UBS and Credit Suisse are closing branches. The future of banking is digital, and that means the physical branch is becoming redundant.
Banks are under enormous pressure. The low interest rate environment is depressing profits, and FinTechs are attacking the banking value chain. Challenger banks, digital lending platforms, Robo advisors, wealth management platforms, and low-cost brokers offer products and services that are cheap, fast, and efficient, making it hard for banks to compete.
And that pressure won’t go away anytime soon. The millennial generation is taking over the money management from their parent’s generation and is way more comfortable using digital tools. Millennials are also more informed about finance, as they have vast online resources at their disposal. That also makes advisors more and more redundant. So what is the future of banking?
Branches are disappearing
At the heart of the customer-centric banking business used to be the bank branch. The fact that banking clients could conduct their business at the counter, face-to-face with their banker, used to be the top argument for why people still need banks. But it doesn’t hold up with reality. Fewer people are even using bank branches, and online providers are increasingly providing high-quality customer services.
The effects of that are visible everywhere, as physical bank branches are starting to disappear. The Swiss bank UBS just announced it would close 44 out of 140 branches in Switzerland – mostly the smaller branches such as Arosa and Lenzerheide. Branches in Chur, Buchs, Altstätten, Heerbrugg, and Bad Ragaz will remain open. The bank said it is not planning to lay off staff.
Likewise, Credit Suisse announced to reduce the number of branches. The bank said in 2020, it plans to cut costs of 400 million CHF, which includes the closing of physical branches. According to the bank, it would invest these savings into its digitalization efforts.
And it’s no different in other European countries. Commerzbank, the second-largest bank in Germany, announced recently it would reduce its branches from 790 to 450. The bank also wants to invest an additional 1.7 billion Euros into its digital infrastructure.
So there you have it. Maintaining physical branches is not a strength of the traditional banking sector anymore; it is becoming a weakness. Costs are too high, margins too low, and most customers don’t need it anymore anyway. All of this money should better go towards digital banking, as that’s where the future lies. A study recently showed that banks in Switzerland and Liechtenstein are quite advanced in digital strategies compared to their European peers. The challenge, however, is putting these strategies to work. One way would be to team up with FinTechs and use synergies. The past has shown that most banks who tried to develop their own FinTech solutions in-house failed. The better way is to get FinTechs onboard who have already developed the technology, either acquiring them or using their products. The bank of the future is a platform bank that combines all sorts of digital offerings and provides the customer the best possible solutions.