8 Ways Financial Institutions Need to Rethink Their Branch Strategy

branch banking future

Physical branches have always been a tangible reminder of financial institutions’ place in the community. Modern branches have traded the traditional temple-of-stone look for something more utilitarian, but the branch itself still conveys a message of continuity and permanence.

Yet the very concept of branch banking is in question, in the age of COVID-19. The industry was already trending toward closures and consolidation, and now the impact of the global pandemic – and users’ resultant wariness of in-person transactions – is likely to speed up that transition. So how should you be rethinking your branch strategy?

Think Hard Before You Close Branches

You’ll face considerable pressure to close branches as a cost-cutting measure. The virus-driven economic slowdown will have a disproportionate impact on smaller community-based institutions, especially with interest rates already at historic lows. Closing branches, even temporarily, can provide your operations budget with immediate relief.

That being said, the short-term gain may lead to long-term pain. Your physical branches are the key differentiator between your institution and nimble, pure-digital fintechs. Without them, your branding as a part of the local community becomes a hollow promise. Consumers expect the big banks to be ruthless in pursuit of shareholder value, but community banks and credit unions are held to a different standard. Intellectually they’ll understand that you had hard decisions to make, but emotionally it will still feel like betrayal.

It’s especially important to consider who uses each branch. A physical location is especially important to users whose lives revolve around cash, one thing they can’t get digitally. This includes most of your small and medium-sized business (SMB) clients, as well as economically disadvantaged users who may lack the resources to take advantage of your digital options. Although it’s counterintuitive, it may sometimes make sense to close a relatively profitable branch and keep a low-earning one open because those users are less able to change with you.

Don’t Actively Funnel Users to Branch Banking

Aside from habit, there are three reasons your users come into a physical branch. Sometimes it’s because they want to, sometimes it’s because they need to, and sometimes it’s because you’ve compelled them to. In the post-COVID landscape, it’s probably time for that third reason to go away.

Some users will cling to the familiarity of banking at the branch. Others need to meet with your advisers and planners, or to deposit or withdraw the cash their business depends on. These are perfectly valid reasons to come in, but the situation is different for end users who would prefer a digital or contactless option. Forcing those users to come to the branch is doubly unproductive: it limits your ability to reallocate branch staff; and users with a digital-first preference (or those who are contact-averse because of the virus) will resent it.

Accelerate Your Digital Transformation

The flip side of consciously not directing end users to your branch is providing an expanded range of digital options, for those who must or prefer to use them. Much of the value of a comprehensive digital platform comes from its ability to take most routine banking away from the branch, freeing your physical branches to focus on higher-value activities such as mortgages, small-business lending and financial planning/wealth management.

This makes perfect sense on a number of levels, for institutions coping with a cost-constrained environment. Not only will this reduce the staffing required in your branch, creating the possibility of smaller footprints and lower-cost leases, it also opens the door to having more of your front-line staff work remotely. It’s safer for them and reduces operating costs for you, a clear win on both fronts.

This is also the time to consider updating your platform. Many financial institutions rely on multiple legacy systems from different vendors to deliver their services, which is both a significant operating cost and a limitation on your agility and ability to react to changing end user needs. A modern, fully integrated digital platform can lighten your IT team’s workload and make you more responsive. That means less economic pressure to close branches, and greater flexibility in adapting them to the still-unfolding realities of “the next normal.”

Consider Post-COVID Physical Changes at the Branch

Your existing branches are mostly built on the traditional paradigm of users waiting in line to be served, then standing side by side at wickets which – to take fullest advantage of floor space – are built close together. That won’t fly in the age of physical distancing. At a minimum, you’ll need to revamp your physical space and customer flow to allow for greater space between customers, and protective physical barriers to separate customers from staff and each other.

You’ll need to implement similar changes behind the counter, in employee areas and break rooms, to protect your staff. Additional hand-washing and sanitizing stations should be on your to-do list, and you’ll also need to sanitize surfaces and equipment on a much more regular basis. You should also provide dedicated banking hours solely for those in high-risk groups, ideally after the branch has been fully sanitized.

