U.S. peaked at 99,550 during 2009, and have declined annually to 88,070 branches by the end of 2018, according to the Federal Deposit Insurance Corp. More than half of the top 100 U.S. banks, McKisney said, reduced their footprint by more than 50% over the past five years. The biggest 12-month decline occurred between June 2016 and June 2017, when more than 1,700 bank branches closed. Since the beginning of 2019, according to thinknum, Bank of America listed 57% less job openings in branch-related jobs, looking for less than half as many people to fill its 4,600 retail banking outlets. Meanwhile, job openings in areas automation, AI, machine learning, and natural language processing doubled since 2019Branch decline has been slowing since 2018 as banks have come to the end of their branch cutting programmes. HSBC will be opening 50 new retail branches and JPMorgan has plans to open 400 new branches in the next few years across 20 US states. . Deposits at the 25 largest US retail banks have doubled between 2004 and 2017, while their combined branch footprint shrank by 15 percent over the same period.
Australian financial services providers look for an integrated experience across channels
CBA is the only of the large four banks that slightly increased its branch network between 2010 and 2018 from 1009 to 1082. By contrast, Westpac reduced its branch network most among all big four by 19% to 1006 branches in the same time period. However, in both cases, Westpac and CBA recorded each almost the same deposit growth between 2014 to 2018 as compared to the previous four years.Smaller non-majors such as HSBC, Citibank and Bendigo are pushing into the market with more branches. According to Roy Morgan, people using bank branches between May and October 2018 based on an average four-week period declined by 27% compared to 2014. Leading banks already offer an integrated customer experience in branch, online or by phone, where applications can be started and continued through any channel
In Hong Kong, the first branch contact has to solve everything
As early as 2015, starting with Bank of East Asia, the industry began to digital transform their branches towards paperless and straight through processes although in some case account opening can take between 45 minutes to one hour. Banks introduced instant ticketing, video banking, counter appointment services through mobile banking and video teller machines. The move towards digitised mini branches equipped with video teller capabilities impacted teller headcount which has seen a reduction of 15% to 20% since 2017. A pool of 200 video teller machines can be operated at the back by 8 to 10 service staff. BOC HK launched finger vein authentication services at counters as early as end of 2017. Bank of China and HSBC/Hang Seng operate more than 200 branches each in the market. Given that a large part of branches are wealth management centers, enhancements focused on servicing capabilities for mid- to high-end customers. Most banks are aware that during the first contact, branch staff has to solve everything. Bank branches tend to crowd together in the same location causing intense competition in attracting customers. Most of branches are open until Sunday 1pm. In a recent mystery survey conducted by HKMA on account opening at the branch by SMEs revealed that 85% were able to make account opening enquiries with an average waiting time of around 1.5 minutes. However, it was highlighted that the information and documentation requirements were not clearly set out and easily accessible online.
In the UAE, the emergence of teller-less digitised branches
The industry began as early as 2017 to enhance customer experience, turnaround time and to improve efficiency & productivity serving as a first stop towards full digitization. The pursuit was towards a ‘paperless’ , workflow automated branch network. By 2018, the first teller less digitised branches emerged. Banks increased accessibility by extended evening banking and Friday banking in mall branches and launched end-to-end tablet-based processes, enabling them to source accounts from new-to-bank as well as existing customers instantly. In March, Mashreq said the bank will close 50% of its branches in 2019. Some banks have seen an increase in its wealth management staff, mostly relationship managers (RMs) and officers.
Fintech woes and profitability issues in China will force the largest banks to reduce branches
China, branch growth stagnated from 228.7 to 228.6 thausand between 2017 and 2018 according to the China Banking and Insurance Regulatory Commission. The branch network of the big four Mega Banks declined by 0.5% in 2018. This was driven by lower profitability and an increasing fixed cost per branch. On the one hand, the “interest rate market” reform led to a sharp decline in the overall profit level of the banking industry. This was compounded by fierce non bank competition in the retail financial sector. An increase in outlets and labor costs, hardware maintenance costs and equipment renewal investment demand have also been “passively” increased, adding to woes in profit margins. Banks are no longer willing to allocate the same amount of capital to its branch network compared to previous years.
In India, state owned banks slowing down branch expansion
In India, branch expansion continues among private and state owned banks but the focus is shifting from urban to semi urban and rural areas. State-owned banks have added far fewer branches than their private sector peers in the last years and will continue to slow their growth going forward. They have lost significant market share in deposits to private banks. Branches in India generate the entire deposit business and also is the key venue for 100% of the SME business. The expansion of self-service kiosk installations is an on-going effort to reduce branch traffic. Tablet based banking is not yet mainstream and only available in selected private banks. The focus going forward will be on institutionalising the sales process and leveraging technology at the front end. HDFC Bank plans to add 600-800 physical stores per year for the next 3-4 years with the majority of new ones focusing on semi-urban and rural geographies. The bank is partnering with 300,000 agencies which already provide up to 200 government services digitally to distribute the bank’s products. How important physical networks can become was revealed in September 2018, when the Supreme Court barred private companies from using Aadhaar data for authenticating customers and bringing digital onboarding for FIs such as Paytm Payments Bank and Digibank to a crawl.
In Thailand, banks consider branch cost unsustainable
In Thailand, while over-the-counter transactions account for less than 10% of the overall retail transaction volume about half of the industry’s retail banking FTEs are deployed in branches. With a gradual opening of full e-KYC in 2019/2020 expected and new digital FIs already entering the market, banks are on the edge. Siam Commercial Bank in Thailand announced in early 2018 plans to reduce its branch footprint by 65% until 2020, and to nearly halving the number of employees. Industry branch numbers peaked in 2014 and since are on a gradual decline. Some larger banks are in the process of modernising their retail banking platform that simplifies the customer experience in the branch, improve sales management processes, and revamp CRM systems. Queuing system that lets customers with a smartphone get a queuing ticket for the nearest branch and remotely queue for their turn while continuing their activities are emerging. Bangkok Bank is the only of the first tier banks that continues to expand its network. In regards to income per branch. Kasikornbank allows customers to start their onboarding journey for current accounts from their mobile app based on biometric capabilities, then complete the authentication process at any of its network points such as branches or partner locations.
The Nigerian retail financial services market has seen the most dramatic decline in branches
In West Africa, with the drive to push financial inclusion into hinterlands providing access to secured banking ‘remotely’ is one of the most important agendas for. At the same time the focus is on raising the operational efficiencies in branch banking via de-cluttering banking halls. Ultimately creating a ‘beyond banking’ experience to cater to evolving needs of diverse African communities. FirstBank Nigeria which owns the largest retail franchise of any bank in Nigeria has over 750 business locations including subsidiaries, serving over 16 million customers. The key enablers for the delivery of its 2017- 2019 strategy are largely around technology and innovation. A critical component the strategic plan is the centralisation and migration of back office processes from branches to shared services. At the same time it is using its agency model as a net mobilizer of low cost deposits, and improving branch profitability.
By contrast, Standard Chartered Bank Nigeria is expanding its digital footprint, as it announced the completion of a simultaneous multi-market launch of its digitally-led retail banks in Tanzania and Ghana, with Kenya’s rollout scheduled to occur shortly. This development follows the launch of the bank’s digital offering in Uganda and Côte d’Ivoire. The expansion is believed to be part of the bank’s overarching digital transformation strategy for the African continent. At Guaranty Trust Bank Nigeria, 85% of all retail transactions originate from non -branch channels and more than 51% of all transactions are purely on mobile/internet. Its degree of automation for workflow processes pertaining to branch front and back office exceeds 80% based on the high level of straight-through processes in place.