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Should banks close their branches, or just use them differently?

Although we are seeing a reduction in the number of physical banking branches, there is a concurrent trend for re-purposing the premises for other uses, and even evolving the banking services on offer.

It was announced recently that Capital One plans to open two more cafés – called ‘Capital One 360’ – in Chicago in 2017, plus a new one in Denver.

To date, the financial institution has opened 11 coffee shops across seven US markets – places where you can grab a fancy coffee and use the free WiFi, and make use of an ATM and on-site banker. Capital One customers receive a 50% discount on café purchases, but the venues are open to any member of the public. You won’t be approached by a bank employee about opening an account or getting a loan – all advice is on request, and the focus will be on “human connections” rather than sales pitches.

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The Capital One Cafe in Boston was one of the first to launch, in 2014. (Photo: Business Wire)

The Wall Street Journal reports that, in a similar vein, Bank of America – as well as J.P. Morgan Chase, PNC Financial Services Group and others – are due to convert thousands of teller roles to “relationship bankers” who can “direct customers to high-tech ATMs or show them how to deposit a check via smartphone”.

Meanwhile, in the UK, Barclays has pioneered the use of branches as a space for educating customers on digital skills via their Digital Eagles. The benefits to the bank are clear: as they reduce the number of branches and tellers across the country, and push adoption of their digital banking platforms, the community they serve has the ability to conduct their banking on these platforms. They also build appropriate skills and knowledge in their staff first, which they pass on to customers. From a brand perspective, this also makes Barclays seem like the most pioneering and innovating bank, so closely associated with digital engagement.

Other banks have been less successful in this endeavour. Abbey National tried the coffee shop approach, opening mini Costa outlets in its branches in the early 2000s, but closed many and ceased the practice by 2003.

Responding to the Challenge

The new banks who are appearing on the scene tend to offer a digital-only service, and operating a large branch network is often cited as the reason why incumbent banks have higher cost/income ratios. Pivotl suggests that 400 branches will close in the UK this year, not only because it saves money (around 65% of the costs of a larger bank) but because most banking activities can now be carried out online relatively easy thanks to new-ish technology. There are 40% fewer branches in the US than there were in 1991.

Rural and poorer areas may be at the most risk from branch closures, where decisions are made based on footfall and revenue.  However, high street banks did sign up to a ‘last bank in town’ agreement in 2015 that made a commitment to ensure ongoing access to banking services, even where physical branches were closing.

Mark Pavan, founder of Mapa Research, comments: “With pressure mounting on banks to reduce costs while becoming more customer-centric, thinking creatively about using physical locations is key. Closing branches may be necessary, but where a new relationship can be created – a community hub as per Capital One and Barclays – this can only be positive for everyone.”

Access to banking doesn’t mean access to physical locations, as digital and mobile banking has shown. Want to see what your competitors are doing in this arena? Speak to Mapa today.

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