The recent deal, which allows 99% of UK bank account holders to conduct basic transactions through the Post Office, will help to mitigate the impact of branch closures. However, banks should still tread carefully when shuttering their branches.
As of January 2017, virtually all holders of UK personal bank accounts are able to conduct routine transactions, such as paying in cash and making real-time card-based credit and debit payments, through Post Office outlets, thanks to a new agreement between the Post Office and the banks.
The deal, which unifies and extends the separate agreements that already exist between the Post Office and individual banks, will go some way towards offsetting the huge number of branch closures that have taken place in recent years. According to research by Which?, more than 1,000 UK bank branches were closed during 2015–16, with HSBC alone shutting more than a quarter of its network.
However, Post Office outlets are far from being a perfect substitute for bank branches, and banks should not be tempted to use the deal as an excuse to accelerate their branch closure programs. For reasons relating to staff training and the logistics of managing queues, only the most basic transactions can be carried out in Post Office outlets. However, these are exactly the activities that consumers are increasingly happy to conduct via digital channels, as can be seen in our 2016 Retail Banking Insight Survey:
In contrast, more complex interactions, such as making a complaint or querying a suspect transaction – the so-called “moments of truth” that have a disproportionate impact upon satisfaction, loyalty, and advocacy – are strongly biased towards the branch. In these circumstances, consumers have a clear preference for face-to-face contact, and digital channels, at least for now, cannot provide the same degree of guidance and reassurance.
Furthermore, our research shows that branches continue to play a vital role in customer acquisition and that, contrary to expectations, younger consumers use branches more often than those in older age groups.
This presents banks with a challenge: how can they reduce operating costs while not alienating their customers? In the longer term, artificial intelligence will help digital channels to emulate human advisors more closely, by enabling natural language queries and offering contextual, added-value insight.
More immediately, the answer is to remodel branch networks in a hub-and-spoke configuration. This involves converting larger, city center branches into hubs for advisory and consultation activities, while smaller branches on the periphery will be partly or fully automated, with access to advisors and specialists enabled via video banking. This approach will allow banks to target their resources more effectively.
It is possible for branch networks to survive in the digital age. However, they will be smaller and smarter than before, as they adapt to focus on what digital channels cannot provide.
For more information on this topic, please contact Daoud Fakhri at firstname.lastname@example.org.