Wednesday, October 07, 2020View Showroom
Even before the coronavirus pandemic, financial institutions were working to align digital and physical touchpoints with the desires of customers. But in our new reality of both economic calamity and limited interpersonal contact, banks are facing a real-time, wholesale shift in distribution channels. The stakes of getting these accelerated changes right is more necessary and challenging than ever.
Consumers have no doubt embraced digital banking more during the pandemic, but they still use ATMs to get cash. Even millennials, with their digital-first reputation, have a strong affinity for cash. The ATM Industry Association reported that several factors, from lower incomes to reduced credit accessibility, encourage this cohort to use cash regularly.
People require access to cash and banking services that can’t be completed through a phone or computer. Cash is used and preferred in many situations, such as making small purchases, repaying informal debts and conducting transactions at businesses that only accept cash.
Banks have three broad channel distribution strategies at their disposal – these strategies have been brought into sharper focus because of COVID-19.
The traditional approach of building banks has involved a lot of actual building—a strategy that now includes a great many digital building blocks in addition to physical bricks. The portion of consumers indicating that the branch is their primary driver of convenience dropped from 30 percent in 2014 to 19 percent in 2018, according to Novantas Research. Rising in importance were digital banking and free-to-use ATM networks.
As consumers look more to self-service, Celent has noted that rising operating and labor costs are a significant factor in the steady decline in bank branches. COVID-19 has simply exacerbated the situation, forcing branch closures in many areas and driving consumers to avoid contact even where branches were open.
A sole focus on digital banking, with little if any physical presence, ensures rapid scalability and often lower capital costs. It also puts the focus on the digital experience coupled with marketing, and often offers more attractive rates.
In some ways, COVID-19 seems made for branchless banks, but in reality, consumers often run to what they know in times of crisis. According to Federal Reserve data for the second quarter of 2020, for instance, the largest banks saw greater year-over-year growth in new deposits compared to smaller institutions, including digital neobanks.
There are other drawbacks, too. PwC’s 2018 Digital Banking Consumer Survey revealed that 65 percent of customers feel it is important for their bank to have a local branch. These banks must also find a way to provide cash services, both for withdrawals and deposits, without their network of ATMs or branches.
A hybrid approach recognizes the importance of a physical distribution channel in the days of digital banking primacy. In this model, banks supplement their digital offerings with a physical ATM network managed by a third party, enabling a branch-light or branchless strategy without removing a critical customer touchpoint.
To counter the high operational and financial costs of an owned ATM and branch network, banks can leverage the networks of third-party independent ATM deployers (IAD) as part of a physical presence strategy offering multiple options independently or in partnership, including:
COVID-19 has accelerated branch transformation. Banks can’t give up on physical presence, but they also need a way to manage that presence cost-effectively. Using established third-party ATM networks can be an alternative to consider for broad access while freeing capital and strategic mindshare to focus on today’s COVID-19 crisis and tomorrow’s digital transformation needs.