Don't write off brick and mortar yet: Why bank branches are bouncing back

Equity bank opens a branch in Kiritiri market, Mbeere South Constituency which is the epicenter of Muguka trade ON January 22, 2024. [Muriithi Mugo, Standard]

Leading tier-one Kenyan lenders are opening new brick-and-mortar branches by the dozens, bucking a trend of predicted banking hall closures at a time when banks have shifted to digital platforms.

This is in contrast to the prediction by some influential banking executives over the past decade that branch-based banking would eventually become obsolete.

Several lenders, including Standard Chartered (StanChart), Stanbic, Equity and SBM Bank Kenya, for instance, shut several key branches, headlining the shift to digital banking in place of the traditional brick-and-mortar.

The shift was likened to an “Uber moment” for Kenyan banks and a doomsday scenario was predicted for those who would be left out.

According to some observers, a large number of traditional bank branches would disappear in line with that initial philosophy over the next few years as a result of “digital disruption.”

Indeed, even according to the Central Bank of Kenya (CBK), 96 per cent of transactions happen outside the bank branches. This was up from 91 per cent before the Covid-19 pandemic struck. The pandemic led to the adoption of cashless banking.

The shift to digital banking was witnessed as more lenders rolled out digital banking platforms, which have, in turn, cut the need for customers to visit brick-and-mortar outlets for services such as opening accounts, balance inquiries and settling bills.

“Big transactions are now moving out of banking halls to digital transactions,” Equity Group Chief Executive James Mwangi said previously.

“The battle is no longer physical. The battle is now virtual. We are now starting to retire the brick and mortar of the bank to concentrate on digital,” added Mr Mwangi over eight years ago when the lender released its 2015 full-year profits.

Yet now despite the mounting speculation of the looming death of the traditional branch as we know it, a section of lenders are embracing physical branches again, underlining the branch is here to stay. The proverbial rejected brick-and-mortar set-up of the traditional bank branch appears to be the new cornerstone for some bank CEOs.

These include at least tier-one lenders NCBA, I&M, Cooperative Bank and DTB, if their frenzied opening of new branches and defence of the strategy is anything to go by. Now in its 50th year, I&M Bank, for instance, says it intends to grow its countrywide network by 20 branches this year. The outlets will be spread across various counties nationwide.

Under its new strategy, I&M Bank says it has prioritised expanding its retail services “to bring its products closer to Kenyans.” I&M Bank has already opened eight new branches in Kenya as part of its retail expansion strategy to strengthen its presence in the region.

The opening of the new branches, the lender reckons, signals its commitment to addressing the needs of the people and bridging the gap to financial inclusivity across the country.

The newly opened branches across various Kenyan counties bring the bank’s total branch network to about 49 in Kenya and 93 regionally.

“The expansion is geared towards driving financial inclusion and extending our reach to new locations across the country,” said I&M Bank’s executive general manager for personal and business banking Shameer Patel earlier this year.

DTB has also been on a branch opening spree around the country, defying projections of branch closures.

It announced plans for three new branches located in Nairobi, Karatina and Nanyuki, bringing the total number of branches to 84 in Kenya and 156 across East Africa.

DTB Group Chief Executive Nasim Devji said that the expansion has been informed by customer demands.

“Our expansion goes beyond geographical reach; it is about establishing a deeper connection with the customers we serve. Whether you’re a business owner in need of financial solutions, a farmer seeking agricultural financing, or an individual planning for your financial future, DTB is here to serve you,” said Ms Devji in December.

NCBA last October launched a new branch in Wote Town, Makueni County. The branch was one of the 10 branches the bank pledged to open last year as part of its expansion strategy to bring financial services to all areas of the country. NCBA says it has over 90 branches countrywide.

“As the third-largest bank in Kenya and one of the fastest-growing banks in Africa, we bear a significant responsibility in driving economic growth. Our unwavering commitment is to provide world-class financial solutions through a wide array of products and services, thoughtfully designed to meet local demands while embracing global innovation,” said Group Chairman James Ndegwa at the time.

Co-operative Bank of Kenya (Co-op Bank) has also beefed up its branch network to over 193, adding eight branches last year.

Some of the new branches are located in Nakuru Bahati Road, Kimana, Matuu, Thika Kwame Nkrumah, Greenwood Mall – Meru, Kenol Makuyu, Hindi – Lamu and Bamburi – Mombasa.

“The emerging theory that bank branches and ATMs will cease to exist is largely wishful thinking driven by the desire to cut brick-and-mortar costs, and not by credible customer feedback on the service outlets through which customers prefer to be served,” Co-op Bank’s chief executive Gideon Muriuki said previously.

True to Mr Muriuki’s assertion, experts admit that while it’s true that digitalisation has significantly impacted banking, brick-and-mortar branches still have a strong presence and aren’t disappearing anytime soon.

This is because they cater to specific needs. For instance, some perceived complex transactions such as opening new accounts, securing loans, or dealing with financial issues often still require personalised guidance and face-to-face interaction. As such, branches offer expertise and human connection that digital platforms lack for these situations, say experts.

“We see branches no longer as just transaction processing centres but increasingly as centres where our customers can consult and get advice from our staff as well as business meeting points for their use,” said DTB earlier.

At the same time, not everyone is comfortable with online banking, especially older adults or those in areas with limited internet access.

Branches, therefore, provide crucial access to financial services for these segments such as the elderly and digitally excluded.

For some customers, establishing trust with a banker and building a personal relationship is equally important.

Branches facilitate this human connection, which can be especially valuable for wealth management or business banking.

Bank insiders also say some individuals prefer the security of handing over physical documents or cash in person, especially for large transactions or sensitive matters. It, therefore, appears that branches are evolving, not disappearing.

Going forward, Kenyans should expect to see fewer, but more specialised branches. As such, experts say Banks might consolidate locations, focusing on branches in key areas with larger, more tech-integrated spaces.

Tech-savvy staff and self-service options are also expected. For example, staff will likely become financial advisors, offering personalised guidance and utilising technology to enhance efficiency.

Branches might also have self-service kiosks for routine transactions, with banks expected to focus on experience and community.

This means branches could become hubs for financial education, community events, or partnerships with local businesses, creating a more welcoming and engaging environment.

“So, while digitalisation is shaping the banking landscape, brick-and-mortar branches will likely remain relevant by adapting to changing needs and offering unique value propositions that complement online banking, creating a hybrid banking experience for the foreseeable future,” says a recent study on the future of banks.