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The Future of Bank Branches

Coordinating Physical with Digital

Digital Technologies will Accelerate Branch
Transformation, Not Make Them Extinct
Retail banking is evolving at 2011, up from 36% the previous consumer. In this paper, we
an accelerated pace. Globally, year3. Today, four of the top five attempt to put this question in
banks are facing disruptions from transactional banking activities in perspective by discussing the
multiple directions. Business and North America bill pay, viewing evolved roles that a physical
economic realities have reduced balances/transactions, viewing branch can take, and how physical
the total number of US bank statements and money transfer can co-exist with digital. We also
branches by 3,000 between 2009 are happening online4. Apart present our view of branch models
and 2012 - a decrease of 3% over from standardized transactions, of the future and actionable
the 3-year period.1 In Spain alone, the number of customers using recommendations on how to
banks have closed 5,000 branches bank branches to apply for retail deploy them.
or 12% of their overall capacity financial products dipped while
since the financial crisis began in usage of the Internet channel
2008, lowering the total branch increased (see Figure 1).
count to approximately 40,000 in
20122. This brings us to a key question The percentage of US
that retail banks increasingly face. customers who prefer
That is not all. Digital technologies Do brick-and-mortar branches to bank online jumped
have also brought a significant have a role to play in the future
shift in consumer banking of retail banking? This question to 62% in 2011, up from
behavior. The percentage of US is becoming louder by the day 36% in 2010.
banking customers who prefer as banks increasingly need to
to bank online jumped to 62% in stay relevant to a digital-savvy

Figure 1: Channels US Consumers Use to Apply for Retail Financial Products

36% 37% 2011 2010


17% 16%


In a branch/ in person On the Internet On the phone By mail On the Internet

(computer) (mobile device)*

Base: 10,647 US online adults (18+) who purchased a nancial product

*Base: 20,036 US online adults (18+) who purchased a nancial product

Source: Forrester, The State of North American Digital Banking: Priorities, Goals and Metrics, July 2012

Consumer preferences bank branches are not vestiges of
a bygone era. The mere presence
are changing but of physical branches provides
proximity and advisory customers with the confidence Studies indicate that
remain integral to the and reassurance needed in the 47% of US banking
bank branch current post-financial crisis era.
customers believe that
Studies indicate that 47% of US
While everyday transactions banking customers believe that a a bank is not even
are being conducted online, bank is not even legitimate unless
the branch continues to be the legitimate unless it has
it has branches, up from 41% only
primary channel for high value- a year ago5. branches, up from 41%
added product sales (see Figure
2). In the minds of consumers,
only a year ago.

Figure 2: The Branch Remains a Preferred Channel for Complex Products and Advisory

1% 1%

Research/compare available products/services 18% 2% 73% 5%

Pay for something 13% 4% 70% 5% 8%

Trade a security (e.g., buy/sell a stock) 28% 6% 59% 2%5%

Transfer funds between accounts 14% 5% 70% 3% 8%

Obtain support from banking representative 48% 20% 28% 1%


Receive/review account alert 10% 9% 69% 1% 11%

Manage my account 10% 4% 76% 3% 7%

Pay a bill 10% 5% 75% 3% 7%

Apply for a loan 53% 5% 39% 3%

Check account balance 9% 7% 70% 4% 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Branch Telephone Bank's Website

ATM/Kiosk Bank's mobile app/site Social media (e.g. Facebook)

Source: Cisco study, Winning Strategies for Omni Channel Banking, 2012

Bank branches are Digital tools are driving Digital technologies today
should not be seen as purely
being reinvented to this transformation of substitutive. For the banking
focus on relationship branches industry, significant benefits await
building The advent of digital has not when banks start seeing digital as
Gone are the days when branches been lost on banks. Many banks complementary. We dont envision
represented a one-size-fits-all have begun leveraging the latest a branchless future, but we do
solution for all demographics innovations in technology to believe in a strong future for the
and services. The onset of digital offer a personalized banking banking industry with fewer
has resulted in a bifurcation of experience. Most initiatives are branches. Rather than compete
the banking environment. While still in an experimental phase. For with online channels, we are
self-serve digital channels cater to instance, Bank of America has convinced that bank branches will
transactional activities, branches converted about 16 of its branches be transformed to become part of
provide relationship-based in Washington, D.C. and Los an integrated customer experience
activities that require proximity. Angeles into specialized branches that spans multiple banking
where customers can get expert channels. While transactional
Recent research indicates that advice on mortgages and small banking migrates to online and
90% of consumers prefer face- businesses via video-conferencing. self-service, bank branches will
to-face advice for complex Similarly, Citibanks Smart be an integral part of a new social
products6. While some banks Banking branches are customized interchange, a place to build
have segregated advisory only spaces with innovative technology valuable customer relationships.
branches, others have special such as media walls8, interactive
areas for this service. For instance, kiosks and work benches that
HSBC and Barclays banks have enable customers to self-navigate
premier branches providing and gain information on a wide We dont envision a
advisory-only services to their array of products and solutions,
high-net-worth clients while Italys and also conduct transactions (see branchless future, but
CheBanca! Bank branches provide Figure 3)9. a future with fewer
personalized service areas within a branches.
regular branch7.

