DATAMONITOR VIEW
Catalyst
Summary

INTRODUCTION
Branches retain their importance in an increasingly digital environment
There will be a firm requirement for branches for the foreseeable future
Some commentators have argued that the branch channel is in terminal decline
Branches have a key role to play over the next decade
Branches will remain an important part of the multichannel mix for most providers

MAIN TRENDS
Trend 1: technological innovation will have a profound impact upon service delivery
Customer needs will be dealt with more efficiently
New tools will change the way that staff interact with customers
The implementation of technology needs to be carefully thought out
Technological innovation will drive the emergence of several different branch network models
Trend 2: branches will be modernized with clear business objectives in mind
Branch revamps to date have had a mixed record
Redesigns need to have clear objectives in mind if they are to be effective
Branch design will facilitate the adoption of two distinct network models
Trend 3: branch profitability and cost dynamics will dictate network size
Increasing the number of branches can lead to disproportionate growth in customer numbers
The “network effect” supports the existence of large branch networks
Metro Bank is aiming to have a network of 200 branches across the southeast of the UK by 2020
Virgin Money has plans to at least double its number of branches over the next five years
JPMorgan Chase is planning a substantial expansion of its branch network
Branch expansions can pay for themselves if competently handled
Branch networks can become too large and unwieldy
The imperative to reduce costs is driving some providers to look at non-standard models

EMERGING BRANCH NETWORK MODELS
Model 1: “hub-and-spoke”: reducing operating costs through automation and regional hubs
Technology is enabling a shift to branch automation
Bank of America is moving to a “regional hub” model
Coastal Federal Credit Union has fully automated teller activities across its entire branch network
This branch reduction strategy is not without its risks
Model 2: concept branches: laboratories for testing new designs and technology
Commonwealth Bank has recently opened a high-tech flagship branch in Brisbane
BNP Paribas has used its concept branch in Paris to distinguish itself from its competitors
Concept branches fulfill the same role for banks as concept cars do for automobile manufacturers
Model 3: recreational branches: reinforcing brand values and improving reputation
ING Direct is using cafes to build its brand and provide reassurance
Virgin Money is creating a series of “lounges” to help raise its profile
Umpqua bank was the original pioneer of the branch as public relations tool
Building outlets to sell the brand will generate customer goodwill and create a point of differentiation
Model 4: differentiated branches: using tailored services to target specific consumer segments
Wealth management currently offers the most profitable opportunities for banks that are tailoring their services
North Shore Credit Union has turned many of its branches into wealth management centers
Differentiation and tailoring may help to revive the fortunes of failing branches
Model 5: instore branches: sharing overheads with host outlets to reduce operating costs
Standard Bank in South Africa has “shops” based in around 9,000 retail outlets across South Africa
Bangkok Bank in Thailand provides banking facilities through micro branches
Several US banks have instore banking partnerships with supermarkets and other retailers
Tesco Bank and Marks & Spencer in the UK are both moving into instore banking
The lower operating costs associated with instore branches outweigh their lower deposit-taking capacity
Model 6: branchless banks: axing branches altogether to significantly reduce fixed costs
Movenbank is a new, digital-only, provider that is seeking to disrupt the marketplace
Branchless banks will take advantage of low operating costs to serve highly connected consumers
Datamonitor verdict: the “hub-and-spoke” model holds the widest appeal for providers

APPENDIX
Supplementary data
Methodology
Overall methodology
Financial Services Consumer Insight Survey
Sources
Further reading
Ask the analyst
Disclaimer

List Of Tables

Table: Channel used to switch current account provider
Table: Proportion of responding citing branch or online as their main channel for banking activities
Table: Number of commercial bank branches in the US, 1980–2011

List Of Figures

Figure: A strong branch presence still plays a vital role in choice of current account provider
Figure: The branch still retains its lead for current account switches in the UK
Figure: Online banking has already replaced branch banking for a variety of activities
Figure: Routine activities in the US are rapidly moving away from the branch channel
Figure: Branch numbers in the US may have peaked
Figure: BNP Paribas has formulated a future vision of how technology can serve the customer
Figure: Bank of Moscow is using Microsoft Kinect technology to attract passers-by
Figure: Some recent redesigns seem to ignore the human factor
Figure: Different providers are at different points on the network profitability curve
Figure: Moving to a system of larger, but fewer, branches will lead to considerable cost savings
Figure: Costal Federal Credit Union is using automated units to provide routine services
Figure: Commonwealth Bank’s flagship branch in Brisbane makes heavy use of the latest technology
Figure: BNP Paribas’s “2 Opera” branch has been designed to be as eye-catching as possible
Figure: Virgin Money’s “lounges” help to set the brand apart from its competitors
Figure: Standardized networks are giving way to networks that are adapted to local needs
Figure: North Shore Credit union has successfully targeted the mass affluent consumer segment
Figure: Bangkok bank offers its services through department stores, shopping malls, and other locations
Figure: Stop & Shop supermarket in the US has formed instore partnerships with several banks
Figure: Movenbank will not have a physical presence