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Branches are about people’s money

Yes, there are too many. No, the branch isn’t dead—and won’t be

UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection. If you have some "UNconventional Wisdom" to share, email UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection. If you have some "UNconventional Wisdom" to share, email [email protected]

There are some interesting things happening in the world of retailing, with some lessons for banking.

As traditional retailers have been dying—Radio Shack, HMV, Jessops, Blockbuster, Borders, PCMall, American Apparel, City Sports, Tower Records, and more—etailers have been thriving and growing—taking their place. For example, according to research firm Mintel in mid-2015, etailers in the UK were expected to sell £21.8 billion worth of goods in 2015, an increase of 18% over 2014, while traditional stores’ online sales were expected to grow by 11% to £21.5 billion.

What this means is that retailers are scrambling fast to work out their new business models, with most believing it is a hybrid structure of online and offline. What can we learn from these developments in terms of what it means for banks and bank branches?

Goodbye branch? Or not?

Many are forecasting the death of the branch, but the reports of its death are exaggerated. Bank branches are still here, and they’re not going away fast. The challenge is to work out how many we need.

In a similar way, retail stores are still here, and retailers are just working out how many they need. This is why retailers are rapidly closing stores, but do not believe they will end up being purely online only.

For example, take note that the figures I gave above for online spending between retailers and etailers is just online spending and that, today, 84% of most spending is still in-store.

That’s two decades after the internet began to offer commercial transactions—the first ever online purchase was back in 1994—and still most commerce is in-store.

The industries that were easy to disintermediate—electronics, entertainment, travel, media—have been through quite a transition. However, consider those that are less obviously transitioning to online—clothes, shoes, food, coffee (look at Starbucks!)—which are moving at a far slower pace.

This is because physical goods are taking far longer to disrupt.

Clothes and shoes are a physical good—we like to try them on before we buy them. Likewise, with food and coffee, we like to see it before we buy and eat it.

I recall one visionary saying in the 1990s that the internet would never get rid of gas stations, and we still do have to go pump our fuel if we drive a car on gas. This is why some stores will always be around, but they are being squeezed on margins and spending and hence, the reason why many retailers are restructuring their stores. 

Amazon and Burberry define a niche

Two companies that probably define the hybrid model that is evolving for online to offline are Burberry and Amazon.

The Burberry hybrid

Burberry has long been a poster child for the online-to-offline world, after championing an amazing transformation into a leading online brand. Burberry did this by truly committing to digital, spending 60% of its marketing budget on social media outreach. This even includes a photoblog, the “Art of the Trench,” as in trenchcoat.

The company is very digitally savvy. Burberry recognizes that different media work for different messages.

For example:

• Advertise the product via Instagram (visual)… 

• Inform the customer via Facebook and YouTube (live streaming) …  

• Engage the customer via conversation (Twitter and Facebook).       

But the overriding principle of Burberry is that every element on the company's website should be recreated offline, so that you get the same experience in-store, enhanced by physical engagement, as you do online through digital engagement.

This means that all store staff carry iPads. These serve to build a picture of each customer as they walk instore—who they are; what they’ve purchased before; and their sizes and color preferences. The iPads provide the staff with information about what’s currently in stock that this customer might like and whether their size and fit is available.

It’s a fantastic example of how to take a retailer into the online to offline world.

What’s up at Amazon?

The other company, Amazon, have recently been rumored to be opening hundreds of physical stores. The rumor began with speculation that, having killed traditional bookstores, Amazon was going to open lots more after a successful trial of one store in Seattle. Some have since pointed out that Amazon sells a great deal more than books, and that books make up a small portion of its revenues today.

Thus far, Amazon has not confirmed or denied the chatter that began with a comment by a mall company executive during an earnings call. The executive backtracked on his comments. However, fresh insider leaks have been cited to prove that Amazon has something going on.

But let’s consider, why would this internet behemoth go physical? 

Because the human touch is important.

We are human. We are not machines.

We may want to do things through machines 99 times out of 100 but, if the human touch is needed, does the disembodied call center work?  And, more importantly, does it work with money?

The answers are clearly “no” and “no.”

Is the branch obituary premature after all?

This is where we come back to banking and bank branches. Whether it’s millennials or baby boomers, the first reason most people choose their bank is because it has a branch nearby.  [I blogged about this recently on my own site, in “Still talking about the branch of the future? (Don’t laugh)”]

This is because banking is not a product set like gas and oil (and tobacco, ecigs, and snacks); books; iPads; nor shirts, pants, and shoes. Banking is a core tangible thing we treasure: money.

As the film “Jerry Maguire” made famous “Show me the money!” is a critical part of banking, and one of the core reasons we will never lose branches.

Customers want to know they can see a human and ask to see their money whenever they want. Money may be stored digitally, but the very fact that we can go somewhere to see it is the reason a branch will never die.

This is because of my second reason that branches will never die: When money is threatened, people want someone to talk to.

It is really interesting that when the market meltdown occurred last month, triggered by news about the China economy, the roboadvisors saw their customer contact shoot through the roof

“There are times when people just want to talk—even if it’s just to reinforce that they’re doing the right thing,” said Tobin McDaniel, San Francisco-based president of Charles Schwab’s robo advisor, Wealth Investment Advisory’s Schwab Intelligent Portfolios.

This is even more true of banks. Just think back to the last financial crisis and the queues outside branches if you don’t believe me.

So banks do need to rationalize their branch structures and create a far more efficient network, but we don’t need to think the branch is going away any time soon.

However the bad news is that most banks are over-branched by a factor of five. Most banks have five times the number of stores they need.

I base this computation on the large UK retailer Marks & Spencer’s claim that 250 stores are more than enough to cover the UK’s retail needs for their goods and services. By contrast, most UK banks have 1,000–2,000 stores.

Getting rid of 80% of redundant stores will be the biggest challenge retail banks face this decade, as they cannot close them fast. Yet, if they close them too slowly, some banks may feel the fine line that the Borders of this world felt.

A loss-making bank with too many branches will not survive. But a bank with just enough branches to make their customers happy is hard to find.

For more on this subject, I can recommend additional Finanser blog entries:

“This bank branch is dead … no it’s not! It’s, uh, resting …”

“Why would a digital bank have branches? (CheBanca! case study)”

[Editor’s Note: Read “Branch networks as excess baggage,” commentary by Keefe, Bruyette & Woods analysts on the drag of branches versus the need for the right amount of them to be competitive, comparing two banks’ experiences.  Also check out Chris Nichol's "Creating 'Amazon Prime' for your bank"]

Bankers, share your thoughts on online versus offline and the future of branches in the comment section below.

Chris Skinner

Chris Skinner has become known as an international independent commentator on fintech through his blog, the He is the author of the bestselling book Digital Bank and its sequel ValueWeb. Both books have been reviewed on and a chapter excerpt of ValueWeb also appears on the site. Skinner chairs the European networking forum: the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand and has received similar honors from The Wall Street Journal and other organizations. Visit Skinner's professional website.

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