Figure 3: Citibanks Media Wall and Interactive Work Benches with Digital Service Browser

Source: Citibank website

The Branch in the Digital Age: Its All
about Online and Offline Coordination
Retailers are using in store13. Burberry is a very
good illustration of online-offline
digital technologies to coordination: 60% of its customers
The banking industry coordinate their online/ shopped online and then picked
is currently at the offline offerings up their products from the store.
inflection point the Digital is permeating multiple
Similarly, Macys transformed
aspects of the retail business
retail industry was from marketing and merchandising
its front-end physical stores
into a blend of physical and
about a decade ago. to operations. Retailers are
digital where customers could
investing in in-store digital
either shop online or in-store
technologies such as streaming
through Wi-Fi connected kiosks
videos, scannable barcodes that
and request in-store pick-up.
The banking industry is currently provide product reviews at kiosks
The company also centralized its
at the inflection point the retail and interactive digital displays.
inventory and equipped its stores
industry was about a decade In order to effectively bridge
to handle direct-to-consumer
ago. The retail industry has the online-offline divide, many
order fulfillment. Macys stores
been amongst the earliest to retailers are also implementing
put digital displays next to real
be impacted by the advent of digital technologies such as real-
products, allowing consumers
digital. Over the past decade, time inventory information and
to go through an endless array
many retail chains that were not digital barcodes of merchandising
of variants. Similarly, in its
able to transform themselves at the back-end.
cosmetics department, a beauty
digitally have had to shut down. spot touch-screen provides
For instance, in the UK, leading physical inventory with a virtual
retail chains Blockbuster and HMV interactive display that offers more
declared bankruptcy 10. Similarly, in Banks can learn from information14.
the US, former leading electronics
retailer Circuit City shut down the experience of By introducing elements of their
its retail stores and reopened in retailers that have online channels into their physical
an online avatar11. At the same transformed their stores retailers are providing
time, many online-only retailers customers with the best of both
such as Dell, eBay and Piperlime front-end and back-end worlds leading to high online-
(Gaps online-only clothing store) operations with digital offline coordination.
have realized that having a pure
online presence does not work for
tools, thus blurring Some banks have already taken
all categories and that blending the online and offline early steps in transitioning to such
store operations along with divide. a coordination model.
online operations can yield far
better results. Indeed, a survey
indicates that more than half of
brick-and-mortar retailers believe For instance, Burberry effectively
that integrating e-commerce and uses digital channels to bring
in-store experiences will be critical its brand to life in stores. It has 60% of Burberrys
over the next five years12. allocated about 60% of its media customers shopped
spend to digital. It uses Facebook
We believe that banks can learn and Twitter to launch products
online and then picked
from the experience of retailers to its target customers. Store up their products from
that have transformed their front- employees carry iPads, which
end and back-end operations with the store.
provide customers access to
digital tools, thus blurring the the complete global collection,
online and offline divide. regardless of what is available

Digital Elements in a versa, banks provide customers and intuitive front-end and has
Banks Physical Channel with a true omni-channel resulted in improved customer
experience, where branches and satisfaction, credit penetration and
Help Extend a Branchs online are used interchangeably. customer retention16.
Some banks have introduced Physical Elements in a In the next section, we discuss
the branch formats of the
digital elements into a physical Banks Digital Channel future based on this channel
branch. US Bank BBVA Compasss
Virtual Banker is an example of
Creates a Seamless coordination principle and discuss
how banks are using digital tools Customer Experience their features and suitability.
to devise branches as physical Integrating a physical or human
extensions of the Web (see element within the digital
Figure 4). The Virtual banker is channel provides a seamless
a collaboration tool that allows consumer experience. For BBVA Compasss
video conferencing services instance, Hapoalim, one of Virtual banker is
between consumers in branches Israels largest banks, integrated
and remote bank advisors. The a human element into its virtual a collaboration tool
tool is supported by integrated channel with a service called that allows video
document sharing functionality, Poalim Connect. This virtual
integrated scanner and printer branch service allows customers
conferencing services
to send and retrieve signed to connect with a real personal between consumers in
documents15. banker through an online banking branches and remote
session without having to visit
Thus, by integrating digital the branch (see Figure 5). This bank advisors.
channels into branches and vice approach has a very simple

