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September 2018

Will virtual branches displace physical ones?

The true winner of the digital vs physical showdown.
Physical bank branches have been quite literally the “go-to” place for all-things-banking for as long as anyone can remember. Together with ATMs, they are the foundation of the individual customer’s financial life as they have known it. But something is changing. With the advent of new technologies, for the first time in history, there are clear signs that the physical branch’s supremacy is no longer a matter of course. But what is exactly going to happen to them both in the near future and beyond?

In 2017, 9,100 bank branches closed in the EU alone. Since 2008, the overall number of physical branches in the EU has dropped by approximately fifty thousand, down to 189,270 [1] . Things aren’t looking any different in the majority of other markets. In the U.S., the financial crisis that started ten years ago sped up the closing of branches, which for many major bank groups proceeded at the pace of three to four percent a year or more [2]. All this begs the question:

Are physical branches gradually disappearing?

The number of physical branches has clearly dropped—that much is certain. There are a lot of good reasons why this is happening:

  • cost saving measures-ranches cost a lot of money to maintain, especially since they are usually situated in the most prestigious parts of a city
  • digital is better than ever-With the advent of video banking, customers can do much more than before without leaving their house.
  • younger, more digitally-driven generations of customers are taking over,
  • the activity of nimble and innovative non-traditional financial institutions,
  • banks’ desire to be at the forefront of change for both image- and business-related reasons, whether it is by following trends, or creating them from scratchHowever, banks are more than likely to retain a large part of their physical branch presence, at least in the foreseeable future. Why? Let’s take a closer look.

Who uses physical branches? Turns out, a lot of people do

With solutions such as LiveBank’s virtual branch banking, even taking a loan or signing a deal can be done entirely remotely. Despite this, there are a lot of individuals who display a preference for physical branches. It’s easy to point to the problem of digital exclusion, or dismiss them all as the “old generation”, but that would be a mistake. This group is comprised of different categories, such as affluent clients and individuals whose perception of financial matters as especially sensitive compels them to stick to traditional customer service solutions, regardless of their ability to take advantage of new technologies. Bank executives still hold a firm opinion that physical branches remain crucial in acquiring new customers [3].

While all of these arguments can be and are challenged by digital solutions, the fact remains that many banking decision makers as well as clients are seemingly oblivious to this fact.

At the crossroads of physical and digital

So far, we have talked about physical and digital branches as separate, opposite alternatives. But the reality proves that there is no reason why they can’t work together to the benefit of both banks and customers. In fact, at least today, this may be the best course of action.

As many clients still prefer physical branches, banks that push the digital transformation go to great lengths to leverage this fact. In some physical branches, VTSes are installed that give customers the opportunity to use video banking to complete their tasks. Those machines can come in handy when all human consultants are busy. For banks, they may allow them to reduce staff, gradually changing the appearance and role of their physical locations as well as educate clients about the benefits of using video banking. These were the reasons behind Piraeus Bank’s implementation of LiveBank-based VTSes.

Physical branches may still offer greater perceived credibility while modern digital channels will impress with their availability, providing clients with conveniences such as continuous live chat, digital onboarding with online advisor or the ability to connect anytime and anywhere. It’s worth nothing that the higher perceived credibility of the physical branch may gradually diminish as advanced biometrics-based online verification technologies become more ubiquitous and accepted. Some clients may be interested in using a virtual branch with the exception of the very first or last meeting. It’s clear that for banks, there are many ways to use both types of branches in conjunction to offer better and more flexible customer service.

At the end of the day, the client will decide

The video bank branch already has all the power to replace the physical bank branch in its entirety. But this doesn’t automatically mean that digital banking will ever make physical branches completely disappear. Banks, being what they are, will try to reach their customers at all possible touchpoints, closely following their customer journey and shaping their ever-changing omnichannel solution . They will decrease their physical presence to save money, but only to the extent that it doesn’t hurt their physical branches’ ability to target specific niche audiences as well as complement other means of acquiring and serving clients. At the end of the day, those will be clients that will decide the future and shape of the physical branch.


[1] European Banking Federation’s facts and figures report, 2017



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Piotr Skrabski

Piotr Skrabski

General Manager +48 518 667 591
Ailleron Company

Życzkowskiego 20 Street

Building Avia, 1st floor

31-864 Cracow

Did you know?

A virtual branch will work perfectly wherever efficient service is crucial