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Financial Services

The role of bank branches: innovating banking services as digital banking grows

Andrew Lam-Po-Tang

The decline of physical branches

Recent trends have been to close physical branches, especially in regional and remote areas. The latest data from the Australian Prudential Regulation Authority (APRA) highlights a further decline in bank branches in 2023, with 424 branches closed Australia-wide, with 122 of those branches in regional and remote areas. This continual decline has seen a reduction in physical branches by 37 percent since June 2017, with regional and remote areas being hit the hardest, experiencing a 34 percent decrease in the same period.

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This has a major impact on customers who rely on in-branch services for their banking needs. We identified strong sentiments around branch availability when we asked customers how often they visit their local banks. A majority of respondents (60 percent) reported visiting their banks within the past three months, with only 17 percent of customers not doing so in more than a year. Unsurprisingly, customers who primarily use cash for everyday purchases (62 percent) were most likely to visit a branch in the past month.

Continued popularity of cash

Cash services are among two of the top three services that customers expect at a branch, indicating a strong demand for cash transactions. Two-thirds of customers (66 percent) expect ATMs at their local bank branches, 60 percent expect customer services and 60 percent expect deposits/withdrawals. This was followed by lending (51 percent) and account services (50 percent).

A clear majority of Australians (70 percent) oppose banks eliminating cash services from branches, and more than three in four customers (76 percent) still carry cash on them. Many Australians feel that removing cash services would impact elderly members of our society as indicated through their commentary, which is validated by 93% of the elderly opposing any such move by the banks. Another concern is being able to avoid the surcharges that come with digital payments.

Despite this strong opposition to eliminating cash, card and digital payments are overwhelmingly preferred in actual usage, with 53 percent mostly using cards and 25 percent using a mix of cards and cash. Customers with children (42 percent) are also more open to the removal of cash from branches, even if still opposed to the move overall. Gig economy workers, who tend to be more familiar with digital payments, are the only demographic in favour of cashless transactions.

Australia’s banks envision a future where the majority of financial interactions occur through digital channels with physical channels reserved for key sales and service interactions. But this is at odds with the expectations of large parts of the population. To address this, banks must strike the right balance between digital and physical banking and explore alternative methods for offering cash services beyond traditional branch models to meet this need effectively in the future. They need to ensure seamless and convenient experiences across channels while reserving the physical pathways for crucial sales and service interactions.