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What Will it Mean for Banks to Maintain Physical Outlets in the New World Order

There is a tectonic shift in the way Indians have looked at saving, spending and investing money. The opening up of 400m bank accounts set the ball in motion and Covid gave it an unexpected thrust.

Overall the money transaction ecosystem went through a sea of innovations and impacted the entire strata of the social pyramid. On one end with people opening their first ever bank accounts and on the other, people consciously adopting full digital modes to carry out almost all of their transactions.

The above is leading towards the next evolution in the banking industry which will possibly be a combination of digital and physical engagement platforms catering to the vast spectrum of Indian consumers across all geographies. The overall infrastructure pertaining to the banking system is set for a rejig in terms of type/size of branches, online and offline experiences.

Typically a banking infrastructure of a credible brand would consist of a large number of branches with a presence across various cities, towns and Metros. The branch locations would allow segregation and projection of revenues. However, this is set to change as the physical interactions in metros and large cities reduce while the same grows exponentially in tier 2/3 cities. With WFH as the integral & accepted norms, a large part of the workforce may choose to operate from their native locations rather than moving to their place of work, usually the large metro cities.

The upcoming trend in banking system would focus on two fold experience creation, one on the offline branches in smaller cities, towns and rural areas and on the other hand it will need to create an online experience for its metro/large city clientele.

This clearly means that the count of branches for banks increases while the area of branches reduces, also reducing the capital cost of branches. However the challenge will be to deliver similar standards across all locations with reliability and consistency. This would push the need for outsourcing of non-core or near-core services and empanelment of reliable partners for delivering end to end services for all such needs seamlessly.

The key challenge would be to manage the physical branches as the revenues in the short term may be considerably lower than the online clientele, while the hassle to manage the same is higher. The key is to ably manage the business related activities and in a combination of inhouse managed and outsourced model.

Strong governance becomes critical in such a hybrid model in order to ensure that the vendor partners are always aligned to the bank's business goals. A comprehensive integrated service model is an effective way to manage this part of business, however the key lies in the selection process of such a partner. This selection is certainly not pricedriven as this overall proposition carries a lot of hidden and intangible costs and can have a massive impact on business continuity.

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