The Future of Bank Branches. Coordinating Physical with Digital.

Interview with Robert van der Eijk

CEO Belux, FS Leader Benelux Cap Gemini


Stéphane Darimont (SD) [Banking Boulevard]: Retail Banks are facing multiple disruptions and one of them stems from the fact that the percentage of their customers who prefer banking online has jumped in the past five years …

Robert van der Eijk – Cap Gemini [RvdE]:

That’s right. This is particularly true for transactional banking activities, namely : paying bills, viewing balances/transactions, viewing statements and money transfer. All this happens more and more online. In the minds of consumers, bank branches are not vestiges of a bygone era though. The mere presence of physical branches provides customers with the confidence and reassurance needed in the current post-financial crisis era. Studies indicate that 47% of US banking customers believe that a bank is not even legitimate unless it has branches, up from 41% only a year ago. So consumer preferences are changing but proximity and advisory remain integral to the bank branch.

(SD): It seems though that retail banks have reached a crossroad and must now quickly adapt to new consuming patterns.


Absolutely, the banking industry is currently at the inflection point the retail industry was about a decade ago. The retail industry has been amongst the earliest to be impacted by the advent of digital. Over the past decade, many retail chains that were not able to transform themselves digitally have had to shut down.

By introducing elements of their online channels into their physical stores retailers are providing customers with the best of both worlds leading to high online- offline coordination. Some banks have already taken early steps in transitioning to such a coordination model.

We believe that banks can learn from the experience of retailers that have transformed their front-end and back-end operations with digital tools, thus blurring the online and offline divide.

Rather than compete with online channels, we are convinced that bank branches will be transformed to become part of an integrated customer experience that spans multiple banking channels. While transactional banking migrates to online and self-service, bank branches will be an integral part of a new social interchange, a place to build valuable customer relationships.

(SD): But as banks are serving several customer segments ( students, families, high net worth individuals) across various geographies that could imply that there is not one but several branch models that a same institution should consider to best adapt to each segment expectations.


Yes, we believe that the traditional banking network comprising homogenous, full-service branches catering to customers across segments is no longer sustainable. Banks should consider a network made up of differentiated branches targeting specific customer segments. Based on the levels of digitization adopted and integration of online and offline elements into the physical branch we foresee the emergence of four main bank branch formats, namely:

1) The “Shop”

The “Shop” format involves low levels of digitization offering retail-like displays and providing customers with the opportunity to browse in self-serve aisles, acting as both, service and sales centers.

The intent of the Shop is to make financial services more tangible by packaging them in boxes and selling them on shelves in branches. This format mirrors most of the online services and is ideally suited for students, first-time banking customers or existing customers with standardized banking needs. Off-the-shelf financial solutions appeal to a segment that does not need a highly personalized environment yet prefers the proximity of a branch to service them occasionally. The Shop format allows banks to set up asset-light branches with fewer staff, leading to reduced operating costs compared to full-service branches.

2) The “Lounge”

The “Lounge” format of the bank branch has low digitization levels and is oriented around a self-service model with the provision of minimal banking staff to assist with customer queries.

This format is primarily designed for building strong customer relationships by offering a relaxed atmosphere to help customers get acquainted with the bank and simultaneously receive basic levels of advice, as needed.

The “Lounge” offers high levels of customer intimacy with its focus on providing complimentary services and enhancing customer engagement. The target customers for the Lounge format are individuals with relatively high income.

The focus of this format is not on selling but on cultivating customer relationships for cross-selling and up-selling services.

3) The “Digital Pod”

The “Digital Pod” employs advanced digital tools and technologies, such as Video-conferencing, online document sharing, digital signatures and card readers, to become physical extensions of online or mobile banking. The primary focus is on providing customers with an evolved and immersive digital experience. “Digital Pods” allow customers to perform all the transactions of a physical bank branch using sophisticated digital technology.

“Digital Pods” introduce consumers to the next generation in banking technology. With minimal branch staffing and high levels of digitization being used, the levels of online-offline coordination are typically low. Digital Pods require a significant investment in technology. The target market for this branch format primarily comprises Generation Y customers who need the flexibility to transact anytime and are open to using new technology.

4) The “Pharmacy”

The “Pharmacy” model also has high digitization levels. It is a comprehensive full-service branch that incorporates all aspects of self-serve and online banking. Some of the digital tools, which can be used in a Pharmacy, are self-serve kiosks, ATMs, service staff with iPads for quick information retrieval and terminals connected for online banking.

This model achieves high levels of channel coordination since it brings not only the digital channel/ online banking into the branch, but also staffs the physical branch for complex and personalized advice. The “Pharmacy” branch should be used as a flagship branch to attract existing and new customers, typically showcasing innovative tools and extending high standards of service.

The target market for “Pharmacy” branches is the mid to high net-worth traditional banking customer who desires proximity of a physical branch. The “Pharmacy” format aims to reinforce a bank’s image as innovative and pioneering. The operating costs of such a branch will be higher than a regular full-service branch due to its larger size, staffing and digital requirements. Also, such a store format typically needs to be on high streets that attract maximum footfalls.

(SD): To what extend can a branch network rationalization program translate into distribution cost savings as well as an optimized customer experience?


The launch of such a transformation / rationalization program will indeed produce substantial value for the bank’s clients as well as for the bank itself.

Based on our digital transformation and banking experience, we have developed an estimation model to determine the projected cost savings that can be derived from implementing a mix of our proposed branch models.

Our estimates indicate that a branch rationalization of 10% and subsequent branch network differentiation can result in significant savings. While the spread of branches across each model may be varied depending on the target customer segment and the geographical reach, we believe that keeping all other factors constant, decrease in distribution costs could range from 20%-30%.

As a first step, banks need to carry out a detailed customer demographics analysis to understand their target customer profile, their banking behavior and profitability per customer.

As a second step,banks should use the information in the demographics analysis to determine the optimal ratio between the different types of branches needed to achieve a differentiated branch network.

Finally, banks should rationalize the number of branches based on business parameters such as branch performance, customer profitability and strategic intent.

Cap Gemini is ideally positioned to help its clients carry out such an analysis with strategy and support them in all phases of a branch network transformation programme as we are able to associate excellence in strategic analysis combined with deep business and ICT expertise.

Contact Cap Gemini Consulting :Robert van der Eijk, Senior Vice President. Tel: +32 (0)2 708.20.72