Pandemic speeds up push to digital as bank branches close

Bricks and mortar is being replaced by digital code in the banking sector. © Keystone / Christian Beutler

Swiss lender Credit Suisse is set to launch an overhaul of its digital banking offering, as it uses the coronavirus crisis as a springboard to accelerate the push from bricks-and-mortar branches to online services.

Last month the bank confirmed plans to close a quarter of its 146 domestic branches by the end of the year. This would lead to SFr100m ($108m) of savings a year by 2022, some of which will be invested in digitisation.

Online banking has grown 40 per cent at the Swiss lender in the past two years, while mobile banking has more than doubled. The number of visits to branches has been declining for years. “The Covid-19 crisis has further accelerated these trends,” Credit Suisse reported in a recent statement.

Credit Suisse’s new digital offering, due to be unveiled later this month, will combine “the flexibility and cost benefits of a digital bank with the range of products and services” that it offers through its physical branches.

It is not alone in spotting an opportunity to hasten the move away from traditional branches and towards online banking. Banks have long talked about reducing their high street outlets to cut costs. Progress has been slow, however, not least because many customers are still fond of branches.

But as banks were forced to close large numbers of branches throughout the lockdown, customers adapted to online banking at a rate few lenders expected.

Many retail-focused banks closed around a quarter of their branches throughout the second quarter, with a handful making even more drastic cuts. Commerzbank of Germany, for example, had just 20 per cent of its branches open, while BBVA of Spain had 30 per cent open. Most of the branches have since reopened, though Commerzbank has announced that 200 of its 1,000 branches will remain closed permanently.

As a result of the closures, banks across the board saw a spike in online activity. At Bank of America, 47 per cent cent of second quarter sales came through digital channels, compared to 29 per cent in the same period over the past two years.

Older clients, many of whom had — until this year — been wary of mobile banking, have embraced it as an alternative to visiting branches and putting themselves at risk of catching the virus.

One technology trend that has accelerated this year is the uptake of end-to-end digital processing, which has set up bank systems to do away with in-person interaction entirely.

A recent survey of banks by Autonomous, a research group, showed many had invested in their client onboarding and contract closing systems, especially when it came to digital identification verification.

Three-quarters of banks polled said they were now able to offer mortgages or loans to small-and-medium-sized companies without personally interacting with the customer. Just 8 per cent said they still required customers to come into branches for these products.

“Banks are unlikely to be faced with a bigger real-life experiment in the enforced use of digitalisation than Covid-19,” said Stuart Graham, co-founder of Autonomous.

“As bank managements sit down in the autumn to review their multiyear planning, we believe they should be taking a much harder look at their cost bases. We believe it is finally ‘show me’ time on the digital cost cutting story,” he added.

Even so, bank managers looking to replace bricks-and-mortar branches with mobile apps will still need to make sure they are not seen to be acting too hastily by politicians and regulators.

Over the summer, Brian Brooks, acting head of the Office of the Comptroller of the Currency, a US federal banking regulator, told the FT that banks should not use the upheaval caused by coronavirus to shut branches en masse.

“I think the idea of, ‘we’ll just go ahead and let branches abandon our cities’ — I think we’d regret that on the back end of this,” he said.

The pandemic, he said, was a “one-time event that . . . has affected a relatively small sliver of society compared to the number of people who depend on financial services and branches”.

Copyright The Financial Times Limited 2020