The Road To Agnosticism: Online Banking Or Branches

by Mercator Advisory Group 0

The Economist added their voice to the discussion over the evolving role of the bank branch. Facing falling transaction volumes as check usage declines and more people adopt self-service channels the question remains, do we chop to save money or change to protect the franchise and increase revenue?

IS THE future of banking in the branch or in the ether? Two big acquisitions in America point in opposite directions yet both deals make sense. Capital One, a card issuer that has pushed aggressively into banking, is paying $9 billion for ING Direct, America’s largest stand-alone internet bank. Pittsburgh-based PNC has forked out $3.5 billion for Royal Bank of Canada’s network of branches in six southeastern states. That’s because the industry’s future lies in multiple distribution channels, not just one.

Moreover, the branch’s role is evolving. Fewer customers use it for routine services, such as withdrawing or transferring funds, but many still value it for more complicated transactions (see chart). Even as BofA trims its network, it is hiring more branch specialists in mortgages, investments and small-business banking. It announced this week that it will double the number of financial advisers in its branches by the end of 2011. Many Americans who bank predominantly online or on their iPhone still consider the density of nearby branches an important factor when choosing their provider.

One option for the cost-conscious bank is to replace traditional branches with cheaper mini-branches, staffed by two or three employees trained to give advice and loans as well as man the counters. Huntington Bancshares is opening 100 such outlets in Giant Eagle grocery stores across Ohio. These cost 85-90% less than normal branches to build and 50% less to run, says Stephen Steinour, the bank’s boss. But Huntington is investing heavily in internet and mobile banking, too—and thus “moving towards channel agnosticism”.

For more discussion on the pros and cons read the article in the Economist:

Read Mercator analysis on this topic: Evolving US Payment Systems and Bank Delivery Channels: Death of the Teller…Again? (Part II) Two part series Examines Evolving Consumer Payments and the Impact on Bank Delivery Channels