These 3 steps can keep in-person banking alive

With the rise in popularity of digital banking, FinTech and cryptocurrency, here are 3 ways traditional retail banking can stay relevant in today's market.

Old bank teller window

You may have noticed that most of your finances can now be done digitally. You can have paychecks directly deposited into your bank account with a digital pay stub. Credit and debit cards are accepted most places for most transactions. Personal payments can be made via apps like Apple Pay, Venmo or PayPal. And checks, for those of you who even know what they are, can be deposited directly through your phone.

With this rise in popularity of FinTech, digital banking, and fully digital cryptocurrency on the horizon, is there a future for traditional, in-person banking?

Well, yes and no.

Note: For the purpose of this article, "traditional" and "in-person" banking will refer to the same act of physically going to a banking location and interacting with someone or something.

The problem facing traditional banking

A large percentage of routine purchases are now done either through mobile or online methods. This, and that fact a majority of in-store purchases are card-based means that the number of cash transactions has significantly reduced.

As the adoption of mobile and online banking continues to grow, there will be less need for individuals to come into a physical branch to do simple banking tasks such as check deposits, bank transfers and paying bills.

So this sounds like the slow death of traditional banking, right?

A four-year study published by ValuePenguin shows that while mobile banking rates rose, and online banking was widely used, the percentage of people using physical branches and ATMs did not change much.

Shouldn't the increase of mobile and online banking reduce the need for physical branch and ATM usage, especially when cash payments are also in decline? If all things were equal, maybe, but you need to look at the main reasons people use each platform.

That same study showed that individuals who primarily used mobile banking were using it mostly for checking the account balance or recent transactions (94%), transferring money between bank accounts (58%), receiving alerts (56%), depositing a check (48%), paying a bill (47%) and locating in-network ATM or bank branches (36%).

Mobile banking showed to be very helpful and highly used for simple activities and checking on your account, but for more complex banking tasks (loans, refinancing, etc.), or things that need to be done in person (notarizations, money orders, etc.), physical branches were still important to customers.

But at the very least, ATM usage should have dropped, right? Maybe these stats are just too old to show the current state of banking. Why would you need ATMs when most transactions are cashless?

A 2019 payments study performed every three years by the Federal Reserve showed that even though the total number of ATM withdrawals has slightly declined since 2012, the total value of those transactions has gone up.

This means that the number of times that the average person uses an ATM has decreased, but the average amount of money withdrawn from an ATM has increased. In fact, the average amount of money withdrawn has increased so much, that the total amount withdrawn continues to grow, even as the total number of transactions shrinks. It doesn't seem as if cash withdrawals are going away any time soon.

So if people are still using physical banks and ATMs, do banks need to adapt at all?

Traditional banking still runs the risk of becoming unsustainable as a business, or inconvenient to their customers if they cannot adapt to changing expectations. In order to adapt to the new expectations of their customers, banks will need to recognize what changes are happening to retail banking, and be willing to adapt their traditional way of doing things into a more modern way of doing things.

In the past, "bank hours" were often joked about because they were so restrictive. It made going to the bank somewhat difficult if you couldn't match your schedule with theirs. Now, customers are used to convenience. They can shop at any hour of the day, get anything they can think of delivered to their doorstep in 2 days and are used to being able to call up customer service whenever is best for their busy schedule.

Mobile and online banking normally don't have these kind of limitations, so they can be more convenient for basic banking tasks. COVID-19 didn't start the movement to mobile and online banking, but it may have accelerated it, and banks will need to make sure they are adapting to their customer's needs if they want to maintain relevance.

3 ways in-person banking can stay alive

Most banks have incorporated some sort of online and/or mobile presence into their portfolio. This helps them maintain convenience for their customers on par with what other banks are offering. However, if all banks are offering online and mobile banking, what reason would a customer have to choose one bank over the other?

As seen above, banking at a physical branch and using ATMs is still common, so giving your customers the best physical banking experience can be a way to separate yourself from the pack. Here are 3 of the top ways banks can take their traditional banking to the next level

1) More branches and less overhead

2) Embracing self-service

3) Interactive Teller Machines (ITMs)

1) More branches and less overhead

In an article published December of 2017, when asked about the 'branch of the future,' Rob Leiponis, President & CEO of Parabit Systems said, "With ever-increasing innovation in cryptocurrency, mobile and online banking, there will be a reduced footprint of bricks-and-mortar retail branches. That said, many institutions are moving to a hub-and-spoke topology for their retail locations, which are more than ever providing new interactive digital and remote access technology."

Almost 3 and a half years later, and with the advent of COVID-19 changing the way many companies are running their business, his prediction still rings true.

"Many institutions are moving to a hub-and-spoke topology for their retail locations, which are more than ever providing new interactive digital and remote access technology." - Rob Leiponis, President & CEO of Parabit Systems

An article by RetailDive mirrored Rob's opinion on the ways banks have to adapt. In the article, David Albertazzi, a senior analyst at Aite Group, Boston, said, "It’s not so much about the transaction anymore, but it’s about the customer and providing advice to the customer. This is why people when they now come to a branch, it’s not about the transaction, it’s about do they have questions."

Since customers are moving towards solving basic issues on their own with convenient mobile and online banking, the role of bank branches will be to serve as a convenient location with convenient hours to help individuals with non-basic issues.

Traditionally, individual bank branches needed to have dedicated staff members at each branch that could handle all the basic banking needs, as well as all the more complex banking needs that arise. As mentioned by Rob Leiponis above, banks are moving more towards a hub-and-spoke system. To translate this into a more physical embodiment, and to give you your daily dose of random trivia, consider this system like the octopus.

