Canadian banks must innovate their branch networks, KPMG survey shows

Most Canadians are rarely doing their daily banking in a bank or credit union branch, but they support keeping the current number of bank and credit union branches in their communities, posing a dilemma that underscores the need for financial institutions to transform their branch networks to better serve the needs of Canadians, according to an analysis by KPMG in Canada.

A survey of 2,058 Canadians shows three quarters of Canadians are rarely using bank or credit union branches, with nearly half (48 per cent) saying they visit a branch once or twice a year – or not at all – and an additional 26 per cent saying they visit branches once every few months. The proportion of respondents who say they never visit a bank branch has doubled since the pandemic, while those who visit a branch weekly dropped nearly 43 per cent.

Only three in 10 (32 per cent) believe there are too many branches in Canada, while 68 per cent said the current number is required. According to 2022 data from the Canadian Bankers Association, there are 5,656 bank branches across Canada.  Nearly nine in 10 respondents (86 per cent) said they like and want the security of knowing their branch is there, even though they do most of their banking online or via mobile.

“What’s striking is how much value Canadians place on their bank branches, even though they rarely step inside them,” says Geoff Rush, Partner and National Industry Leader for financial services at KPMG in Canada. “This tells me that branches still play an important role in the future of Canadian financial services, but in order for them to serve a higher purpose for both consumers and banks, they need to take on a whole new look, feel and purpose for consumers – or else they’ll become costly real estate safety nets,” he adds.

When asked to cite their top reason for visiting their local bank or credit union, more than half (53 per cent) of respondents said depositing or withdrawing money draws them into a branch more than any other reason, and 75 per cent said it was one of their top three reasons. The second most cited reason was opening an account (12 per cent).

Mr. Rush says if consumers continue to use branches for simple transactions and do more of their advanced financial transactions digitally, it could become increasingly difficult for banks and credit unions to justify having large branch networks.  According to the most recent data from the World Bank, the average number of bank branches per 100,000 adults in Canada is 20.7, compared to a global average of 11.2.

“Over-the-counter transactions such as cash withdrawals and deposits might have been good enough reasons to establish and maintain large branch networks at one time, but the world has changed, and consumers have changed the way they bank,” he says. “Financial institutions need to find innovative ways to make the best use of their branches. Other jurisdictions around the world have experimented with a variety of approaches, including co-shared banking hubs, sales pods, roving branches and hybrid service models. Some of these approaches could serve as inspiration – or even be adapted for – the Canadian market where it makes sense.”

Though their in-person branch visits are increasingly rare, respondents expressed a high degree of satisfaction with their financial institution, with 87 per cent saying they are happy with the service their branch provides. Respondents also expressed a high degree of loyalty to their financial institutions, with nearly three quarters (73 per cent) saying they would stay with their local bank or credit union even if their branch closed.  

“This is the key issue that lies at the heart of the dilemma on what to do with large branch networks with a declining number of customer visits,” Mr. Rush notes. “What might provide some comfort for banks and their customers is the experience of banks overseas. Institutions in Israel, Scandinavia, Australia and the United Kingdom have pared down their branch networks, and what they’ve have found is that customer attrition has been very low.” Rush says.

Nearly six in 10 (59 per cent) respondents said they would be impacted minimally or not at all if their local branch closed, and more than half (54 per cent) say they’d prefer not to visit their branch but are forced to, because certain activities can’t be done online, over the phone or at an ATM. Interestingly, 55 per cent said they are willing to forgo in-person banking altogether for a better online or mobile-only banking experience.

Dan Resnick, a Partner in KPMG’s Customer Practice who specializes in financial services, says many banks and credit unions have tried to get more customers into branches by repositioning them as “advice centres” focused on financial planning, investment advice and wealth management services, but the survey data shows two thirds (65 per cent) of respondents dislike the idea of branches being turned into such centres.

“We heard from Canadians that they don’t want their local branch to be converted into a place that only provides financial advice because it would eliminate the primary reasons they physically head into a branch,” says Mr. Resnick. “But it’s also time for financial institutions to decouple the idea of offering customers better financial advice from the idea that financial advice has to be delivered in the branch.”

“The wants and expectations of Canadians in 2024 clearly shows a need for a new vision, incenting banks and credit unions to do a critical assessment of what their customers want, how they want it and when they want it. Only then can they determine the best mix of customer touchpoints, including digital channels, physical branches and third-party locations (such as grocery stores, coffee shops or airport terminals). The perfect mix will vary depending on the region or city as well, so it’s not a one-size-fits-all formula,” says Mr. Resnick.

KPMG in Canada surveyed 2,058 Canadians between September 15, 2023 and September 20, 2023 using Sago’s Methodify online research platform. 48 per cent of respondents identified as male and 52 per cent as female. 39 per cent identified as Baby Boomers, 33 per cent as Generation Y, 18 per cent were Generation X and 11 per cent were Generation Z. 39 per cent of respondents lived in urban areas, 34 per cent in suburban areas, and the remaining 27 per cent in rural areas, villages or towns.  Three quarters said their primary financial institution is one of Canada’s Big Five banks, 13 per cent said a credit union and 8 per cent use a digital-only bank. The remaining respondents bank at a non-Big Five bank. The margin of error is +/2 percentage points, with a confidence level of 95 per cent.