Multi-channel distribution in the banking sector and the branch network restructuring

Abstract

European banking groups have been addressing the problem of restructuring their branch networks. Indeed, in the light of the recent digital transition of services, they aim to leverage digital channels to deliver basic services and reduce the number of physical facilities to dedicate to more complex and added-value operations. In order to implement the new business model, banking groups are shrinking their internal branch networks and outsourcing basic services to maintain physical proximity to customers unwilling to adopt digital channels. This work aims to formulate a mathematical programming model to support the decision-making process concerning the branch network restructuring. The model is formulated as a hierarchical covering location problem. Three types of branches providing different categories of services are considered. They are organized according to a three-level hierarchical structure, and each level is associated with a covering radius, representing the related accessibility condition to be guaranteed to users. A further category of facilities is considered, namely external facilities, that may support internal ones in providing basic banking services. The objective is to identify the network structure able to serve all the demand for banking services and minimize the total costs. A specific parameter is introduced to regulate the maximum outsourcing level that the bank is willing to achieve. The model is tested by considering a real case study concerning one of the main banking groups in Italy. The obtained results show the capability of the model to provide interesting scenarios and fruitful managerial implications.