Spending money to make money

For those of us involved in, or at least actively interested in, the development of new banking and payments channels will not be surprised to learn that the agency expects online channels to grow, and branch networks to decline.

But it is interesting to see exactly how Fitch sees the numbers stacking up. In a statement introducing the report, the agency says it expects increased technology spending over the near to intermediate term, as banks look to improve efficiency and streamline operations. So far so obvious.

"While over the near term these additional technology expenses may offset cost savings from culling bank branches, longer term it should improve earnings and, therefore, returns to shareholders," says the agency.

So over the medium- to long-term savings from branch closures will more than make up for the IT investment required to replace that physical infrastructure with an electronic one.

Not an easy equation
Perhaps that is true, but the approach just feels wrong... As so often happens in electronic banking and payments, there is a danger that technology takes the lead in strategic decision-making.

Digital banking and payments capabilities will certainly mean that banks will soon be able to invest less in their branch infrastructure. But that does not necessarily mean they should.

The question remains: can online banking truly drive revenue as well as cost-savings? The answer is yes, providing the technology can develop beyond the transactional.

It is the sales and advisory functions that really drive revenue, and at the moment, online banking channels do not stand up to bank branches in these areas. Yet.

It is, as always, the complex and nuanced view that prevails. Simply shifting investment away from branches and into digital channels would be very risky, but it is essential to acknowledge that digital banking is quickly becoming the prefered method of transacting.

Indeed, some banks are finding that in order to meet customer expectations they are investing in both.

Famously the Italian bank Intesa SanPaolo launched a new card product - SuperFlash, and redesigned a number of branches specifically to attract young people, replacing counters with computers, and clerks with sales staff - and by all accounts to great effect.

But that is an an example of a bank expanding branch numbers and investing in electronic channels, and doing reasonably well out of it. But hardly offsetting the cost of one with cuts to the other.