Physical networks are costly, but can differentiate banks and drive value when digitally enabled and used strategically.

As customers increasingly migrate to digital channels, banks may question the value of maintaining a large physical network, especially given the high cost of the branch. But physical stores are not going away – they increasingly serve as a way for companies to provide a human touch to their digital experiences. Even digital companies like Apple and Amazon are expanding their physical presence, as a way to differentiate themselves from other online retailers and create a closer relationship with their customers.

Banks, too, have an opportunity to differentiate themselves while generating customer and shareholder value, by reevaluating the role of the branch and transforming their existing physical networks.

In the past, number and location of branches determined the strength of the network and the retail bank franchise. Moving forward, banks need to instead consider the purpose of each branch. Instead of the “one size fits all” branch that exists today, banks should look to create multi-format networks with distinct “store” models. Each of these stores will have different priorities and objectives – that informs the branch design and capabilities:

  • Brand awareness and community building influences brand perception by translating a clear value proposition into every customer experience.
  • Sales and advisory acquires customers through proactive contacts and conversion of walk-ins and digital leads with a presence in high-traffic locations.
  • Education and connection builds rapport with customers by providing new financial skills and developing programs to improve people’s digital literacy and grow digital inclusion for more connected customers.
  • Self service empowers customers with convenient and easy-to-use self-service tools, with human assistance only if and when it is needed

To meet customer needs and generate increased profitability, banks should consider differentiated store formats:

  • The flagship branch is the crown jewel of the branch network. It is a showroom of all the bank’s products and services. While it is designed to serve customers’ every need, the branch builds brand awareness in a highly sought after, usually metropolitan, market.
  • The advisory branch without walls embodies the physical-digital blur like no other. It is a best-of-both-worlds model that merges elements of traditional branches and virtual banks. This branch is small and staffed with financial advisors, no tellers. These are not cashless branches. However, the emphasis on self-service transactions means that employees do not handle cash.
  • The digital self-service branch serves a dual purpose: to provide convenient self-service options to customers and maintain the bank’s presence in the community with less investment. The physical space is simple but loaded with interactive kiosks. These are connected activity stations that service a wider range of customers’ needs than even workhorse ATMs can. Customers can also come to the branch and complete transactions using their own devices.
  • The pop-up branch is a temporary branch location strategically placed to meet customer demands or build brand reputation among a target customer segment or geography. This includes branches at grocery stores, malls, university campuses and other high-traffic locations. This model also includes short-lived branches that open for concerts or special sporting or community events. Mobile branch trucks that go where the customers are and then move to another location are also pop-up branches.
  • The lounge invites customers into the branch by providing amenities and convenience in addition to banking services. Located in busy urban areas or near shopping promenades, the lounge is modeled after airport lounges and retail hospitality suites.

The ultimate aim of the multi-format store network is to bring the best customer experience while increasing bank profitability. Defining a clear objective for each branch allows the bank to tailor each branch to a different customer need. At the same time, focusing more on sales and advisory in the branch generates increased revenue. Infusing digital capabilities throughout all branches allows the bank to introduce branch customers to digital services and offerings, ultimately blurring the line between the physical and digital experience.

In an increasingly digital world, traditional banks need to show customers the unique value they can still bring. Refocusing the branch network is a great way for banks to differentiate their offerings from other new entrants in the banking industry – digital banks, technology companies, etc. Through the physical network, traditional banks can still provide the human touch and advisory services that customers crave.