The end of bank branches in retail banking

The traditional retail banking is no longer sustainable. Technological developments lead the industry in new innovative ways of banking such as online platforms and applications for mobile devices.

   Until the financial crisis in 2007-2008, a retail bank’s total share of deposits was tightly linked to the size of its branch network. However, over the past decade, this relationship between deposit growth and branch density has weakened. Despite the partially recovery from the financial crisis for the most of countries, the number of branches per million people is declining.

   Retail-banking branch networks are decreasing across Europe, North America, and the United Kingdom. For instance, in Netherlands the peak-to-trough reduction is 71%, while in Denmark is 56%, in Finland 45%, and in Greece a remarkable 42%.

   According with the recent study of McKinsey analysis, the rate of branch reduction is often tied to customer willingness to purchase banking products online or on mobile devices. Customers now expect interactions to be simple, intuitive, and seamlessly connected across physical and digital touchpoints.

   Eighty to nighty percent of banking customers in the Nordics, for example, are open to digital product purchases for most financial products, compared to fifty to sixty percent in North America and Southern Europe.

   Advances in technologies such as robotic-process automation, machine learning (ML), and cognitive artificial intelligence (AI) are unleashing a wave of productivity improvements for financial institutions. These tools can reduce costs by as much as 30 to 40 percent in customer-facing, middle-office, and back-office activities.

The end of traditional music in comparison

The history of the music industry over the last decades provides a possible model for how things will go in banking, the study mentions. Until the 1990s, music distribution was dominated by stores selling tracks that record companies onto albums. In the early 2000s, digital distribution, especially via iTunes, radically reduced distribution costs.

   Consumers could now purchase individual tracks online and make streaming playlists. Streaming services are now the dominant distribution channel, with a few large players such as Spotify and Apple emerging as winners.

   The success of these platforms is based on their ability to create highly personalized bundles based on consumer needs and preferences, and a superior interface without the friction of purchasing tracks individually.