Octopus the explain central banking and branches

An octopus has a central brain that houses core, complex information and can distribute it to its eight tentacles. However, each tentacle has the ability to act somewhat independently, and can solve many problems on its own without the necessary need to engage the central brain. The tentacles are responsible for interacting with the world and can reach out to the central brain if more complex problems arise, but tentacles can be more agile and adaptable because it is smaller than the central brain.

In this example, the central brain of the octopus is like the central corporate headquarters of a bank, and the tentacles of the octopus are like individual, retail branches of the bank. Instead of needing a full brain in each branch, you can pull all of the parts needed to solve complex issues into a centralized corporate headquarters that has the ability to communicate directly with any branch at any given moment. Because of this, branches will need fewer high-level staff on site, and because customers are doing many basic tasks on their own with mobile and online banking, they will also need fewer tellers.

With fewer people on site, branches themselves can be smaller and more adaptable. So instead of having a single, large branch in a given area, you can have three smaller branches to have more convenient locations to your customers that can still solve the same issues.

The role of bank branches will be to serve as a convenient location with convenient hours to help individuals with non-basic issues.

2) Embracing self-service

Even before COVID-19, self-service kiosks had already become normal. ATMs have been around since the 70s, retail stores have self-check-out lanes and restaurants allow you to create and customize your order without waiting in line at the counter.

Many people choose self-service options, even if full-service options exist. They find the self-service option more suited to them but appreciate that there are people available if a problem arises. These self-service options can help reduce lines, speed up simple tasks and reduce the human capital needed at the branch location.

Most people think of ATMs when considering banking self-service machines. However, having a robust, kiosk-based visitor management system can also improve the efficiency and flow of modern bank branches. Customers can check-in, find the service they are looking for, and quickly know where they need to go or whom they need to talk to. They can even use these to find and connect with particular departments or set up future appointments as needed.

The time when self-service machines like ATMs make the most sense, and are the most helpful, are when the banks themselves are closed. Being able to offer 24-hour ATMs to your customers is a great way to provide customer service, even when no one is actually there. The three main ways to accomplish this are walk-up ATMs, drive-up ATMs and lobby ATMs.

Being able to offer 24-hour ATMs to your customers is a great way to provide customer service, even when no one is actually there.

Walk-up ATMs are usually wall-mounted outdoor ATMs offering 24-hour access to customers. This kind of ATM can feel the least secure, since customers are in an exposed area and handling cash. So when opting for an walk-up ATM, you will want to minimize this risk by incorporating measures like cameras, lighting with sensors to alert if lighting is low and mirrors so customers can keep an eye for anyone approaching behind them.

Another outdoor option is to have drive-up ATMs. This gives an additional, convenient way for customers to use a self-service ATM. Some banks even offer stand alone, drive-up ATMs. This allows an additional point of service, but with minimal cost to set up and operate. Drive-up ATMs might feel a little bit more secure to your customer since they are in their car, but making sure to have dual-camera systems that can capture faces and license plates at the same time can help ward off individuals who might otherwise harm your customers or machines.

The most secure of the three options are lobby ATMs. These lobbies can be controlled and monitored using an access control system, giving you the ability to provide the maximum security possible even after the bank has closed. You have the ability to use a multimedia card reader to limit access to only bank customers, control how many people are allowed in your lobby at a time, get alerted to loitering or lighting issues, or even lock down remotely if needed.

No matter your use case, having secure self-service options to go along with your in-person service can have a large impact on how many customers will come into a physical branch for their banking needs.

3) Interactive Teller Machines (ITMs)

Maybe the newest innovation to reinvigorate in-person banking would be the introduction of interactive teller machines, or ITMs. These incorporate the convenience of a regular ATM, but also offer the option to talk with a bank teller and do other banking tasks that normally require human interaction. The teller can remotely connect with the ITM, meaning they don't need to be in the same physical location as the machine.

These ITMs are slowly being introduced in different locations, and will soon be able to offer the option of both simple self-service tasks, or more complex tasks with a virtual teller. Because the teller doesn't need to be in the same area as the machine, this allows for flexible solutions that may become the new standard for in-person banking.

Adding remote ITMs to a physical bank branch gives more flexibility because the branch no longer needs the dedicated drive-up lanes and drive-up tellers and can focus its efforts elsewhere.

In theory, you could have a bank branch that consists of only a lobby with a handful of ITMs, or a stand-alone drive-up with only ITM machines. This lobby or drive-up would be able to take care of almost all customer needs, ranging from simple cash withdrawals using the self-service system, or talking with a virtual teller to get all the options to consider when thinking about taking out a loan.

If the hub-and-spoke goal is to create smaller branches with less overhead, the ability to have ITM only locations would reduce that footprint and overhead even further. Now, instead of one large bank branch or three small bank branches in a given area, you could have one small branch and half a dozen ITM lobby or drive-up locations for that same given area. The ITMs would be able to solve most of your banking tasks by themselves, and you will still have a small branch in the area to deal with the remaining issues that has a direct line to corporate headquarters for any complex issues that might arise.

So, is traditional banking dead?

I suppose it depends on what you mean by traditional banking. If you expect things to stay the same as they have been for the last 50 years, then to you traditional banking might be dead. But if the goal is for customers to continue to need the services of a bank that cannot be easily provided via mobile or online options, then that is still alive and well.

While certainly changing, traditional, in-person banking doesn't seem to be going anywhere anytime soon. By making changes to the way in-person banking works, the viewpoint of going to a bank branch to do something that you cannot do online might start changing from the mindset of a necessary evil to the preferred way of banking.

In 2017, Rob Leiponis was on to something with his prediction about the direction banks were headed. Now that we have entered the beginning of that transition, what ways will banking continue to shift as we move forward?