Picture: 123RF/DOLGACHOV
Picture: 123RF/DOLGACHOV

Digital banking has been threatening the format of traditional banking as we know it for years, with some pundits having predicted the death of branch banking as far back as 2005.

Globally, the likes of Bank of America, Chase and Wells Fargo have reduced their number of branches by about 15% over the past four years, dropping their branch footprint to levels last seen in the 1980s. Locally, despite Capitec’s arrival on the scene with more than 70% of its transactions done through self-service channels, actually three out of the top five banks have been growing their branch footprints over the past few years.

This raises the question whether the current spate of branch closures and retrenchment proposals should not have been foreseen. Research published in the Columinate SITEisfaction report, which measures customer satisfaction with digital banking services in SA, found that more than 60% of new bank cards are still applied for in branch, and almost 50% of new products are also sold in branch.

Even Capitec has more than 6-million (about 50%) branch visits every month, so brick and mortar branches are clearly not going away in the near future. But what will they look like in the future, and how should banks be adjusting their business models to remain relevant?

The answer is in three main areas of focus, eating someone else’s lunch, optimising the channels and future-proofing human capital needs.

The financial services space has been a prime target for many retailers over the years, which has prompted them to open their own such divisions. Pick n Pay, for example, has been rolling out financial services solutions for the past 20 years, starting with point of sale cash withdrawals in 1989, launching retail savings bonds in 2008 and money transfer solutions nine years later.

Pep has over the last decade or so offered financial services ranging from funeral plans to debit cards, in partnership with one of the banks. At the same time the banks have grown their revenues significantly through airtime, data and electricity sales.

According to the Columinate report, 69%, 59% and 47% of internet banking users purchased airtime, data and electricity respectively in 2018. These are obviously nontraditional banking services that the banks are taking from other service providers. One way or another, someone’s lunch is going to be eaten.

Changing the face of branches does not have to mean retrenchments. Earlier I alluded to the fact that banks have known for many years that the traditional branch banking model was under significant pressure, yet they still pushed on with expanding their branch networks in the years that followed. Now they must figure out how best to service their clients with the workforces they have. Relationships are like that sometimes. They require work and a degree of flexibility.

Banks have been dealing with an increase in incidents of fraud in recent years, which hints at what the digital revolution employee of the future will look like — a fraud and forensics specialist. About 69% of internet banking users are reported to have been targeted by fraudsters and as many as a third have actually fallen victim to such fraud. The numbers for 2019 are already the highest to date, which presents an opportunity for the banks to simultaneously upskill their employees and provide a more secure banking environment for their clients.

This applies particularly to those employees who are vulnerable and at risk of retrenchment due to the changing format of the branch due to rising digital intensity in the traditional banking space. Employees spend the bulk of their time being of service to the firms that employ them, and it is only fair that all available options are exhausted before employers resort to retrenchments.

• Skenjana (@sifiso_skenjana) is founder and financial economist at AFRA Consultants. He is completing a PhD in finance for development.