Will Banking be 100% Digital?

Declining branches: if the future will be branchless, what impacts and changes might occur?

Introduction

The banking industry is undergoing profound changes, and one of the key questions in the sector concerns the future of bank branches. Traditionally considered a fundamental element of the Italian business landscape, data from the Bank of Italy (source: statistiche_STAATER_20230331.pdf (bancaditalia.it) page 7) show a clear decline. In the last 10 years, the number of branches has dropped from nearly 32,000 units to less than 21,000, with a general decrease across Italy, without significant differences between the North and the South.

We also know that banks still employ a significant portion of the population, 264,000 people in 2022 (source: statistiche_STAATER_20230331.pdf (bancaditalia.it) page 34), and many of them work in branches. However, there is also a decline, much more pronounced in large banks (-10,000 units from 2021 to 2022, -29%), compared to medium and small banks (which have stable or slightly increasing numbers).

So, it’s reasonable to wonder if the future of banks is, in fact, without branches, and what the impact of this change is on the banking workforce.

The Digitalization of the Economy as a Fundamental Driver

Certainly, the digitalization of the economy is playing a primary role. In the first half of 2022, the volume of digital payments in Italy reached 182 billion euros, a +22% growth compared to the same period in 2021, approaching the level of cash transactions (now below the 50% threshold). Italian digital payments grew by +22% (osservatori.net)

Simultaneously, the emergence of fully digital neo-banks (e.g., Revolut, N26) is pushing various segments of the population to adopt entirely digital banking solutions without branches, getting accustomed to automated processes, from onboarding to loan requests to investments.

One Zero Bank: The AI Bank Made in Israel

In this context, the case of One Zero in Israel is interesting. It’s a neo-bank that has been active since 2019 and has developed an innovative, highly technological, and branchless banking model that is gaining success and acceptance.

Currently, manual processes represent a bottleneck in banks and are often delegated to branches.

One Zero, on the other hand, has found a way to automate them with artificial intelligence.

Eyal Gafni, co-founder of the Israeli neo-bank, explained in an interview how banking processes can be effectively categorized into five areas that can be almost completely automated by AI:

1. Data Gathering: Data is automatically collected from various sources, including open banking, customer portfolios, chat interactions, and customer behavior.
   
   
2. Data Analysis: All collected data is automatically analyzed 24/7 using machine learning algorithms.
   
   
3. Deriving Insights: The bank automatically identifies patterns and significant changes.
   
   
4. Giving Recommendations: Most financial advice, such as investment proposals, is already automated (92%), while the rest is subject to human review for security reasons.
   
   
5. Customer Communication: Interaction with customers largely takes place through an AI-based chat available 24/7, effectively eliminating the concept of traditional working hours.
   

A Completely Different Workforce

With processes like these, the workforce also changes radically. One Zero currently has 420 employees, of which about 200 are responsible for value proposition and R&D (product managers, designers, software engineers, etc.), about 150 are in banking roles (financial consultants, back-office, etc.), while the rest are in general functions: marketing, compliance, legal.

In practice, the workforce is divided 50-50 between a financial company and a cutting-edge technology company, where financial skills are becoming less predominant. This effect is even more pronounced for administrative skills.

Therefore, it’s not surprising that One Zero, since its founding in 2019, has not had bank branches. So far, they have not been necessary, even though One Zero‘s target demographic is not Generation Z but rather the population aged between 34 and 49.

Customer Service 2.0

But what if someone has a question? Who can they turn to?

This is often a consideration when discussing branches. However, even in many traditional banks today, customer service is semi-automated, with phone or branch assistance as a last resort.

In this regard, One Zero is also interesting because customer service processes are almost entirely automated through a bot (the AI banker called “Ella”) based on OpenAI’s LLMs and One Zero‘s proprietary technology.

It’s worth noting that in most customer satisfaction surveys, One Zero‘s AI banker achieves higher satisfaction scores compared to humans.

However, according to Eyal Gafni, this data is the result of a combination of factors. Certainly, credit goes to AI for smooth interactions in most activities. But it’s also true that humans handle more complex situations that AI can’t resolve, so they need time to make decisions and sometimes have to say no.

So, what will remain of branches and their bank staff?

The more we delve into the One Zero case, the more we can sense the direction of this market.

As algorithms improve, they can handle increasingly complex tasks, leaving people with one primary responsibility: managing relationships. Machines are not (yet) experts in relationships and do not receive the same trust as human interactions.

Emotional intelligence and empathy emerge as irreplaceable elements, adding value to interactions and gaining customer trust in ways an algorithm cannot replicate.

The banks of the future will be the product of a symbiosis between the efficiency of artificial intelligence and the depth of human relationships. The balance between the speed and convenience of technology and the warmth and human understanding will define the success of banks in the near future.

Towards a New Banking Model

Based on the case of One Zero, we can conclude that the future of banks seems to be an intertwining of technological progress and the authenticity of human relationships.

Looking at the numbers and observing the case of One Zero, my consideration is that traditional branches with a focus on processes will see an inevitable decline, while there is a market space for branches with a different focus, more human-centered.

Human connection emerges as an essential last stronghold for balanced and customer-centered banking. Banks will, therefore, need to navigate wisely between innovation and humanity, creating a model that harmonizes technology and empathy, accessibility, and trust.

I would like to thank Eyal Gafni, co-founder of One Zero Bank, and Guy Bertolozzi, Managing Partner of BIIB, for making the interview possible.