Banks in the UAE are experiencing a reduction in branch numbers, prompting the need for a reimagining of their purpose. In an increasingly digital world, the question arises: who needs physical branches and what functions should they serve? Should they focus solely on banking transactions or expand their role to provide advice and other services?
Over the past decade, approximately 56,000 bank branches have closed down in 100 countries, leading to a 14% decline in branch networks. The UAE has seen an even more significant reduction, with over 40% of branches closing since 2015. Currently, there are around 565 bank branches in the country, and the number continues to drop by an average of 3% annually.
Several factors contribute to this rationalization trend. The majority of customer transactions now occur through digital channels, with up to 97% being conducted digitally, eliminating the need for branch visits. The pandemic further accelerated the shift towards self-service banking, diminishing the demand for face-to-face assisted banking. Additionally, cost considerations are driving banks to reduce their physical locations.
However, it is worth questioning whether banks are going too far in their branch closures as a post-pandemic overcompensation. According to a McKinsey-Finalta study, while branch usage dropped by only 1% in 2020-21, banks closed 9% of branches. In the UAE, most banks have rationalized their networks by up to 25%, with some, like Mashreq, reducing their branches from 39 to 7. Consequently, the UAE currently has 7.6 bank branches per 100,000 population, compared to 28 in the US, 25 in the UK, and 15 in South Asia.
I spoke with the heads of retail banking at three leading banks in the UAE to discuss their network plans, and their responses varied. Emirates NBD plans to open six new branches by the end of 2024, according to Marwan Hadi, Group Head of Retail Banking & Wealth Management. ADCB has no branch expansion plans, while FAB, the largest bank by assets, is still reviewing its plans, according to Futoon Almazrouei, Group Head for Consumer Banking.
In contrast, J.P. Morgan Chase has opened 650 new branches in the US since 2018, reportedly driving deposit growth and cross-selling. This raises the question of whether UAE banks are being too conservative in their expansion plans. After all, a recent study shows that 28% of customers still prefer using branches (though only 16% actually do).
Although bank branches today look and feel different, with a shift towards digital enablement and self-service machines, they remain important. Traditionally, the majority of branch space was dedicated to cash tellers, but modern branches prioritize personal and community relationships. Financial advisors address complex financial needs such as investments and mortgages, while branch staff increasingly possess multiple skills as universal bankers who can serve, sell, and advise.
The branch of the future will take on various formats, including flagship champion branches, satellite branches, café branches, temporary micro-branches, and digital self-serve branches. Biometrics, robotics, and artificial intelligence will be integrated into the customer journey, enhancing the banking experience. Some examples include robots greeting customers at Banco Bradesco in Brazil, imaginCafes in Spain’s CaixaBank serving as cultural spaces for millennials, Virgin Money lounges in the UK designed for community engagement, and DBS in Singapore offering lifestyle spaces with services ranging from retirement planning to singing lessons. Capital One cafes in the US combine banking with lifestyle experiences, offering quality coffee and food. This marks the beginning of a reimagination of the traditional bank branch. Reports of the death of bank branches in the past were proven exaggerated, as concerns arose with the introduction of ATMs in the 1980s, mobile banking in the 2000s, and the pandemic in 2020. Perhaps the future will bring smart branches that foster customer relationships and complement digital banking. It is even possible that the most innovative fintech companies will follow suit and open their own branches.