These are stopgap measures, designed to buy you enough time to rethink your branch’s work- and customer flow. Once you’ve gathered enough experience to know what an effective branch layout will look like in this new reality, you can set about renovating or refurbishing your surviving branches to incorporate those lessons.

Bringing the Digital Into Your Branch

Your revised retail banking strategy should acknowledge that physical and digital options are not necessarily “either-or,” but can be “both-and” (the World Economic Forum coined the term “phygital” for this approach). As part of your overall reevaluation of your branches’ design and purpose, you should be asking “where can I use technology in place of a staffer?”

After decades of experience with ATMs you already know users will physically come to the branch and use a machine to meet their needs without ever speaking to a human, and there are many ways you can incorporate this kind of contact-free interaction into your branch design. You might consider offering well-spaced kiosks in the branch, where customers can log in to your digital platform, conduct what business they need to, and then log out. This is an especially useful option in branches where users may not have access to reliable internet or modern phones.

Another option is geofencing, which can push different messaging, information or menu options to users’ phones depending where in the branch they are. It’s a quick way to guide users to where they must go, without requiring them to speak to (or, crucially, wait for) a human.

Consider “How Much Branch” is Enough

Reevaluating your retail branch strategy doesn’t necessarily mean closures. It can mean creating new physical locations, though your definition of a “branch” may have to evolve. You might decide, for example, that a location might consist of an ATM to dispense and receive cash, and a single adviser meeting clients by appointment.

A footprint that small is much less costly to build out and operate than a standard branch, and can be placed where it’s needed: in a mall kiosk, a community center, or perhaps even inside an established retail outlet. The basic format could also be fleshed out with one or more interactive terminals for other banking, if the minim-branch is in an area where your users might not have reliable home internet access.

For specialized services like wealth management, insurance, mortgages or business loans, the “branch” could be a small but well-appointed office, similar to those used by standalone service providers. You might even explore the idea of co-locating with a compatible business, such as a realty office or car dealership. The mutual benefits are even greater if the partner business is already a client of yours.

Be Creative With Surplus Space

A surplus of space in your current real estate footprint is one likely outcome of your retail banking strategy. Brainstorming creative ways to cut costs on that unused space, or – better yet – find ways to generate revenue from it, can become a constructive part of your planning process.

At the simplest level, that can mean simply cutting costs by turning the power off in the unused areas, or running the HVAC system only minimally. This may be your best option for branches that have closed only temporarily. Alternatively, you might utilize space in shuttered branches as a workspace for staff from other locations, creating room for greater physical spacing.

A more aggressive option is to turn spaces you own, or are committed to by long-term lease, into revenue generators. A relatively quick and minor renovation could turn part of an existing branch into a physically separate space suitable for sublet to another business, for example. You could also consider turning closed branches into a co-working space, providing a home for entrepreneurs in the community while simultaneously generating revenue. That could be a difference-maker for small businesses trying to survive the epidemic.

Focus on Building Resilience

Your branch banking strategy will play an important role in your recovery from the COVID-19 crisis, but it’s only one factor and it can’t be considered in isolation. It needs to be part of a larger discussion of how to rebuild your institution around the idea of resilience: conserving and directing resources in a focused manner to the core operational requirements, products and services that will drive your growth as the virus ebbs.

What that looks like in practice will vary from one institution to the next, but a strong digital platform will likely be a difference-maker for many, especially among smaller, community-driven institutions. If you have a modern platform, your customer data can inform your decision-making process in something approaching real time. It will also provide you with the individualized information you need to reach out to your users in a timely fashion with interventions to help keep them solvent, or to simply inform them about the ways you can help them get through these unsettled times.

Without that kind of insight, you run the risk of being sidelined by rivals with access to better information. Contact us today to request a demonstration, and learn how Lumin Digital can give you the tools you need to press reset on your strategies.


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  2. https://www.mckinsey.com/industries/financial-services/our-insights/reshaping-retail-banking-for-the-next-normal#
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  5. https://www.weforum.org/agenda/2020/06/phygital-strategy-isolation-economy/