Branch banking not dead

Predictably, reports last week that the French bank Societe Generale would close 20 percent of its branch offices were met with anger by a union representative, who said the plan was “scandalous and profoundly shocking because nothing justifies these branch closures.” This sounds like the statement of someone still fighting a long-lost war, but even in the age of tech disruption, it contains a kernel of truth.

Traditional branch banking only appears to be dying. In fact, it’s probably undergoing a transformation that eventually could force Societe Generale to reopen some of the retail offices it now wants to close.

The number of branches is falling everywhere. Yet, in the U.S. for example, more people still use physical branches than the Internet or mobile phones when they need a service:

According to the Federal Reserve, 85 percent of mobile banking users – the most advanced bank clients – still use branches from time to time.

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From a purely technical point of view, this doesn’t make sense. Simple operations such as payments, transfers, deposits, blocking and reissuing credit and debit cards are now so reliably automated that there’s no reason to use physical infrastructure for them.

Yet people still visit the branches to talk to tellers. They may do so less, but the need hasn’t disappeared. The reasons are entirely psychological.

People like things they can see and feel. That’s why pure online banks now have negligible market share even though they provide the same services. The contact is necessary, though perhaps it should be of a different kind than what the banks provide today.

Apple doesn’t really need its physical network – it can sell its products through other retailers and online – but it chooses to keep the stores open because they are its human face. Figuring out how to lure people into bank offices and keep them there is worth the effort, if only because, according to the Global Banking Annual Review published last week by McKinsey, banks earn a 22 percent return on equity from origination and sales – pure customer interaction – compared with 6 percent from merely providing credit.

Branches aren’t an old-style alternative to good technology, they’re a misused opportunity. •

Leonid Bershidsky is a Bloomberg View columnist.

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