Written by Trica Cuna Weaver
In 1995, an essay in the ABA Banking Journal argued that “the banking industry will suffer the same fate as the dinosaur within the next five years unless the brick and mortar branch banking system is cast off in favor of more nimble delivery alternatives.” As we move forward into 2015, the delivery of banking services around the world is certainly different than it was twenty years ago. Back then, I remember being fascinated by drive-through bank tellers (a service commonly available at U.S. banks branches), sitting in the back seat of the family minivan, watching as canisters stuffed with checks zipped through tubes and back with deposit receipts. Fast forward to today, I now rarely issue or receive checks, and when I do, I snap a picture of it with my smartphone and it’s deposited to my bank account in a manner of seconds. From drive-through bank tellers to mobile banking, the customer banking experience has changed dramatically.
This significant shift to digital has characterized financial services not only in developed countries, but also (and in several cases, perhaps more so) in emerging markets. Branchless banking and digital financial services are not new concepts in banking; in the late 1970s, for example, Citibank pioneered the roll-out of ATMs to reduce the operating costs of manual cash disbursement at branches. In the financial inclusion space, discourse on digital and mobile financial services has also moved beyond debates on relevance to discussions on tailored applications in sectors such as agriculture and clean energy. Globally, usage of digital channels has increased rapidly in recent years; a 2014 survey found that retail banking customers in 21 countries (in both developed and emerging markets) handled more than 70 percent of their banking interactions through mobile (smartphone, tablet), online, and ATM channels.
Nevertheless, the pressure on banks to expand their delivery channels, as well as the products and services offered through these channels, has intensified due to the exponential rate of financial technology innovations offered by non-bank actors (such as mobile network operators and payment service providers), which increasingly compete in the traditional banking space. From Pakistan to Kyrgyzstan to China, Enclude’s microfinance and retail / commercial bank clients have invested substantially in online, mobile, and card-based channels to improve operating efficiency, more effectively mobilize deposits, expand customer outreach, and, in the case of China, rival Alibaba’s Alipay.
As banks push to “go digital or bust,” however, it is critical to keep the customer experience at the core of any growth strategy. This requires a true understanding of customer preferences – which may vary across customer segments such as industry, geography, gender – and how their banking experience may be enhanced through both digital and physical channels. The emphasis should not be on developing a siloed, electronic banking strategy, but rather, an integrated “omni-channel” strategy that provides customers with a seamless experience across their interactions with a bank teller, call center, online platform, mobile application, branchless banking agent, and/or ATM. According to Wells Fargo & Co., a leading bank and financial services holding company in the U.S., “high-intensity” customers, or those who frequently utilize multiple channels, are 1.7 times more profitable and own six more products on average than low-intensity customers.
Alternative channels are also being utilized to acquire new customer segments. For example, in India, the central government has taken on the task of providing country-wide and universal access to financial services, starting with the opening of a bank account. Over a span of eight months, the program enrolled over 150 million registrants, including over 90 million from rural areas. While similar government initiatives had faltered in the past, the recent success of Pradhan Mantri Jan -Dhan Yojana came in large part due to the mobilization of over 125,000 Bank Mitra (business correspondents) assisting in bank account enrollment camps and conducting transactions via phone and computer from their respective corner shops.,
Particularly in the markets where Enclude works, physical channels, such as branches and call centers, will continue to play an important role in the delivery of banking services. Their role, however, must evolve to reflect the particular needs and preferences of customers. In Kenya, for example, Musoni, a microfinance institution (MFI), has taken advantage of the well-developed mobile money and mobile payments infrastructure and conducts all of its transactions (such as loan disbursements and repayments) entirely through mobile money accounts. Nevertheless, while Musoni’s operations are cashless, they are not branchless; Musoni does have a number of branches, recognizing the importance of channels that provide face-to-face interactions with clients. Since the branches are cashless, however, they are less costly for Musoni to operate, which also improves the MFI’s ability to open more branches in rural areas.
In this context, branches are not doomed to the fate of dinosaurs. Nevertheless, banks must determine how their channels must evolve to be nimbler, less costly, and more integrated in order to expand customer access and outreach, and to enhance the customer banking experience.
 Fowler, Judge W, and John P. Hickey. “The Branch Is Dead! Long Live the Branch!” ABA Banking Journal 87.4 (1995).
 Digital financial services is defined here as financial services (such as credit, savings, investments, insurance, transfers, and payments) offered through digital instruments (such as debit, credit, and pre-paid cards and mobile wallets) and digital channels (such as ATM machines, point-of-sale terminals, mobile phones, tables, and computers)
 “Customer Loyalty in Retail Banking: Global Edition 2014.” Bain & Company, 18 Dec. 2014. Web. 4 Jan. 2015. <http://www.bain.com/publications/articles/customer-loyalty-in-retail-banking-2014-global.aspx>.
 Huang, Daniel. “Mobile’s Rise Poses a Riddle for Banks.” The Wall Street Journal 18 Dec. 2014. Web. 5 Jan. 2015. <http://www.wsj.com/articles/mobiles-rise-poses-a-riddle-for-banks-1418945162>
Department of Financial Services. PMJDY website, Progress Report. <http://pmjdy.gov.in/ArchiveFile/2015/4/29.04.2015.pdf>
 Narendra Modi’s personal website. “FM: Record Number of 11.50 Crore Bank Accounts Opened Under Pradhan Mantri Jan Dhan Yojana (PMJDY) as on 17th January 2015 against the original Target of 7.5 Crore by 26th January, 2015,” January 20, 2015.<http://www.narendramodi.in/fm-record-number-of-11-50-crore-bank-accounts-opened-under-pradhan-mantri-jan-dhan-yojana-pmjdy-as-on-17th-january-2015-against-the-original-target-of-7-5-crore-by-26th-january-2015>
 Rama Lakshmi, “India pushes bank accounts for the poor in bid to share benefits of economic growth,” October 18, 2014. The Washington Post. < http://www.washingtonpost.com/world/asia_pacific/india-pushes-bank-accounts-for-the-poor-in-bid-to-share-benefits-of-economic-growth/2014/10/17/62e153ff-e295-4dc7-80fa-addf9db498ef_story.html>
 Pénicaud, Claire, and Arunjay Katakam. “State of the Industry 2013: Mobile Financial Services for the Unbanked.” <http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2014/02/SOTIR_2013.pdf>.