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By · April 27, 2021
4 minute read

Phygital – The New Banking Frontier

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Digital banking continues to soar, however almost three-quarters of customers still bank at physical branches. So Phygital remains a popular strategy for banks. The question is how best to execute a Phygital strategy.

In March 2020, when the coronavirus outbreak was labelled a pandemic, 25% of bank branches worldwide were closed, and 15% remained shuttered by the end of spring. However, even before the crisis, branch contribution to core banking unit sales had dropped from 75% in 2015 to 55% in 2019, according to McKinsey.

Customers changed habits. Two-thirds of people using digital channels for the first time indicate that they will continue to use them when things return to normal.

“But this trend to go fully digital has left some customers longing for the days when they could walk into their local branch and speak face-to-face with a member of staff to sort out their finances”, observes Fintech Magazine.

Data from J.D. Power & Associates, quoted by The Financial Brand, confirms that “the most satisfied consumers are those who regularly use branches and also use digital channels”.

That’s why Phygital banking – in which digital technology works side-by-side with physical and human services – is the trend of the moment. Here are three ways to make Phygital a reality.

#1 Re-imagine your customer journeys

  • Accenture identified 7 strategic interventions banks should act on to become Phygital. The first – which is the most important and therefore highlighted in this article – is to re-imagine customer journeys. “Current customer journeys typically suffer from three critical design issues”, says Accenture’s report “How to become a phygital bank in a year”. These areDigital journeys are often extrapolated from manual processes and fail to take advantage of current technology;
  • The journeys are typically not architected for all stakeholders. Designing an experience, for the role an employee plays in any journey is critical;
  • The customer journeys are not modular enough.

Other interventions “relate to the underlying capabilities required to make these journeys a reality”.

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#2 Deploy technology, but human interactions remain key

“Digital banking is on the rise, but human interactions remain key in many scenarios”, observes Andrei Gaman, Commercial VP Banking Europe at FintechOS . Gaman, like other specialists in the industry, thinks that digital elements of the customer journey should work together to allow customers to view and discuss products and services in the physical environment.

A Barclays report quoted by Fintech Magazine, exploring the customer trends of Gen Z, found that 46% of those surveyed would visit a brick-and-mortar store to find out more about a product or service before committing to purchase.

“Successful financial services firms will need a ‘phygital’ strategy that seamlessly integrates technology, branch networks and staff to provide a service that combines physical and digital capabilities and gives consumers a choice,” said Piercarlo Gera, senior managing director, Accenture Financial Services, quoted by

An Accenture survey in 2017 pointed to the need for human interaction in particular areas, such as mortgages (61%) “which are significantly more complicated than simply opening a bank account”.

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# 3 Think holistically

Banks are aware that brick-and-mortar branches are important, but nevertheless they are expensive to open and run. While current operations and customer interactions are taken over by digital tools, staff roles are moving from an administrative role to an advisory one.

“Traditional one-branch-type fits-all model is no longer appropriate. Banks are learning from supermarket multiple store formats and GAAFA experiences (Amazon)”, Accenture writes in its report “How to become a phygital bank in a year”. The report advises: “holistic branch and network strategies are required to be effective from a cost, customer service and acquisition perspective”.

When Phygital is done well the impact on the bottom line is visible. Phygital experiences are estimated to generate twice as much revenue as traditional single-channel operations, as well as 30% more cross-selling and a third less churn, according to research quoted by Fintech Magazine.

“In our experience, holistic branch transformations can reduce locations by 30 percent, increase sales productivity by more than 20 percent, and improve customer satisfaction by 25 percent”, McKinsey & Company shows in this report.

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