Bank branches, what new evolution? The Cetif - TIM Enterprise survey on the phygital service model and the new smart branch concept

Cetif Research presents, in collaboration with TIM Enterprise, the evolution and technological transformation of the bank branch model in light of the new economic and social context.

New research published Cetif "Rediscovering the banking experience: new branch models in light of digital transformation"

The context and purpose of the research

Milan - May 27, 2024. How have customers' perceptions of the banking experience changed? What are the consequences resulting from the steady closure of physical locations over the past decade? How will the system and technology evolve with respect to new market needs? On these issues was developed the Research Track of Cetif - Research Center ofUniversità Cattolica del Sacro Cuore Milan-in partnership with TIM Enterprise-the TIM Group's business unit offering digital solutions for businesses and Public Administration-with the title "Rediscovering the banking experience: new branch models in light of digital transformation ."

The main objective was to understand the effect of digital transformation on bank branches, analyzing the emerging models and assessing their applicability in the current context, grasping the role of new infrastructure and technology architectures needed to enable physical distribution and service models.

The evolution and economic impacts of digital development in the banking system

Over the past 10 years, the banking system has experienced a reduction in the number of branches. New services, technological innovations and an increasingly digital approach (home banking, apps, alternative platforms) have made thephysical experience channelless used by customers than in the past.

This phenomenon, the so-called geographical overlapping i.e., the need to simplify and reduce branches that are close to each other and inefficient, is also the consequence of the numerous bank mergers. In addition, the growth of the digital channel has made the cost-to-serve of the individual branch too expensive, more than 10 times more expensive than the online channel: the combination of management costs (operations, employee retention, service bills) have significantly impacted the management of the physical channel. Additional factor, the pandemic, which accelerated the process and subsequent use of the digital channel.

Despite the ongoing process, the use of the branch has remained a priority on some occasions for specific requests (mortgages, investments) and clustered customer segments ( over 70 bracket).

New hybrid branch models

In contrast to the last decade, the process of branch reduction is giving way to the optimization of physical locations, with a focus aimed at territorial presidium and areas of high strategic interest, to restore the social role and symbolic value of the banking institution in the territory. The process, moreover, is impacting the review of space, with larger branches but with 4 to 5 employees.

In addition, the international benchmark tells of new models such as hybrid and experiential branches.

New solutions to be tested will be so-called self areas, or unattended branches, for simpler services. In addition, many Financial Institutions are integrating into current territorial presidium logics, fully digital branches, with fully dedicated resources and customers directly managed on the remote branch, and networks for off-site offerings. Among service models, the following will emerge in the next 3 years: hybrids and Hub & Spoke, a few specialized centers, many for common services; flagship branches, physical points to enhance the brand; branch as-a-service, models for sharing space with other institutions, including non-financial ones.

In this process of evolution of the distribution model, technology is certainly one of the enabling factors, capable of making cost-to-serve more sustainable and improving the profitability of physical points. Today, in fact, the level of technological maturity in offering products and services within physical points is generally lower than online, but it is bound to rise. If digital signature tools have already been fully adopted, the market will tend to adopt technological tools, such as digitaldevices and video chat, that can help the employee in the interaction with the customer in the offering of more complex products and services, facilitating the importance given by customers for the use of the physical channel, as opposed to digital in the case of more complex issues.

Conclusions and future developments

In conclusion, the rationalization process seems definitely destined to come to a halt(80 percent of the market expects a fair amount of branch growth in the next three years), especially in areas of high strategic interest. Nevertheless, a process of revisiting the distribution model is underway, thanks in part to a large part of bank customers who continue to actively use the physical channel. The branch will continue to represent an important strategic element for the banking system, which, through the support of technological and digital tools, will tend to facilitate and make the relationship with the customer more effective, including through the involvement of specialists and the creation of more dynamic spaces.