The death of branches probably started in 2010

There’s a strong statistical argument to be made for disruptive technologies that change consumer behavior. I’ve argued the impact of this on branch banking extensively starting with Branch Today, Gone Tomorrow, and more recently in Chapter 3 of BANK 3.0, but I’m still faced with significant resistance in the retail banking industry at large. While there is growing evidence for a grass roots change in bank behavior, it’s not uncommon to see quotes or responses like this still in the banking sector:

Ten years ago the consultants said to us that we had to scrap our branches and go straight to the internet, but I had heard those kinds of statements before with the credit cards and ATMs…I’m old enough to remember.”
Alfredo Sáenz, CEO Santander (The Economist, May 19th, 2012)

I think that this sort of comment is effectively hiding your head in the sand, ignoring the signs. Thus, I thought I’d share a statistical view of the triggers that result in the deconstruction of traditional distribution systems, and look at the evidence we can already see in the retail banking space to give some specific metrics around which branches need to go and when. This is hard data demonstrated in a way that reinforces that banking is no different to any other business facing changing consumer behavior. If you still believe branches will survive en masse, you need to at least read this for your own peace of mind.

One other warning. This is a lengthy, detailed post for obvious reasons…

Core behavioral shift

The argument at the core of anticipating widespread disruption to the physical distribution channel within retail banking is to examine changing behavior around the branch, and if there are any patterns we can learn from in other industries. In industries like music, books, video rental, and others we see historically the same triggers and shifts, along with the same reluctance to accept the inevitable changes that this brings. In each industry we’ve seen majors like Tower Records, Borders, and Blockbuster (see Wikipedia’s List of Defunct Retailers of the United States to see the full effect of disruption in distribution) faced with the same core shift, and an inability or unwillingness to change their distribution model to match changing consumer behaviors. In the retail banking market, we’re seeing the same reluctance to believe that anything will be fundamentally different with passionate arguments that the ‘branch will survive’. What is typically at the core of this imperative for change?

In each disrupted business or industry we see a paradigm shift in distribution initiated by a technological breakthrough that changes buying habits. These paradigm shifts are sometime convergent as in the case of the iPod and iTunes, but correlate with a core product model such as the shift from buying entire Albums, to just buying (or downloading) Singles. In the case of books the core buying behavior is characterized as eBook versus Hardcover or Paperback, but the eBook wasn’t really a serious competitor in the buying behavior stakes until Amazon launched the Kindle ‘eBook reader’.

At the core is an emerging behavior that demonstrates a trade-off between buying convenience and the need to ‘touch and feel’ the brand or product in-store. Often the new product provides a substantial price benefit because of lower distribution costs also, but not always. Great new product mechanisms show that convenience and ease of use will often even trump pricing disadvantages (such as in the case of a booking fee for cinema tickets).

In each instance of buying behavior shift we see early adopters first out of the gate on the new technologies that allow different buying or consumption, we then see both traditional consumers and retailers voice extreme skepticism around the import of this new emerging behavior, and finally we see rapid adoption of the technology over 3-5 years resulting in a irreversible upheaval of traditional distribution systems. This cycle of adoption and industry realization might be likened to the Kübler-Ross model, commonly known as the “Five Stages of Grief”, the only difference being that by the time the industry at large accepts the core consumer behavior shift a few major brand names have usually, already gone the way of the Dodo.

Those that have gone before us

The cycle of disruption can be articulated in the following simple manner. We start with Physical Products in a Physical Store supporting the traditional distribution structure. A new distribution platform (such as the Internet) comes along and changes early adopter buying behavior – we still buy a Physical Product but it comes through a Digital Store. Finally, the product (where possible), is abstracted to a digital form (Digital Product) which is Digitally Distributed without the need for the traditional stores.

Physical Product-Physical Store -> Physical Product-Digital Store -> Digital Product - Destroys Physical Distribution

To support this process we need both changing consumer behavior, and the paradigm shift of an emergent digital product. While Amazon has disrupted book sales massively through the Kindle, they can’t affect the same rapid level of disruption on clothes, shoes and electronic goods because those products can’t be fully digitized. When you digitize the product, it eliminates the majority of physical stores required for distribution over time because consumer behavior shifts away from visiting the physical store as the primary buying behavior. Whereas, when a physical product is retained, there is more of a split along buying preferences (e.g. in-store versus digital store) and the same shift takes longer or levels out.

The Typical Pattern of "Store" Disruption


The other interesting side effect of the disruption cycle is that in industries where the physical distribution layer is destroyed, incumbents rarely survive as the dominant distribution players. Look at books where the likes of Borders and Angus & Robertson failed in the last two years, Barnes & Noble still struggles to survive and Amazon absolutely dominates hardcover, paperback and eBook sales across the United States (and to some extent globally). Amazon is now the largest distribution player in book sales bar none – because they owned the new emerging distribution platform, i.e. the digital book and reader combined with the digital bookstore.

