The sharing economy: bank branch edition 16 June 2021

Banks are closing branches in droves. But that doesn’t mean the branch is disappearing entirely. Financial institutions are finding novel ways to maintain a physical presence in banking deserts. 
The sharing economy is often used in reference to individuals renting their apartment on AirBnB while on holiday or loaning out their car via an app to make some extra cash. All of your things – your car, your apartment, even your clothes – can be transformed into a personal revenue stream.

Now, banks want in on the sharing action. The demise of the bank branch has been predicted for years now. And to be sure, banks are closing their branches in record numbers. But this doesn’t mean they are completely abandoning the idea of a physical space to render services. Instead, they are rethinking how the branch fits into their business model. They want to share their branches with other banks. 

In England, they have come up with an atypical idea: each bank gets one day of the working week at a “BankHUB”. The largest banks didn’t feel it was cost-effective to operate a full-time branch in certain small English towns. Now, they are attempting reestablish a presence in these “banking deserts” by splitting one physical location among five banks. NatWest gets Monday, Lloyds gets Tuesday, Santander on Wednesday, and so on. It is only being trialed in a few small British towns that have been hit particularly hard by branch closures. But it is a way for banks to maintain at least a minor presence in towns that had been abandoned. 

Another example from the UK shows how one bank’s trash is another company’s treasure. OneBanks is a company that believes they have struck gold with a business model that aims to help people navigate an open banking world. They have created a physical hub that can welcome customers from all different banks. Embracing the spirit of open banking, they offer advice and services to people no matter their bank. As their motto states: “Your local bank branch might be closed, but OneBanks is open.”

The evolving role of branches is a clear response to changes in customer behavior. All recent and upcoming reports I have produced have focused on digital trends - from SME banking to banking digitalization in Canada. There is no need to even call it “digital banking” any longer. There is, however, a consistent theme I hear from bankers all over the world when it comes to handling more complex banking needs like mortgages and investment advice: Even the most digitally advanced banks admit there will always be a need for the human element.

The question then becomes, how do you find a cost-effective way to deliver that human touch? Any CEO or COO at a legacy institution will talk about the enormous cost pressures that come with a large physical footprint. As a result, everyone is trying to find the right mix between physical and digital offerings. The transition to fully digital banking can be tricky because there are still many customers who rely on in-person transactions for various functions. But basic banking needs for the digitally savvy can be handled from a smartphone now. No one needs a bank teller to send money anymore. 

The problem is that banks might be abandoning one of their competitive advantages against neobanks. Typically, neobanks produce a superior digital product and experience compared to traditional financial institutions. These are fintechs, after all, and they hire more UX designers than loan officers. But traditional banks have an advantage by being present in communities. They aren’t merely some app designed by a team of engineers and data scientists in Bucharest. Being able to pop into the bank just down the street remains a valuable option to many people. And it can paradoxically be a unique value proposition in our digitally-driven world.

The limits to the bank rotation model are evident. With OneBanks, for example, their employees can only help customers with basic tasks like setting up accounts, making payments, and account aggregation. They won’t be able to set up a mortgage for your new house. Furthermore, life events don’t organize themselves around the rotation schedule at your local multi-bank branch. What happens if you urgently need a loan but your bank’s lone day of the week was yesterday? Your dream home could be off the market by the time you finally speak with a representative from your institution. These aren't the consistent, full-service centers from 15 years ago.   

In Russia, however, there is proof that not every bank is abandoning the branch. At Sber, they have just opened the next iteration of the bank branch. Incorporating biometrics, e-tellers, and a café, their newest branch in Moscow is transforming what people come to expect from their trip to the bank. “It is a space for a comfortable and convenient life besides being just a place where you go to withdraw money, open a savings account, consult or apply for a loan. You can learn new technologies, hold business and friendly meetings, make purchases, receive parcels and do many other things that were impossible at the ordinary bank branch,” said Alexander Vedyakhin, First Deputy Chairman of Executive Board at the bank. (Reserve your copy now of our upcoming Champions report on Sber and their branch strategy)

There is also another type of space-sharing taking place in Vietnam. Timo, a newly founded digital bank, decided to create a physical space, or “hangout” as they call them. They partnered with 7-Eleven to place hangouts in the incredibly popular convenience stores throughout the country. Timo’s collaboration with 7-Eleven marks a long-term strategic partnership to widen the banking network by making it easier for 7-Eleven customers in Vietnam to shop for their essential needs and register for a Timo debit or credit card right in the store. In under 10 minutes, customers can enjoy a cup of coffee at 7-Eleven while creating a Timo account for free. We don’t normally associate neobanks with the physical world, but this is yet another sharing model that brings services closer to the customer. 
Whether it is digitally upgrading, sharing, or eliminating entirely, banking executives have a delicate balancing act on their hands when it comes to branches. The bank rotation approach could be a nice medium ground that provides some sustenance to bank deserts. The sharing economy transformed the way people travel and get around town. Now we will see if it can transform in-person banking.

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