Are Consumers Ready for Branchless Banking?

For most of their history, physical branches/locations have been the backbone of a retail financial institution. The teller knew your name as you visited each week to deposit a paycheck. The increased usage of direct deposit and online banking as well as the improved functionality of mobile banking applications has made a branch visit significantly less necessary than it once was. Does this mean consumers are more open to using a financial institution that does not have a physical location? Can a bank close all its branches and still survive and flourish? How are the customer’s views of physical financial locations changing? These questions must be asked and addressed by financial institutions in the ever changing banking landscape.

Choosing and Using a Financial Institution
Consumers in 2014 are showing signs of openness to branchless banking in the factors they consider when choosing a bank. The most critical service when choosing a bank/credit union in 2014 is the availability of online banking (see Figure 1). In comparison, the most critical service feature three years ago was branches within driving distance. Branches within driving distance are critical for half of consumers, but, this dropped 9 points from 3 years ago indicating a change in consumer mindsets. Another change from 3 years ago is a drop in the criticality of call center support, which is likely due to greater reliance on self-service channels, coupled with efforts by institutions to discourage customers from relying on this expensive channel.


While there are signs of rising acceptance of branchless banking, the current infrastructure may not be able to support an entirely branchless experience based on how customers transact. While the critical need for call center support has dropped 21%, usage has dropped at a less pronounced rate of 8% (see Figure 2). The incidence of branch visits are down slightly from 2011 while the use of online banking has increased slightly from 3 years ago. However, 70% of consumers indicate they visited a branch in the past month.


The major change in banking channel use has occurred with mobile banking applications. Use of these apps has increased 11 points suggesting banks should continue to invest in customer support functionality for mobile applications.

We asked consumers what percent of their business is conducted in different channels. On average, consumers conduct the majority of their banking outside of a branch through various other methods such as online (39%), mobile applications (10%), or by telephone (6%). However, with 43% of their banking done at a physical location, most would be hard pressed to give up their branches entirely.

What Would it Take to Bank Without a Branch?
While there are signs that branchless banking is a possibility for many consumers, there are other factors necessary to push consumers to give up their branches. These factors go beyond customer service and alternative banking methods to include added benefits to motivate a change (see Figure 3). To move to branchless banking consumers would need to have, at a minimum, full access to online banking, better rates than banks with branches, and free ATM’s. Online bill pay is also important, as is call center support. However, the need for phone support to facilitate a move to a branchless experience has decreased significantly in the last three years. This may have been replaced by the need for a mobile banking application which has increased significantly from 2011. Better rates and free ATM’s may be more possible in a branchless scenario where the decreased costs of operating a branch can be passed on to the consumer.


Use of Mobile Applications
Widespread smartphone adoption and increasing penetration of mobile payment services like Apple Pay and Google Wallet are making mobile banking more important than ever, and key to shifting consumers away from expensive branch and telephone channels. As such, mobile banking application use has increased significantly in the last three years and consumers expect to use most mobile banking application features even more frequently in 2015. Currently, retail customers use mobile banking applications for checking their account balances (81%), transferring funds from one their accounts to another of their accounts (55%), and depositing a check (50%) (see Figure 4).


Consumers are planning on increasing the frequency of use of the most popular mobile application features in the next 12 months (see Figure 5). The trends reveal greater reliance on mobile banking for checking account information, transferring funds between accounts and making deposits, and less reliance as a way of contacting customer service. The phone camera and mobile check deposit features will no doubt be significant contributors to decreased branch reliance in the future.


We set out to determine whether there is a shift towards branchless banking, but the story encompasses broader shifts in needs and behavior, with decreasing reliance on costly branch and telephone channels in lieu of online and mobile channel usage. Branchless banking is a likely eventuality. Some, like Ally, are already spearheading the effort, to mixed reviews. However, most consumers are just not ready to abandon their branches yet. They still conduct too much banking at a local branch and are not able to complete all banking services through online or mobile methods. To access markets beyond their branch footprint, financial institutions should ensure customers have the ability to process all types of credit, including complex mortgage, auto, business, credit card and personal loans, through online and phone channels, or a combination of the two. Besides robust online banking applications, they will also need to add or improve customer service through enhanced mobile applications. As consumers become more enabled and skilled at conducting business on their computer and over their smartphone, branchless banking will start to become a reality in the retail banking business.