June 4, 2020

Physical banking (as in walking into an actual brick-and-mortar branch office and speaking with real people) is going the way of 8 Track Tapes, dial telephones and Dodos.  The rise of online banks and traditional banks proffering online services over the last decade with anywhere / anytime / any-device banking, digital credit cards and check deposits are endangering good old-fashioned physical bank branches.

Physical Banking is Dead

The storm clouds gathering on the horizon for physical banking are considerable.

Recently, the COVID-19 pandemic shut down face-to-face commerce of every kind around the globe for weeks.  It shuttered public venues bringing person-to-person transactions to a standstill. The impacts are still being calculated but it has certainly chilled business for all organizations that serve the public in physical locations, including bank branches, today and for years to come.  Many will not reopen.

In addition, customer demographics are constantly changing and continue to test the status quo by disrupting business-as-usual making it difficult to meet evolving needs and expectations.  Successive generations bring new requirements unique to their social, economic, and cultural landscapes.

For banks this has meant offering more diverse services and bespoke products and faster, more efficient delivery of both.  Business processes, procedures and service delivery can be optimized.  However, traveling to branch locations, long queues at busy times and restrictive business hours are unmovable obstacles for physical banking.

Finally, technological progress has changed the way the world does business. This is especially true for banking and financial institutions.  Many types of financial transactions are now accomplished electronically.  In most cases this is instantaneous and can be done from anywhere — homes, offices, airplanes—through multiple digital channels such as computers, tablets and mobile phones.  There are no restrictions on timing with online banking.  Late nights, weekends, holidays, the digital branch is always open.

As if these headwinds are not enough, the banking industry itself is predicting the end of branches:

“The reality, as we approach the third decade of this century, is that few of us require bank branches anymore.”  Forbes

“Former Barclays CEO Antony Jenkins told CNBC … his prediction about mass closures of physical banks is happening faster than he thought”  CNBC

“Banks are closing branches at an unprecedented pace, retreating from the communities they serve. According to SNL Financial, the number of physical bank locations has dropped each year since 2009…”  American Banker

It seems reasonable to conclude, then, that physical banking is nearly dead.  Or is it?  To adapt a quote from Mark Twain, “The reports of physical banking’s death are greatly exaggerated.”

Long Live Physical Banking

While the ease and availability of online banking combined with unexpected shut downs, changes in demographics and technological advancement have combined to greatly disrupt  the traditional, time-honored brick-and-mortar approach to banking there are other customer needs which have kept the door open for bank branches to not only survive but thrive.

There is no doubt the benefits of online banking have driven astronomical growth of this sector and adoption rates are high especially with younger generations.  Yet financial transactions can be complicated, require in-person and/or notarized signatures and are high value targets for online fraud.  These are among the key reasons that bank customers continue to value and use physical banking.  In fact according to Bankrate.com, half of all Americans have visited their local bank in the last 30 days, proving customers still derive great value from visiting a physical location.

For complicated transactions like mortgages and small business loans, high dollar instruments and collateralized loans, physical banking is still the fastest, safest, and most efficient.  There is also an emotional component unique to dealing with monetary affairs.  Working with someone you know, looking them in the eye and reading body language as well as dealing with paper documents is psychologically comforting and offers stronger feelings of trust and perceived security impossible through online banking.

While times and technology may change rapidly, human nature does not.  Banks and financial institutions that understand this can capture a bigger share of the market. To underscore this point, a J.D. Power customer satisfaction rating survey revealed, “Branch-using consumers are far more satisfied with their banking provider than digital-only consumers.” The Financial Brand

Finally, Jean-Pierre Lacroix, President and Founder of Shikatani Lacroix Design insists the physical channel remains the way to capture new retail customers. He also observes that even in markets where less than 5% of transactions occur in branches, the banks still maintain branches as a tools for growing market share.

Best of Both Worlds

So, what’s a bank to do?  Embrace disruption and become and online entity, or stay the course with traditional physical branches?

You have likely already determined the answer—Why not do both?  Focusing on physical AND online banking offers customers the best of both worlds and gives banks and financial institutions the widest possible market appeal.

In fact, the banking industry is seeing an organic consumer trend toward this specific combination of channels in the marketplace.  The J.D. Power customer satisfaction rating survey mentioned earlier also found that  “that digital-only customers are significantly less satisfied than those who bank digitally and also use branches.”   

Two further findings illustrate this complex and apparently contradictory state of banking today:

  1. The number of digital banking customers continue to rise, however almost three quarters still do physical banking through branches.
  2. Large banks and financial institutions have a higher percentage of digital-only customers, yet when it comes to in-person customer experience mid-size banks have the advantage.

These findings show “that digital and branch capabilities are ‘still very much married,’ Joe Wheeler, Senior Director, Mid-Size Bank Practice Lead at J.D. Power.” The Financial Brand

The Way Forward is Phygital

The TCS Digital Software and Solutions Group has adopted a term for this emerging banking business model — “Phygital”.  We see it as a seamless blend of the convenient and well accepted physical and digital channels for banking and financial institution customers.  It allows an optimum number of appropriate, contextual, and personalized customer engagement touches based on their preferred channel, or both, throughout their customer experience.

Click here to find out how TCS Customer Intelligence & Insights for Banking can help create and deliver extraordinary customer banking experiences.


Doug Tinning is the Product Marketing Manager for TCS’s Digital Software & Solutions Intelligent Urban Exchange smart cities product. Prior to DS&S Doug was a Product and Enablement Manager for enterprise ECM/BPM solutions at IBM and FileNet Corporation.