Fintech is automating banking processes, and neobanks are luring customers with attractive offers. Is there still any need for traditional bank branches? In part 3 of our fintech series, banking professor Andreas Dietrich provides an insight into the banks of the future.
No, I don’t think so. Pure neobanks operate exclusively online, and they won’t provide a full range of services for every customer group. Most customers will still need personalized advice for more complex banking transactions – and this will predominantly continue to be provided at branches.
Areas that require in-depth advice include retirement and pension planning, investment and taking out new mortgages – but not necessarily extending mortgages. Traditional banks can also gain an edge through advisory services on the subject of inheritance. This is an emotionally charged issue, and a large amount of money is at stake.
There were actually significantly more video consultations during the coronavirus lockdown than beforehand. But after lockdown, the vast majority of consultations returned to branches again. Most customers aren’t that keen on video consultations with financial institutions. I strongly believe that the relevance of video consultations will increase, but they won’t replace face-to-face meetings in branches just yet – at least not in the short to medium term. Telephone consultations, on the other hand, are already important.
Yes, an algorithm can make investment proposals. And this model is very appealing to a specific group of banking customers, because such services are often less expensive than traditional investment solutions. But we have seen that a large number of customers prefer a hybrid model and don’t want to invest exclusively online. Generally speaking, investors fall into the following categories:
In Switzerland, only 34% of customers belong to the execution-only group. 56% are validators who require personalized discussions before making investment decisions. The remaining 10% are delegators. It’s important to understand that most people in Switzerland aren’t interested in financial markets or don’t have the time to get to grips with them. The investment consulting or asset management models remain the best option for these customers.
Meeting the needs of all customer groups and organizing branches accordingly is a huge challenge.
In some areas, customer advice has already been automated, and people will in future play only a marginal role. For example, it is no longer necessary to have a customer advisor dedicated to opening new or additional bank accounts at every branch. On the other hand, digital solutions also assist customer advisors during consultations.
During an investment consultation, customers can be shown directly how their portfolio will change if they purchase a particular security. And in the field of mortgage advice, tools can visualize how affordability changes depending on various scenarios. These digital options are changing the nature of consultations in some respects – but clearly for the better, in my opinion.
Generally speaking, we’re currently in the middle of a transformation phase. Meeting the needs of all customer groups and organizing branches accordingly is a huge challenge. Various banks are in the process of restructuring branches and moving towards “advisory contact points”. Counter services are clearly becoming less significant and are often no longer even provided. I expect that the number of bank branches will also continue to fall in future.
By comparison with other European countries, Switzerland still has a very dense network of branches. Our analysis indicates that customers are willing to drive up to 12 minutes to get to the nearest bank branch. This means that branches can actually be closed in many places. Other factors also have to be taken into account, however – such as the proximity of competitor branches. What we know for sure is that it’s mainly transaction-oriented branches that are closing and counter services that are being scrapped. This is because fewer and fewer transactions are being carried out at the counter.
It’s vital that informational services are provided during the transformation phase.
Consultation rooms are becoming more important than lobbies. How these consultation rooms are designed still differs greatly, however. Some banks are adopting a “lounge bank” philosophy, where their premises are made as welcoming as a living room at home. Other banks are focusing primarily on introducing digital tools and gadgets to consultation rooms. A lot of options are currently being tested.
They could be converted into cafés or event venues. Cash transactions will be conducted almost exclusively at ATMs in future. It’s vital that informational services are provided during the transformation phase, such as human assistance to explain how inpayments can be made at ATMs.
Things will undoubtedly become more complex for them in the long term. For example, they will have to travel longer distances to make cash inpayments, as this service will be available only at specific locations. Fees will also be changed so that certain services that can be carried out online will be more expensive if personalized advice is provided. Around 10 to 15% of the Swiss population are currently classified as “offliners”. These customers always prefer a branch over an online channel for all types of banking transaction. This group includes a large number of elderly people, but others besides. This means that the number of people in this group will decrease, but there will always be people who avoid online banking for fear of issues such as cybercriminality.
I have several banking relationships, and I use neobanks, crowdfunding and robo-advisors – sometimes for business purposes, too. I’m a very typical execution-only customer – I almost never carry cash, except for the times when I want to use a local takeaway stall or Migros trolley. As I make my own investment decisions and rarely visit branches, I have contact with a customer advisor just once or twice a year on average – they usually get in touch with me. But I still believe branches are important. It’s just a question of how dense the network should be.
Andreas Dietrich is a Professor of Banking and Finance. The 45-year-old is Head of the Institute of Financial Services at the Lucerne University of Applied Sciences and Arts. As a lecturer and the author of a large number of publications, he follows developments in the financial sector closely. He has sat on the Board of Directors of the Luzerner Kantonalbank since 2015.
Any statements made in this interview should not be interpreted as investment recommendations or any other form of advice. They are the personal views of an expert in the field of fintech and neobanks.