Figure 4: BBVAs Collaboration Tool Virtual Banker Figure 5: Poalim Connects Simple User Interface

Source: KUHF - Houston Public Radio, Virtual Banking Links Source: Forrester, Case Study: Hapoalim Injects A Human Touch
Consumers to Specialists at Other Branches, December 2009 into Digital Banking, 2012

Branch Models of the Future
We believe that the traditional and offline elements into the
banking network comprising physical branch we foresee the
homogenous, full-service branches emergence of four main bank
catering to customers across branch formats (see Figure 6). The traditional
segments is no longer sustainable. banking network of
Banks should consider a network These branch formats will vary
not only in the breadth of services
having homogenous,
made up of differentiated
branches targeting specific provided, but also in the level of full-service branches
customer segments. customer intimacy achieved and catering to customers
the complexity of advice provided.
Based on the levels of digitization across segments is no
adopted and integration of online longer sustainable.

Figure 6: Our View of Future Branch Formats


The Digital Pod The Pharmacy

Level of Digitization

The Shop The Lounge


Low High
Level of Online/ Oine Coordination Achieved
Branch Format Level of Customer Intimacy Level of Advice Complexity
The Shop
The Lounge
The Pharmacy
The Digital Pod
Low High

Source: Capgemini Consulting Analysis

The Shop This format mirrors most of the branches received higher footfall
online services and is ideally suited and positive customer feedback
The Shop format involves low for students, first-time banking and added 8,000 new customers
levels of digitization offering customers or existing customers in 6 months, as opposed to the
retail-like displays and providing with standardized banking needs. one year that it took to achieve it
customers with the opportunity Off-the-shelf financial solutions previously18.
to browse in self-serve aisles, appeal to a segment that does
acting as both, service and not need a highly personalized
sales centers. This bank branch environment yet prefers the
focuses on standardized products proximity of a branch to service
and services that are already them occasionally. The Shop
The Shop is ideally
available via online channels, format allows banks to set up suited for students,
such as account opening and loan asset-light branches with fewer
application, but that still draw
first-time banking
staff, leading to reduced operating
some people into the branch. costs compared to full-service customers or existing
The intent of the Shop is to make
branches17. The limitation of such customers with
branches is that they cannot offer standardized banking
financial services more tangible
customized and tailored services
by packaging them in boxes needs.
and products.
and selling them on shelves in
branches. Minimal staffing with For instance, Danish bank Jyske
limited advisory services coupled modeled 119 of its branches
with limited digital tools results along the lines of a retail store
in low levels of online-offline (see Figure 7). As a result, the

Figure 7: Shop format at Jyske Bank

Jyske Banks Old Branches Transformed Shop Style Branches

Source:, Case Study: Jyske Bank Serves Espresso, Enterprise Video, September 2007;
Financial Services Club Blog, Creating a bank that rocks, April 2009

The Lounge atmosphere to help customers Internet surfing, workstations to
get acquainted with the bank perform online banking, areas to
The Lounge format of the bank and simultaneously receive basic conduct business meetings and
branch has low digitization levels levels of advice, as needed. The also connect with the community
and is oriented around a self- Lounge offers high levels of by giving out the lounges for
service model with the provision customer intimacy with its focus community events19.
of minimal banking staff to assist on providing complimentary
with customer queries. This services and enhancing customer
format provides customers with engagement. The target customers
terminals for their online banking for the Lounge format are
needs with staff having knowledge individuals with relatively high
of only basic banking products, income. The focus of this format The Lounge is
without complex advisory skills. is not on selling but on cultivating primarily designed
Introducing elements of the online customer relationships for cross-
channel into the physical branch for building strong
selling and up-selling services.
results in a medium level of online relationships with
and offline channel coordination. For instance, the Virgin Group customers.
offers Virgin Money lounges (see
This format is primarily designed Figure 8) to its members. These
for building strong customer lounges offer complimentary
relationships by offering a relaxed refreshments, TV and iPads for