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  1. Hi Brett,
    Great article and a really compelling overview of the topic. Just for accuracy though:
    1. Australian branches grow for 11th straight year –

    I was surprised myself…


  2. Rob says:

    All I can offer is this –

  3. Great, comprehensive survey of the decline of branches. I’m still not totally sold though; my question is, what type of product is banking? Music, movies, books are all consumer goods, easily packaged, distributed and consumed. The purchase of a consumer good, for example a book creates a one-way relationship; the reader interacts with the author, but the author may not even know the reader exists. Education, on the other hand, is a service; the relationship between a teacher and a student is two-way, and I think because of that requirement education will never move completely online, unless we manage to completely simulate physical interaction. Banking sits somewhere in between education and books. In general it doesn’t require the level of interaction that education does, but it certainly requires more than a prepackaged book. I think the future of branches will really depend on how much the industry manages to automate, package, and distribute the banking relationship. There are still things (online account opening and loan origination is one of them, we’re working on it) that banking doesn’t automate well, and there are some things, like financial education and advice, that banks may never automate. All this begs the question–how can banks both differentiate and automate? Because ultimately, a bank account is not a book; it’s a commodity. Like in education, service and rate used to differentiate; now we have a potpourri of service, rate, and technology, but in technology, it seems like banks are all racing toward the same place.

    • Brett King says:


      To be fair, I’ve never said every branch will disappear, just that as behavior shifts most branches in their current form will struggle to survive and as a result many will lose out. With some smart repositioning there is still strong brand affinity with brick and mortar for established customers, and there is still specialized engagement opportunities. However, by removing the friction and outmoded processes entanglements from engagement, the branch-centric processes will lead branch to have less and less differentiation experientially, making digital a far more efficient day-to-day revenue and engagement channel.


  4. andrew bell says:

    In order to prevent on-line fraud, money laundering, and to grow the business relationship, banks have a requirement to “know the customer”, and the best way to do that is a face to face meeting when an account is being opened. From the customer side, although some people may be OK with meeting their banker at home or a 3rd party location, the average person doesn’t want to sit in a coffee shop discussing their personal finances, nor do they want to have a bank employee in their home.

    • Brett King says:


      Let me blow your mind. We’ve found customers who have presented at a bank branch face-to-face and passed IDV successfully, and we’ve picked them up as synthetic IDs due to the fact that we’ve found they have a fake facebook profile.

      So a bank would say they know the customer based on face-to-face, but we’ve shown that synthetic ideas can often pass muster in a branch when they’re still fake.


  5. Peter Fletcher-Dobson says:

    Great article. In a world where banking is commoditised and customers value convenience above all else there is only one end game. The winners will be those banks who can transition the quickest to the new paradigm. People want banking on their terms – but many bankers still labour under the illusion they provide some ingredient X. For most people banking isn’t that complex – trouble is most banks don’t do the basics right and there is friction across channels.The ones that focus on an omni channel experience, weighted towards mobile will start to break away from the bunch. The ones that don’t will end up like our dismal DVD rental store around the corner – now desperately selling sweets and lollies and looking as relevant as a man with a fork in a world of soup!

  6. paul o'malley says:

    Three questions:

    1. “piece of mind” = Freudian slip?
    2. Whatever happened to the concept of “people for advice and technology for transactions”? The people don’t have to be in a “branch” (e.g., ING Direct, now CapitalOne360) but they need to be accessible.
    3. Why would’t consumers exhibit the same shopping habits for financial services as they do for other consumer products? Search online, buy in person. Funny how ING went into the branch business…

    • Brett King says:


      1. Thanks, resolved
      2. The concept “people for advice, technology for transactions” is outdated – advice delivered in real-time can be more powerful than a person
      3. Financial services aren’t exhibiting the same engagement characteristics as consumer products – the data doesn’t lie here – the problem is that often the consumer product is disrupted by financial services. For example, if I want to buy a house or a car, I can’t unless I navigate the financial product first. The friction of this pushes me away from face-to-face to most efficient engagement from a utility perspective.


  7. Cristobal says:

    The death of branches that began in the US in 2010 was precipitated by the high volume of branch “put-backs” to FDIC, as a result of the bank closures that began in 2008-09. Many acquirers closed up to half of the branches from these assisted acquisitions, planfully, as they bid strategically on networks that would increase market share at little/no incremental expense. Private, unassisted transactions also added to closures and will continue to do so as smaller banks exit the business voluntarily due to margin compression, abililty to sustain earnings, and regulatory burden. These are the real reductions in bank branches, more so than from banks consciously deciding that their networks are no longer viable.

  8. What we see in Italy with our customers is that even when the bank account is originated at branch level in three years from origination about 85% of customers use it remotedly (home banking and customer center). It is shocking for traditional retail banks…we are instead very happy…;-) is the way we wanted to design our relationship with our customers.
    Nationally, Branches won’t disappear but need to be drastically reduced (at least by 50%) and redesigned in two different submodels: fully fledged “personal” service flagships (where main public services such as taxes and local utilities are located, for advisory and trouble solving) and fully automated corners (where people usually spend most of their free time such as malls and shopping centers, cinemas, main shopping streets or raliways/metro stations) for transactional and daily operations.

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