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Don't Worry Too Much about the Decline of the Bank Branch

Adam Rust's picture

Posted March 10, 2015

It wasn't too long ago that the hot idea in banks was to offer a better branch experience. Commerce Bank (New Jersey) was pioneering a friendly bank environment that featured comfortable couches, inviting color schemes, and open doors for eighty business hours per week.

Fast forward to today, and bank branches are out of favor. In a February presentation to investors, JPMorgan Chase CEO Jamie Dimon said that the bank will close approximately 300 branches in the next two years. Bank of America says that it has no choice but to embark on a massive branch diet. Business owners in some rural communities are organizing to protest when their only branch closes. 

I go to a bank branch when I have to deposit a money order or to get a cashier's check. On the occasions when I want cash, I drive through at an ATM. Otherwise, I try to avoid doing so. Branches do a great job of helping with, too. Think how much less time it takes to wait for a drive-through ATM compared to what it takes to get a burger and fries. It used to be that deposits at ATMs allowed me to avoid a branch visit. Now, remote deposit means that I don't even have to use the parking lot at my local bank. 

Who is Doing the Closing?

Until now, Chase has been the exception to the idea that banks are moving away from the branch model. In fact, Chase actually increased its branch footprint in the last five years. 

On the opposite hand, no one seems as intent as Bank of America when it comes to moving away from brick-and-mortar.  In just five years, they have closed one of every six branches. 

Branch Closings Big Banks 2010 2014

The regional banks appear to be more comfortable with keeping branches intact. Until last year, branch count at PNC/RBC was roughly the same as back in 2010. USBank has actually increased their numbers.

In spite of the fact that there are fewer branches, every one of these banks is enjoying a general increase in deposits.  Combined deposits at the six largest retail banks (B of A, Wells, Chase, USBank, PNC, and Citi) increased 44 percent between June 2010 and June 2014. On a per branch basis, sums of deposits increased 58 percent. 

Chill out! Relax! Chillax!

I think the concern that a lot of folks have about a reduction in branch networks is misplaced. There are still plenty of branches. Some would argue that branches mean more to the groups that are traditionally under-served, but that assertion seems to go against intuition. After all, if bank branch footprints are going to shrink, wouldn't those most impacted be the ones who are served by branches? Ultimately, people still need to have a place to go for some services, but we have to acknowledge that smartphones will suffice as near-equivalent replacements. Research says that the underbanked are unlikely to be under-phoned. Moreover, we know that the age of the underbanked is skewed to a younger median, it is likely to be the case that the underbanked are over-phoned relative to their fully-banked peers.  

Most people use their bank branch two or three times a year. Specific groups rely on branches. While we know that seniors and small businesses owners feel strongly about using a branch. What many may not understand is that branch utilization often turns on the use case. People go to a branch to fulfill certain needs. For example, most people say that they would prefer to use a branch when they open a checking account. On the other hand, most prefer to shop online for a mortgage. If the local branch bank has the best rate, then the applicant might visit the branch. However, that is rarely the case. The majority of bank branches account for fewer than three mortgage loans per year. Perhaps those two details explain why banks want to close branches. The branch is no longer the focal point of consumer banking. It's a destination for a few things. Americans love the drive-through and using an in-branch ATM versus one they can access from their car appears to follow the same trend. 

I think it is too early to settle our thinking about opening a checking or savings account online. As I mentioned earlier, 60 percent of consumers say they prefer to open a checking account in a branch. I think this can change. APIs that allow one account to receive funds from another one by granting access to a consumer's sign-on details reduce friction. Digital allows for comparison shopping. The success of Lending Tree and Priceline speak to how much consumers like to compare prices. Online makes that easier, especially when the point of comparison is numeric. Digital savings accounts tend to offer the highest interest rates. 

I believe the right answer is not one or the other. If the use case triggers the need to visit a branch, and only certain use cases do so, then many people are likely to want a branch sometimes but not all of the time. If they have a relationship with only one bank, then maybe it is important for that financial institution to have both points of access. Still, most people have accounts at more than one place. I see a future where consumer banking becomes more and more a la carte. That is especially true now that it is so easy to move money between accounts with a swipe of a phone.