Two different studies paint a rather pessimistic picture of Asian branch banking. One cites a 27% drop in branch usage over the past four years. The other says that 2 out of 5 branches in emerging Asian countries and 1 out of 3 in developed ones are putting out subpar performances.
Internet and mobile banking channels, and payment and stored-value cards have reduced the number of branch visits that customers need to make. In the mature markets of Hong Kong, Taiwan and South Korea, for example, the increase in the monthly usage of new age channels – from 2.35 to 3.2. – is almost perfectly balanced by the decrease in branch and telephone banking usage, which has dropped from 3.5 to 2.57 since 2007.
This could be a threat or opportunity for branch banking, depending on how one looks at it.
While electronic and self-service channels have significantly brought down the average cost per transaction, banks can now exploit lower foot traffic to improve efficiencies at the branch. For instance, they can downsize certain branches, and move others handling mainly account opening or low value transactions to lower cost locations. Not to forget, employ clerical staff in more productive roles.
Freed of the burden of routine transactions, branches can be dedicated to a marketing and advisory role, and to high-end services, such as wealth and portfolio management. At the same time, the functions of other channels can be similarly rationalized for maximum customer convenience and efficiency – for example, unclogging call center phone lines by encouraging customers to use them only for service issues. Indeed, by optimising their channel mix in this fashion, Asian banks, which compared to their U.S. and European counterparts, enjoy high Return on Equity and low Cost Income Ratios (China: RoE 19.7%, CIR 41%; India: RoE 17.3%, CIR 47%) can improve them further.
A reduced branch footprint could also force Asian banks to look at other avenues, namely online and social media channels, to promote products and connect with customers.
Last but not least, cost savings earned by shrinking the physical network can be put back into the virtual one, either in the form of innovations or incentives.
So, really, Asian banks have two clear choices – let their branches slip away or trim the flab to allow them to emerge leaner and fitter.