Banks are at a crossroads and caught in a whirlwind of change—technological, regulatory, and customer-driven as consumers demand superior service. Fraud is another ever-present foe. It’s growing in sophistication and proliferation, without a bona fide solution in sight. With these elevated security risks, banks are more vulnerable than ever to security breaches, which have the potential to destroy their brands and reputations.
As revenue shrinks and closures multiply, bank branches must reinvent themselves amid the rapid digitalization of banking. A Lumen report, Outpace the Competition: Build and Secure the Hyperconnected Bank, tackles the challenges in the current retail bank branch landscape and offers solutions.
The Digitalization of Banking
The pandemic had a big hand in driving rapid change in consumer banking.
As reported by McKinsey in Reshaping Retail Banking for the Next Normal, “retail banking distribution will experience up to three years of digital preference acceleration in 2020.5 In some markets, this may translate to 25 percent fewer branches, with those that remain performing a different set of activities with more flexible job configurations.”
Before the pandemic, banks were already closing at a steady rate. According to the data from the Federal Reserve Bank of St. Louis, the number of retail banks has plummeted in just the past 10 years. In fact, the latest data revealed that U.S. retail branches dropped from 36 per 100,000 population in 2009 to 30.5 per 100,000 population in 2009.
During the pandemic, with customers desiring fewer in-person interactions and adopting mobile and online banking technology, banks continued to close at an alarming rate. These trends have spurred banks further to adopt mobile and online banking services.
Still, it is not necessary to declare retail bank branches defunct. On the contrary, mobile banking customers still want to engage with their local branch.
American Banker magazine gave more reasons to uplift this institution, saying that physical branches play a crucial marketing role and remain a “preferred site for many transactions such as opening accounts and replacing debit cards.”
A Forbes survey 1 found that more than 25% of Americans prefer conducting their banking services at their local branch. It comes down to two vital components: trust and personalization.
So retail bank branches are not on their last legs, but they do need a transformation. To make this happen, banks must be fully integrated and deliver a secure customer experience. But how can they get there? It comes down to integrating a platform approach for their current IT and security infrastructure.
Cost and Resource Constraints Keep Banks from Implementing the Right IT Operating Model
Mounting competition, lower interest rates, and increased regulation have eaten away at the profit margins of most banks. Retail bank closures have been one of the many strategies for shaving operating costs. However, stiffening competition and digitalization are also threats that can’t be ignored.
Banks must transform their legacy operations and invest in new infrastructures that will help them thrive digitally. This comes at a significant expense. It’s easy for most organizations to simply piecemeal solutions and target specific issues with a specialized solution. However, the end result is often fragmented and haphazard. The bank, which hoped to save money, could end up spending significantly more trying to put out the inevitable fires.
For bank branches to reach maximum profitability, they must choose an all-inclusive IT platform solution to address the bank’s needs. This all-encompassing solution can address customer needs, maintain regulatory compliance, and perform tasks at the lowest cost possible.
IT Infrastructure Should Be Outsourced
In the current ecosystem of banking, regulatory compliance is no longer optional. Compliance and security are to work in tandem to meet all the regulatory requirements within the industry. To be fully equipped to handle the myriad attacks that can come against their data, a platform approach can ensure that a holistic security strategy is in place.
As mentioned in Lumen’s report: “Banks must implement an agile IT infrastructure that supports a seamless customer experience, using lower cost channels for transactional flow and higher value channels for premium clients. While IT professionals may initially view IT transformation as a cost savings exercise, the long-term benefits include efficiencies in IT and business operations, enhanced corporate agility and increased profitability.”
It makes more sense to outsource to one platform provider instead of revamping an in-house IT infrastructure. Doing so avoids the risk of implementation failure as well as the loss of time and money due to the need for updates down the line.
The Lumen report continues: “Working with a trusted partner who can bring an integrated platform brings with it broad and deep industry expertise. Branch transformation projects require a specific set of skills across networks, computing, and security services, but too often banks incur risk and inefficiencies. They are fragmented across network providers, computing suppliers, software vendors, and infrastructure services. But with an expert infrastructure partner, banks can tap into a large pool of diversified expertise around the latest technologies and best practices while capturing efficiencies and reducing operational costs.”
1 Forbes Advisor, Digital Banking Survey: How Americans Prefer To Bank, February 2022