Garnet Capital Advisors Blog

July 13, 2015

Will virtual banks usurp the brick-and-mortar branch?

The bank branch is dead. This is a common refrain you'll hear sung by many people across the financial services industry. The reason for this has to do with technology. Tools like online and mobile banking, as well as the steady decline of brick-and-mortar branches, has many people assuming it is the end of the traditional form of banking. 

But, is the bank branch really dead? And how likely is it that challengers like virtual banking will take over?

Tech drives branch decline
The key reason why virtual banks could ever take over from brick-and-mortar branches is technology. Leaps and bounds have been made regarding functionality and security, as consumers now are much more confident about banking remotely.

According to U.S. News and World Report, mobility is the key factor behind growth. Mobile banking apps make it easier than ever to bank on the go, and even the popularity of wearable devices - like smart watches - has helped drive people away from the bank branch. 

Pros of virtual banking include convenience, speed and now security. It is just as safe to bank from your phone as it is in person. All of these trends have contributed to the decline of the bank branch.

Is the future bleak?
Given the rise of virtual banking, one could argue - and many do - that brick-and-mortar branches are a thing of the past. But how likely is it that this traditional form of banking is obsolete?

In an article for American Banker, Kevin Tynan, senior vice president of marketing for Chicago-based Liberty Bank, argued that virtual banking is not going to usurp branches in its current iteration. That is because, he said, virtual banks haven't done enough to be considered revolutionary. True disrupters he listed included crowdfunding platform Kickstarter and personal financial management site Mint.

These two examples had a truly creative idea and brought that to the Internet. Most virtual banks today just attempt to be a traditional bank, but online, without as many products or services. There is something to be said about the personal interactions you can find in person at branches, and those interactions are clearly lacking from today's virtual banks.

Could that soon change? Perhaps, but right now virtual banks are more fad than future. And for brick-and-mortar branches, the problem is more of a balancing act.

Banks have to answer changing consumer demands
Across the country, virtual banks aren't necessarily the biggest threat to the branch. In many cases, it is actually consumer preferences. 

At the moment, customers want a wide range of services from their banks. They want the speedy service, the affordable offerings and the variety of products. However, they also want it when it is convenient for them, which is where online and mobile banking come into play. 

The problem for banks is that the best way to please customers is to have full-service branches in addition to online and mobile banking platforms. For many, this can become too expensive too fast. The trick is to balance the in-person service with the convenience of the Internet. The banks that do it best could very well be the banks of the future.

As banks continue to evolve, financial institutions interested in capitalizing on this trend may want to speak with Garnet Capital Advisors, a loan sale advisory firm that can leverage its network of contacts to establish appropriate relationships.