Up to a third of bank branches could close in the next five years according to the head of global banking for Bain & Company. Westpac, the Commonwealth Bank, ANZ and the NAB currently operate almost 4,000 branches combined.
“Everything suggests this market has more branches than it is going to need five years from now. It is hard to say how many closures there will be but global trends indicate a possible reduction of 10 per cent to 30 per cent,” Gerard du Toit, Bain & Company’s head of global banking told the Financial Review.
The effect has already started to be felt by the banks, with the CEO of the NAB Andrew Thorburn recently saying that the “busiest branch is a mobile phone.” The NAB is one of a number of Australian banks investing heavily in developing and investing in new financial technologies.
The recent Bain & Company Customer Behavior and Loyalty in Retail Banking report highlights the change in preferences, showing declines in branch transactions and a corresponding increase in mobile. Comparing the last quarters of 2013 and 2015, there has been a global movement away from branches and increases in mobile.
But this is not simply a shift away from branch banking as the internet has removed friction. There has been a simultaneous shift away from banking through desktop computers and into the mobile apps created by the banks.
Bain highlights the efforts of the Commonwealth Bank, who created mobile products early and forced its Australian competitors to follow. Meanwhile, according to Bain, countries that are trailing – like Canada – have not benefited from one bank acting as a first mover.
The shift to mobile is both good news and bad for banks. The report highlights that frequent use of mobile can actually aid customer retention – those who regularly use mobile are up to a 40% less likely to switch banks.
“When it comes to switching behavior, the more customers use a branch the more likely they are to switch banks,” reads the report.
But the proliferation of mobile has also brought down barriers, allowing foreign banks to establish a presence with minimal upfront costs, fintech companies to create new business lines, and social media platforms to build financial verticals. du Toit suggests that banks need to build relationships with new entrants.
“Being smart about building relationships with ‘fintech’ and social media companies now is essential for banks to be well placed five years from now,” said du Toit.