Financial Services

Branching out: can banks move from city centres to digital ecosystems?

July 02, 2021


Branching out: can banks move from city centres to digital ecosystems?

July 02, 2021

Jeremy Kingsley

Senior manager, Policy & insights

Jeremy Kingsley is a senior manager at Economist Impact and regional practice lead for Technology & Society in Europe, the Middle East and Africa. He leads a regional team of analysts and editors on policy research, consulting and thought leadership programmes exploring technological change and its impacts on society. Jeremy joined The Economist Group in 2017 from Nesta, the innovation foundation, where he oversaw the Challenges of Our Era research programme and design of challenge prizes. He previously edited Nesta's magazine, served as a contributing editor at WIRED, and has spent 12 years covering technology, innovation and business trends as a journalist, researcher and consultant for The Economist, The Economist Intelligence Unit, The Financial Times, Slate, WIRED Consulting and others. He holds a master’s degree in philosophy and economics from the London School of Economics, with distinction, and a first-class bachelor’s degree from Trinity College Dublin.

Facing extinction on the high street, banks are doubling down on creating tech-enabled, inclusive ecosystems where customer experience is king.

  • As the branch closures of covid-19 accelerate consumer shifts to online banking, 65% of bankers now believe that the branch-based model will be “dead” within five years, up from 35% four years ago, according to new research from The Economist Intelligence Unit.
  • Four in five (81%) bankers believe that banks will seek to differentiate on customer experience rather than products. Mastering both customer experience and digital marketing are ranked as top strategic priorities over the next four years.
  • The pandemic has jolted laggards into action, spurring a culture of collaboration and experimentation among previously complacent banks. A plurality (47%) expects their businesses to evolve into “ecosystems” over the next two years, which will involve partnering with banking and non-banking third parties.
  • Incumbent banks and fintechs face a new financial inclusion imperative as the pandemic redefines the role of financial services in society. Bankers view microfinance for entrepreneurs (34%) and accounts for the unbanked (33%) as the most promising inclusionrelated business opportunities.
  • Just under two-thirds (65%) of banks see new technologies as the greatest driver of change for the next four years, up from 42% three years ago. But as tech becomes more critical to competitive differentiation, the threat of competition from major tech and e-commerce disruptors is becoming existential. 

Crunch time for banks

Bankruptcy comes two ways, Ernest Hemingway wrote: “gradually, then suddenly”. Such has been high-street banking’s fate at the turn of the decade. Justifying the axing of a fifth of Santander’s branches, deputy chief executive Tony Prestedge told the BBC that branch transactions at the eurozone’s largest retail bank had fallen by a third in the two years prior to the covid-19 pandemic—before they plunged by half during the lockdowns of 2020. “The pandemic has ‘concertinaed’ five to ten years of change into a year,” said Mr Prestedge.

The rapid collapse of branch-based banking is an acceleration of a trend that The Economist Intelligence Unit’s global banking survey, now in its eighth year, has long seen coming. In the latest survey, conducted in early 2021, just under two-thirds (65%) of banking executives agreed that the branch-based model will be “dead” within five years, up from 59% last year and 35% in 2018 (see Figure 1). In 2018 69% of Europe-based respondents disagreed with the statement—today the same proportion agree.

This year’s survey finds that branch closures and continued pressure from non-traditional competitors have triggered a wholesale rethinking of banking priorities and business models among banking executives.


Just under two thirds (65%) of bankers now believe that the branch-based model will be “dead” within five years, up from 35% four years ago. The rise has been sharpest in Europe and North America. 

Banks in 2021 face competition from all sides. New, nimbler competitors including fintech startups, payment players, superapp platforms and tech giants continue to gain market share from incumbent banks as more non-traditional players gain the ability to offer more traditional banking services. A number of youthful fintechs have landed banking charters in the past year, including Varo and Square, enabling them to take deposits and extend credit. The growth of capital markets and central banks’ tentative experiments in digital currency further threaten banks’ very raison d’être. 

But banks are coming out fighting. The stumble of some consumer challenger banks over the course of the pandemic—firms such as Monzo and Revolut struggled with sharp falls in revenue and customer complaints over missing funds—has put smartphonefriendly, slick interfaces in sharp contrast with the dour reliability and brand recognition of established banks. Critically, customers appear to remain reluctant to trust digitallynative challengers with salary deposits. Many established banks, spurred by rapid consumer change forced by the pandemic, are hopeful that through strategic partnerships and investments in technology they can be the best of both for consumers: a trusted banking partner, and purveyors of whizzy, consumer-friendly banking experiences.

Customer experience: the currency of competition

This year’s survey reveals a dramatic shift in priorities. Five years ago, as banking costs soared due to new regulatory requirements worldwide, banks were focused on cutting costs and boosting margins to maintain shareholders’ return-on-equity. Today, customer experience and digital marketing are top priorities for executives as they strive to compete with challengers’ frictionless onboarding, budget planning and perks such as free international payments.



Enjoy in-depth insights and expert analysis - subscribe to our Perspectives newsletter, delivered every week