Roland Berger, a global consultancy has projected bank branches in Indonesia to reduce drastically over the next 10 years, thus leading in South-East Asia (SEA) as customers shift from physical to digital banking services.
According to the study conducted by the management consultancy, the number of bank branches in SEA will drop by 18 per cent in the next decade. This is equivalent to about 11,000 branches that will get shut down in the region, with close to 7,000 located in Indonesia.
“Asia Pacific’s physical banking presence has been increasing over the last decade, and Southeast Asia is now leading the region towards a more digitalized, efficient and inclusive banking landscape.
“Branches that remain will likely take on a whole new avatar as advanced links in a complex, Omni channel, customer-centric service offerings.”Ronald Berger Consultancy
While Singapore and Brunei have already seen such a trajectory since 2010, Thailand and Malaysia will follow Indonesia.
“They [banks] need to address the upcoming challenges of the decline of the branch role sooner rather than later, preparing for a redesigned, repurposed and reduced network, according to the study.
“Failing to do so will profoundly impact retail banks’ profitability, leaving oversized branch networks underutilized.”Ronald Berger Consultancy
However, for countries such as Vietnam, Laos, Cambodia and Myanmar, the number of bank branches are likely to continue growing given the underdeveloped banking sector in those countries.
As a consequence of their relatively underdeveloped banking sectors, these countries currently have the lowest branch densities in Southeast Asia.
Thus, an increase in branch footprint and an associated increase in financial inclusion are expected as the banking systems in these markets further develop.
Based on the study’s findings, it estimates that over two-thirds of banking customers will prefer digital banking services to physical branches.
Bank branches in South East Asia to dip
Furthermore, the aggregate physical presence across Southeast Asia is in for a dip. Aside the economic factors, the researchers highlight how this shift is largely driven by a young, digitally inclusive population across the region.
At current rates, an additional 111 million digital natives- now between the ages of 8 and 17— will enter the bankable population by 2030.
Comfortable with tech, and served by a whole host of new digital banking tools, these ranks of young consumers will likely drive many of the region’s physical branches into obscurity. By so doing, this will bring Southeast Asia up to speed with the global banking landscape.
Moreover, Indonesia’s physical banking presence began in the 1990s, where it had the most branches in the region at the time.
And for this latest projection, the head of policy at the Indonesian Banks Association, Avilaini, indicated that the COVID-19 pandemic has contributed to the shift as it forced people to limit physical interactions and spend more time at home.
However, Aviliani expected the closure to be uneven, whereby banks would concentrate the closure on big cities but retain branches in rural areas. This is because more customers in the rural areas lacked internet access and maintained a high appetite for cash transactions.
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