The Competitive Advantage of Bank Branches in the Digital Age

When Bank Branches Disappear So Do Customers

When retail banks close branches, they don’t just reduce costs, they can erode a key competitive advantage. That’s because traditional banks with branches not only compete with other retail banks but also with direct-only banks, neobanks and fintechs.

The closure of a branch is an invitation to customers to think about their existing banking relationship(s). If the advantage of physical proximity and possible personal support and advice is no longer given, other decision criteria are used — primarily if there is another bank with a branch nearby, but also the level of fees and interest rates, user-friendliness in digital banking, a special product portfolio or additional services. 

In these comparisons, the previously used bank usually loses out, as branch proximity might be considered as the most important factor. And if not, direct banks, neobanks and fintechs have a different cost structure, allowing them to offer lower fees and more attractive interest rates, but also focus more strongly on the customer experience.

Are Bank Branches Actually a Cash Cow?

Closing a bank branch is a cost-driven decision. And because the branch is the most expensive channel in banking, closing one appears to be a good move. This might be based on stats that show around 73% of the world’s interactions with banks now take place through digital channels.

Conversely, this means fewer people go into branches, so it seems the physical locations might not be as important as they were in the past. However, deeper analysis reveals something important: The utilization of digital banking is mostly about basic services, like money transfers, managing their own account and bill payments.

When it comes to selling, branches are more successful than digital channels: In North America, branches accounted for 72% of newly acquired current accounts in 2023 according to Finalta by McKinsey. And for mortgage origination, more than 50% of borrowers are within 10 miles of their branch. Additionally, similar, rather complex selling, like investments, advice on a retirement plan or education saving plan, are difficult — if at all — to map via digital banking.

Unfortunately, there has been little focus on these strengths as leaders look predominantly at the rise of digital banking. What they often neglect to examine is the fact that closing a branch turns them into direct competitors of the digital-only banks.

Transforming Branch Operations

The cost of branches is real in terms of human staffing requirements and the rent for the building and related facilities. That’s part of the picture. But you also need to analyze what’s being done at the branches today — and the services they’re delivering to determine ROI.

For example, people often come into a branch to simply transfer money or set up a PIN for online banking. They use the branch for simple, transactional services when there are much more convenient and more cost-effective options available, such as digital self-service.

A better approach is to reduce those low-value services delivered at branches today, and free up branch staff’s capacity to focus on what they can do best, which is offering advice and selling. To do that effectively requires deeper insight into how customers are engaging with your bank across physical and digital touchpoints.

Predicting Banking Customer Needs

When you understand why somebody is connecting with your bank — every time they engage — you can send them to the best resource.

Let’s say a customer visited a branch yesterday to discuss investment options and retirement plans. Then he calls in the next day to provide additional information. He is routed to the call center, where an IVR collects basic information, like customer identification, authentication and qualifying the call reason. After this step, the customer is handed over to an agent – as there is no option of being transferred to a branch. And then, finally, the customer is transferred manually to the branch.

This happens because that bank doesn’t understand why the customer is calling or their recent interactions. Ideally, this customer would be greeted with, “You stopped by a branch yesterday, is your call related to that?” and then decide if it makes sense to forward the customer to their branch.

To avoid this cumbersome process, some customers call their bank advisors directly on a mobile phone. Not only does this introduce security risks and regulatory concerns, but there’s also no way for that conversation to become part of the bank’s overall understanding of the customer’s experience.

If you can capture and manage those conversations though, then you can decide whether it makes sense to directly connect a customer with his advisor at the branch. Likewise, if it’s a different issue, you might send a link to the customer’s mobile phone for self-service, for example.

The challenge is the gap in operations between how the branch model works and how digital models work. A cloud-based customer experience solution like the Genesys Cloud™ platform helps bridge that gap. It gives banks a 360-degree view of the customer, with the opportunity to use real-time insights into what each customer needs and how to best serve them.

Optimizing Customer Journeys Across Touchpoints

Today’s banking customers engage using multiple channels — online, mobile and in-person at branches. Yet many banks lack unified visibility into these interactions, especially at the branch level. This disconnect creates blind spots in the customer journey and makes it difficult to deliver seamless service.

When touchpoints are integrated, banks can design journeys that are more efficient, personalized and frictionless. The key is using customer intelligence to understand the context behind each interaction.

Not every inquiry requires the same level of engagement. Low-value requests — like changing an address — should be handled digitally with self-service options. But high-value services, such as private banking, wealth management or corporate advisory, demand a personal touch from someone with a unique skill set.

Routing customers effectively requires situational awareness and data-informed decisions. And these insights enable bankers to sell more products. It starts with a single point of contact.

When a customer calls the general customer support number, the system should route them intelligently based on their profile, history and likely intent. Predictive analytics can identify why they’re calling — even before they explain — making the experience smoother and more satisfying.

Sometimes it may even make sense to include branch staff in a virtualized sales and service network. Consider this: We’ve all endured the irony of being told “You’re important to us.” while also being stuck at position 115 in a queue. Smarter alternatives, like offering a callback or routing the call to an available advisor in a nearby branch, can help to improve satisfaction while optimizing staff capacity.

Genesys has found that banks in the Benelux region — Belgium, Netherlands, Luxembourg — have pioneered a “ring of service” model: If the centralized sales and service center or a branch is unavailable to assist a customer, the next closest branch is contacted, then the next, and so on. This ensures that no customer is left waiting too long, and that underutilized resources across the network are put to productive use.

Raising the Bar on Banking Customer Engagement

There’s no doubt that the total number of bank branches will be reduced.

But if you’re closing all your branches, you’re running into competition with others that have a better cost structure and more focus on the customer experience. It is more promising to redefine the role of the branches and emphasize their advantages, namely customer proximity and personal advice on complex products.

Investing in a flexible interplay of digital and physical touchpoints in customer contact and the seamless connection of both worlds enables a more efficient organization of the customer relationship through cost savings in service provision while at the same time increasing the likelihood of sales success. This way, the branch network becomes a competitive differentiator.

Genesys Cloud offers the reliability, scalability and innovative capabilities to help banks meet shifting customer demands. Read “Why companies choose Genesys Cloud” to discover why leading brands choose Genesys Cloud for their CX transformation.