Figure 8: Lounge Format of Virgin Money

Source: Virgin, Virgin Moneys new Lounge reaches Manchester, February 2012

The Digital Pod Brazil has a futuristic hi-tech Generation Y customers who need
branch featuring robotic guides, the flexibility to transact anytime
The Digital Pod employs personalized financial advisory and are open to using new
advanced digital tools services from digital avatars, on- technology.
and technologies, such as screen consultants and biometric
videoconferencing, online interfaces (see insert).
document sharing, digital
signatures and card readers, to Digital Pods introduce
become physical extensions of consumers to the next generation The Digital Pod is
online or mobile banking. in banking technology. With focused on providing
minimal branch staffing and
The primary focus is on providing high levels of digitization being customers with an
customers with an evolved and used, the levels of online-offline
immersive digital experience.
evolved and immersive
coordination are typically low.
Digital Pods allow customers Digital Pods require a significant
digital experience.
to perform all the transactions investment in technology. The
of a physical bank branch using target market for this branch
sophisticated digital technology. format primarily comprises
For instance Bradesco Bank in

Bradesco Bank Branch A Showcase

for high-tech Banking Innovations
Brazilian Bradesco banks Bradesco Next is a futuristic branch model in Sao Paulo that showcases high-tech
banking innovations. It features robotic guides to greet customers, advice from digital avatars and on-screen

Biometric log-in points allow customers to conduct transactions at a range of cardless ATMs and provide
personalized information about loans, savings and investment planning across a plethora of touch-controlled
digital interfaces in the store.

The branch features a Life Cycle service that displays personal interests, financial situation and consumption
patterns based on each individuals financial profile. The application can predict the ideal time to purchase a
home, or set up a personal pension plan. A customer service room provides a private space for clients to interact
with digital avatars.

Source: Finextra, Bradesco opens the bank of the future, August 2012

The Pharmacy customers, typically showcasing however, as digital technologies
innovative tools and extending become more pervasive, we
The Pharmacy model also has high standards of service. foresee them becoming viable on
high digitization levels. It is a a larger scale.
comprehensive full-service branch The target market for Pharmacy
that incorporates all aspects of branches is the mid to high
self-serve and online banking. net-worth traditional banking
Some of the digital tools, which customer who desires proximity of
can be used in a Pharmacy, a physical branch. The Pharmacy The Pharmacy
are self-serve kiosks, ATMs, format aims to reinforce a
service staff with iPads for quick
achieves high levels of
banks image as innovative and
information retrieval and terminals pioneering. The operating costs of channel coordination
connected for online banking. such a branch will be higher than a between physical and
regular full-service branch due to
This model achieves high levels its larger size, staffing and digital
of channel coordination since it requirements. Also, such a store
brings not only the digital channel/ format typically needs to be on
online banking into the branch, high streets that attract maximum
but also staffs the physical branch footfalls.
for complex and personalized
advice. The Pharmacy branch Currently, both the Digital Pod
should be used as a flagship and the Pharmacy are being
branch to attract existing and new explored as concept models;

Rationalizing Networks
Can Save Banks up to 30%
Branch network rationalization The business case considers a Another advantage of this model
and differentiation of branch types large US-based retail bank with is its ability to cater to the entire
allow banks to optimize their 4,000 branches and a net banking spectrum ranging from mass
service levels while keeping costs income of $6 billion. To revamp retail customers to an affluent
under control. Banks should adopt the existing network, we propose clientele. It is already popular
a three-step process to determine a mix of branch models to a 45%, in areas of wealth management
the optimal branch network. As a 20%, 20%, 15% spread for the and private banking. This model
first step, banks need to carry out Shop, Lounge, Digital Pod, and is also popular in countries with
a detailed customer demographics Pharmacy respectively (see insert). lower cost of staff such as India,
analysis to understand their Hong Kong and Brazil. HSBC in
target customer profile, their Business continuity is a key Hong Kong and Bradesco bank in
banking behavior and profitability concern for any rationalization Brazil are a few instances of banks
per customer. As a second step, exercise where branch closures operating effective mobile sales
banks should use the information are being proposed. On the other teams20.
in the demographics analysis hand, entering new markets
to determine the optimal ratio needs a large investment which The banking industry has been
between the different types of is not always feasible. A mobile one of the early adopters of digital
branches needed to achieve a sales force provides banks with a transformation and has recognized
differentiated branch network. flexible and convenient approach the enormous opportunities
Finally, banks should rationalize to phase out or increase presence and challenges it presents. In
the number of branches based in a specific geographical area. the next phase of their digital
on business parameters such as transformation, banks need to
branch performance, customer A mobile sales force enables move to a digitally-optimized
profitability and strategic intent. branch closure without abruptly branch network to address the
interrupting services to customers. changing economic environment
Through an illustrative business In new markets, it allows for while staying relevant to the
case, we calculate the potential building customer relationships digital customer. While this
savings that rationalizing branch and obtaining customer insights transformation will not occur
networks and creating a new through the advisors who visit overnight and branches will not
mix can bring to banks. Our customers at their homes or disappear, banks need to start
estimates indicate that a branch choice of location. Once the rethinking the role of the physical
rationalization of 10% and mobile sales force has helped bank branch and how it blends
subsequent branch network enhance the customer base banks with the digital channels.
differentiation along the model can have a better perspective on
suggested can result in significant what branch format to develop
savings. While the spread of and in which geographical cluster.
branches across each model Hence the mobile sales force helps
may be varied depending on the in regulating both investments
target customer segment and the needed in setting up a branch and
geographical reach, we believe cost savings achieved from closing
that keeping all other factors them down.
constant, decrease in distribution
costs could range from 20%-30%.

