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Why banks should reinvent themselves

October 18, 2020

In recent years, the development of digital technology and the surging increase in customer demand for convenience has been forcing traditional financial institutions to transform. The transformation of the branches, which have been the core of banking operations, is one example. For banks, the days when locating branches and forming an extensive network of them helped foster trust with customers and ensure steadily solid profits are a thing of the past. Mobile app and websites have replaced the role and function of branches, self-service is becoming more common, while costs associated with physical assets have become a burden on banks’ revenues. In the future, most of the services provided by branches will be consolidated in non-face-to-face channels. It is expected that the number of manned stores, which have been central to the maintenance and expansion of the customer base, will not only be reduced and streamlined but will also welcome more digitization so that banks can minimize operating costs.

Changes of customer

Moving from physical to digital channels, it has been pointed out that consumers are welcoming the change, with an ecosystem they now find more open and accessible. The World Retail Banking Report 2020, published by Capgemini and Efma, notes that customers who were once willing to do branch-based transactions are beginning to accept more digital and virtual transactions since COVID-19. For example, 57% of customers prefer internet banking, and 55% of consumers are expected that they prefer to use actively bank-provided mobile applications. Such changes in consumer needs are having a significant impact on store operations.

Changes of branch

Examples of branch transformation include changes in infrastructure, resources, and operations. In terms of infrastructure, banks restructured and consolidated their stores, as well as converted their low counters to private consultation rooms, and the opening of micro branches that specialize in functions for which there is a high need for face-to-face interaction, such as asset management and inheritance. In addition, while optimizing the allocation of staffing and teller in the stores, by reallocating the extra staff to the sales staff, the bank tries to efficiently improve its resources allocation. In terms of operations, the introduction of self-service terminals has reduced the workload of counter and teller operations. In the mid to long-term, effective digitization will also reduce the number of staff across different functions, from tellers to consultants.

Challenges to achieve

However, despite these external pressures to change, traditional organizational culture makes the transformation slower, and a lot of banks are still articulating their operations around face-to-face services. In Japan, the mainstream management style has been to have each branch compete in terms of business performance, and this has led to an increase in the number of branch managers at the top, which tends to promote a non-optimal system. For them, since performance appraisal for each branch office is the norm, they have a conservative approach to the conduct of operations, probably not wanting to face risks associated with such disruption. However, given the situation that the banking industry is in, it needs to take a more resolute approach. Specifically, banks need to achieve a sustainable business model through lower investments in branches combined with improved service quality and invest more aggressively into non-face-to-face channels, even if there is a temporary customer defection. In order to achieve this goal, a major issue would be whether the banks will be able to change the mindset of those in the field, from top to down.

Digitization and new consumer habits have changed branches’ added value within the Banking industry, and players are now in a process of trial and error. Meanwhile, technology has eased access to information, and a lot of competitive financial services are now available online. The differentiation has shifted from “number of stores” to “quality and ease of use of digital channels” and fintech companies and other tech companies, including GAFA, are now proposing financial services that are rapidly beginning to win the hearts and minds of their customers. In order to meet these changing customer needs, they must embark boldly into a non-face-to-face-centric transformation. The existing banks need to choose either to conquer back the customer acquired by fintech companies or leverage their own strengths to collaborate with their new competitors. Whatever choice they make, they will have to work on their internal culture and probably prepare for some customer defection while reforming their branches. In the end, benefits will be worth the efforts, and only through transformation, they will guarantee the sustainability of their operations.


Kai Fukumori

Consultant – Financial Services

Capgemini Japan