Why do banks maintain such a large number of physical branches?
Banking
Asked by Question Bot03/Apr/20131 answer
1 Answer
F
Faisal Khan
Answered 03/Apr/2013
Bank's bottom line is to solicit funds (deposits) and to reuse these deposits as loans and other commercial instruments of use, on which the banks make money.
In order for banks to do this, they need physical presence, and as much as they can get.
This means scoping out localities from where they can get new customers and in turn, deposits. A physical branch does much more than just churning out cash. The world we live in, still uses a very large amount of physical money. All this money needs to be deposited and cashed out. KYC needs to be done. Loan papers, and other paperwork needs to be done. Check books need to be sent out. Deposite Slips need to be given. (Don't just think of the US Banking model, thing others as well, where for example the postal service or security may not be all that good or exemplary).
The mobile banking or branchless banking is a very recent phenomenon, and one that banks are just starting to grasp and realize. You may be Mobile-ready, however, chances are for everyone of you, there are maybe 10 or so people who are simply unbanked!
Banks are trying to multi-task, i.e. look at the Brick and Mortar business, expand branchless banking, rollout mobile banking and try to setup products and services to make the unbanked, more bankable.
The hub and spoke approach works best. You have a central Head Office, and then spokes (branches) everywhere you want to take on clients. With the Internet being the greatest equalizer and same goes for mobile phones, there is still a ton of regulatory and other work required for which physical branches are a must. If your phone gets stolen or your card lost, the branch is your most safest form of rescue.
While money is undoubtedly going digital, there are still a lot many atoms (physical money) and paperwork that is still not digital, and as long as that is true, branches will continue to exist.
In order for banks to do this, they need physical presence, and as much as they can get.
This means scoping out localities from where they can get new customers and in turn, deposits. A physical branch does much more than just churning out cash. The world we live in, still uses a very large amount of physical money. All this money needs to be deposited and cashed out. KYC needs to be done. Loan papers, and other paperwork needs to be done. Check books need to be sent out. Deposite Slips need to be given. (Don't just think of the US Banking model, thing others as well, where for example the postal service or security may not be all that good or exemplary).
The mobile banking or branchless banking is a very recent phenomenon, and one that banks are just starting to grasp and realize. You may be Mobile-ready, however, chances are for everyone of you, there are maybe 10 or so people who are simply unbanked!
Banks are trying to multi-task, i.e. look at the Brick and Mortar business, expand branchless banking, rollout mobile banking and try to setup products and services to make the unbanked, more bankable.
The hub and spoke approach works best. You have a central Head Office, and then spokes (branches) everywhere you want to take on clients. With the Internet being the greatest equalizer and same goes for mobile phones, there is still a ton of regulatory and other work required for which physical branches are a must. If your phone gets stolen or your card lost, the branch is your most safest form of rescue.
While money is undoubtedly going digital, there are still a lot many atoms (physical money) and paperwork that is still not digital, and as long as that is true, branches will continue to exist.