Branchless banking: Bank branches are moving from the street into our devices
As FinTech changes the face of banking, will banks soon become branchless?
When consumers walk into a bank branch, they perceive several concepts that lend that sense of confidence in them with regards to the bank. A sofa, a security guard, the smiling all-knowing clerks, a distant manager, a soda machine. All these build that perception in the consumer that convinces him/her to bank with that organization.
The pandemic has changed this perception to a great extent. Fear of infection forced many consumers to opt for clicks instead of bricks, as they oversaw their bank transactions from home.
FinTechs are innovating at break-neck speed. The need for walking into a branch is becoming lesser and lesser with contactless banking transactions becoming the norm of the day. Does that mean there will be no more ICICI or SBI branches in the near future?
For instance, after DBS in Singapore was forced to evacuate 300 employees when one of them tested COVID positive, it put up a template for branchless banking. Continuing the same, the bank digitized 11 of its financing processes, including instant interbank fund transfers for business accounts.
Meanwhile, FinTechs are innovating at break-neck speed. The need for walking into a branch is becoming lesser and lesser with contactless banking transactions becoming the norm of the day. Does that mean there will be no more ICICI or SBI branches in the near future?
Why Not Shut Branches to Cut Costs?
According to World Bank data, there are 75 thousand bank branches worldwide. Why aren’t banks closing branches right away? It will mean less cost and time after all. And chatbots can provide 24/7 advisory services.
The answer is: eventually, they will.
Because of the kind of confidence that bank branches still kindle in consumers, a sudden shut down would cause panic. Instead of closing, banks are changing their branches and the experiences the branch offers.
For example, in Colombia, Bancolombia is one of the biggest banks, without argument. So big that it processes somewhere around 50-60% of the banked population in Colombia. Shutting branches for such a bank has a sizeable impact on the economy. It will cause national panic.
Because of the kind of confidence that bank branches still kindle in consumers, a sudden shut down would cause panic. Instead of closing, banks are changing their branches and the experiences the branch offers
That’s why Bancolombia is taking it slow. It’s creating digital branches where the consumer doesn’t see people but interacts with machines installed at the branch. That way, the consumer gets the digital experience even inside the bank branch.
Things are different in Indian banking though. The Indian banking market is an equal opportunity market, where both public and private banks compete with each other on a level playing field.
That means Axis, IDBI, ICICI, HDFC, SBI, or PNB, everybody is in the same game. There is no single name that stands out, so there isn’t any profound dependency on a single bank. In case one bank closes, there are several others to take care of the market.
Banks are slowly transforming through multiple digital offerings and FinTech apps. They are beginning by attracting the tech savvy to show the way by offering attractive features
On the other hand, countries like the US have three or four big names, which control not just the national but the global markets. If they shut down, the whole global economy shuts down. And not only because they are big names, but also because they hold a sizeable share of capital and power in the world. This again means their going branchless can reflect on the economic stability of the country.
That’s why such banks are slowly transforming through multiple digital offerings and FinTech apps. They are beginning by attracting the tech savvy to show the way by offering attractive features such as zero maintenance fees and mass customization of bill payments. For example, branchless banks in the US offer a rate of 1.50% on savings account, whereas traditional banks offer 0.01–0.07%.
A Slow & Steady Digital Footprint
Traditional banks have accepted the shift to digitalization in the last decade. They are slowly growing their digital footprint and reducing their branches.
Gradually, these banks are growing their IT department to work on all their FinTech initiatives with the help of FinTech startups and vendors. Slowly, they will take the people away from the branches, instead, skilling them into these technologies.
Meanwhile, the FinTechs that keep developing digital solutions for the end customers and the branches will eventually transform into digital branches. For example, India’s ICICI Bank launched ICICIStack, a set of about 500 digital banking services and APIs.
Consumers are already realizing that the need for going to a bank is receding. As the realization that they can operate everything from a device at home becomes stronger, they will stop expecting the bank branch to be a symbol of stability. That’s when we will say goodbye to bank branches.