Banking on branches: Maintaining presence while optimizing distribution

A notable and significant shift is playing out in branch distribution networks worldwide. Banks and credit unions in Australia, the United Kingdom (UK), and the United States (US) are reducing the numbers of branches and are focusing instead on redesign and alternative modes of service delivery.

In Canada, however, branch networks continue to maintain an extra-large footprint. The rationale is that bank and credit union branches are valued as community cornerstones, and customers appear to want the option of visiting physical branches to get expert advice and conduct simple transactions. Therefore, financial institutions are rightfully wary of eroding customer loyalty if they reduce services or shutter branches.

To learn more about what Canadians customers think about branches and how they use them, KPMG in Canada conducted an in-depth survey of 2,059 Canadian bank and credit union customers across ages, geographical regions, and socio-economic brackets.

Based on our survey findings, while nearly all customers felt branches were important, 48% never visited or only visited rarely (about once per year).

While the assumption persists that complex transactions and advisory services drive branch traffic, the survey indicated otherwise. 81% reported visiting branches to use the Automatic Teller Machine (ATM) and perform simple over-the-counter (OTC) transactions.

Financial institutions today are tasked with keeping fees reasonable for customers while delivering quality financial services and growing revenue for shareholders in an uncertain economy. From this perspective, maintaining an extensive physical distribution network on top of full-service digital and mobile service platforms seems like an extravagant duplication of effort and resources.

Given the example of branch reductions in other nations, it’s time for Canadian banking leaders to consider whether a shift in branch dynamics could help them weather market pressures, meet customer expectations, and drive more value for stakeholders and customers.

Canadians have a genuine emotional attachment to their branches, but our survey also suggests that Canadian bank and credit union customers are ready for change. Canada is one of the most technologically advanced nations in the world and the number of customers who prefer digital banking is on the rise. Canadian customers are ready to embrace branch innovations as long as financial institutions continue to invest in and enhance their mobile and digital service offerings. The key is to plan for and build the ideal mix of channel banking and physical locations to optimize performance.

Experiences around the world demonstrate that a bank’s physical presence can be transformed in innovative ways at lower cost. Financial service providers in Australia, the UK, and the US are exploring part-time branches, bank popups, and flagship advisory centres. Partnerships between financial institutions and “destination” retail spaces are being explored that place advisory and teller services inside post offices, coffee shops, and large retail chains – “embedded finance” of the physical kind.

With a deeper understanding of the value the branch network holds for Canadian customers, financial institutions can discover opportunities to optimize their branch network while delivering quality services and value to stakeholders and customers.