As more and more customers of financial-services companies turn to low-cost virtual-distribution channels, the higher-cost physical channels—traditional bank branches, in particular—will no doubt have a harder time earning their keep. Yet rumors of the death of bank outlets are exaggerated (Exhibit 1). Indeed, banks should find them a source of substantial value for years to come if they are carefully contoured to fit the rest of the distribution system and local market opportunities.¹

For bank outlets offer customers something that the Internet can never match: a secure physical location for transacting complex financial business with real people. In fact, their use has recently been increasing—from 54 transactions per US household in 1993 to 62 in 1998. More than 80 percent of consumers visit a physical outlet at least once a month, and bank outlets still generate 80 to 90 percent of new deposit, investment, and loan accounts.

Thus it should hardly be surprising that consumers prefer financial institutions offering services both on the Internet and in physical outlets to institutions that offer them only on-line. Although 40 percent of on-line customers say they would consider opening an account with an on-line-only banking institution, some 70 percent say they...