A Business Case for Branch Differentiation and
Rationalization: An Illustrative Analysis
Based on our digital transformation and banking experience, we have developed an estimation model
to determine the projected cost savings that can be derived from implementing a mix of our proposed
branch models.

Key Assumptions
- Net Banking Income for 4,000 branches is $ 6 bn.
- Physical Distribution Operating Costs account for 30% of Net Banking Income (i.e. staffing, real estate,
facility management, security, other overheads; IT and telecom excluded).
- Physical Distribution Capital Expenditure is 5% of Net Banking Income.
- Capex and Opex costs of each proposed branch model are based on the levels of digitization needed,
levels of staffing and training requirements.

Current State: Total Network Cost with Homogenous Branches

Physical Distribution Costs for 4,000 branches (in USD mn)
Net Banking Income (NBI) $ 6,000
Operating expenditure (30% of NBI) $ 1,800
Capital expenditure (5% of NBI) $ 300
Total Cost (Capex + Opex) $ 2,100

Proposed Costs of Target Branch Models

Branch Model Type CAPEX (as a % of a regular branch) OPEX (as a % of a regular branch)
The Pharmacy 160% 160%
Digital Pod 80% 75%
The Lounge 65% 50%
The Shop 50% 65%

Target State: Total Branch Network Cost with Branch Differentiation and
Network Reduction by 10% to 3,600 branches (in USD mn)
Branch Model Type Branch Split Target CAPEX Target OPEX Total (Capex + Opex)
The Pharmacy 15% $ 65 $ 389 $ 454
Digital Pod 20% $ 43 $ 243 $ 286
The Lounge 20% $ 35 $ 162 $ 197
The Shop 45% $ 61 $ 474 $ 535
Total Cost $ 1,472

Total current expenses $ 2,100 mn

Total expenses Post Rationalization and New Mix $ 1,472 mn (Savings of 30%)

1. This analysis is purely intended to act as an illustration of potential benefits from readying branch networks for a digital future.
2. Assumptions and financial ratios are based on averages of top 3 US banks with similar network size.


1, Are bank branches endangered species?, May 2013; Chicago Tribune, Illinois sees more bank closings
than openings in last year, July 2012
2 4-traders, Spanish Banks Must Close 10,000-12,000 Branches Santander Executive, October 2012
3 American Bankers Association, ABA Survey: Popularity of Online Banking Explodes, September 2012
4 Forrester article: The State Of North American Digital Banking: Priorities, Goals, And Metrics, 2012
5 Novantas, U.S. Multi-Channel Customer Research 2012, May 2012
7 Italy Chronicles, What a Bank!, December 2008
8 Media walls allow customers inside the branch and pedestrians on the street to view information about the bank, live
market updates, global and domestic news
9 Citigroup website
10 New York Times, Blockbuster UK Goes Into Bankruptcy, January 2013
11 CNN, Circuit City to shut down, January 2009
12 Motorola Solutions Retail Vision Survey, May 2012
13 Capgemini Consulting Digital Leadership series, An Interview with Angela Ahrendts, CEO of Burberry, Burberrys Digital
14 Apparel Technology and Business Insight article, Macys Omni-Channel Strategy on the Move, 2012
15 Forrester, INNOVATION LESSONS FROM BBVA, November 2012
16 Forrester, Case Study: Hapoalim Injects A Human Touch Into Digital Banking, 2012
17 Capgemini Consulting analysis
18 Jyske Bank website,
19 Virgin Money website
20 The New Zealand Herald, Banks need to move with the times: survey, June 2007

Stanislas de Roys Jean Coumaros Phil Falato

Head of Banking Market Unit, Head of Financial Services Global Vice-President, Banking Market Unit,
France Market Unit United Kingdom

Digital Transformation
Research Institute

Jerome Buvat, Swati Nigam and Aparna Gajanan from the Digital Transformation Research Institute worked on this paper.

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Stanislas de Roys Krister RYDMARK Roberto MANINI

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