Your analysis of consumer psychology towards branch density makes a lot of sense: “Hey sure, I’ll choose the bank with more branches. As long as it doesn’t cost me anything, why not?” But that doesn’t seem to align with what consumers are saying in studies. They are saying branch density is a primary driver of their decision, which implies they place heightened importance on branches because they think they may need them. It’s the difference between viewing branches as a just a bonus/perk vs. a necessity.

Is branch density really a key driver of consumer decisions? Sure, if consumers say so. But does it make sense? Not based on actual utilization.

Please note: The Financial Brand has never accused people of being rational consumers. They make all their decisions for emotional reasons. Also, there are few venues that celebrate branches as much as The Financial Brand. No one is saying branches lack value, nor suggesting they are dead. But for the purposes of stimulating discussion, The Financial Brand poses the same hard questions that many banks and credit unions are asking. If there’s a lesson here, it’s that articulating the case/role for branches is getting trickier.

Which FI will be the first to close branches in a market and retain its market share? The answer is no one. Despite new channels for consumers to interact with their financial institution, consumers continue to rely on physical branches for their relationship decisions. It may not make sense to surveys pointed toward transaction analysis but it does if you look at consumer behavior. Is anyone really surprised that consumers are complex and their behavior even more so? Note that entire industries exist to understand and shape consumer behavior. Surely, they would have collapsed by now if it were as simple as this article assumes.

I have to weigh in with Tim here. There is nothing hypocritical about consumer decisions impounding contingencies that may not occur. The psychological reassurance you note is valuable in many situations. This weekend, at Super Bowl parties across the US, you’ll find hosts (at least the good ones) preparing more food than is likely to be consumed. But the marginal cost of opting for excess capacity is worth the tradeoff of not having capacity when you need it. No one wants to run out of food and drink in the third quarter, so you prepare that extra bit and if it’s not consumed, so be it. At least you didn’t spend the afternoon worrying about empty plates and hungry guests. And most people similarly will choose the bank with extra branch capacity just in case they happen to need it.

Viewed another way, note that the marginal cost of choosing the bank with broad capacity is nil. With banking products so homogenous, why wouldn’t a rational consumer choose the institution with more branches? If product, pricing, and service are equal, the consumer derives substantial potential benefit — but no additional cost — from choosing the bank with broader access. The hospital analogy actually supports this: the rise of satellite clinics of major hospitals over the past two decades reflects a goal of providing more convenient access; of building enduring relationships with the hospital and its brand, rather than relying on emergency event occurrences for revenue.

Two other points: first, branches do not need to be giant or expensive, so you can capture that billboard effect without spending $2 million for a branch. Second, consumers lie on surveys. Maybe not always intentionally, but there’s a broad gap between empirical and self-reported data. There’s a broad body of media research that shows gaps between Nielsen results from the old “booklet” days versus the “set top box” measurements. Even in anonymous surveys, not every one is willing to confess to watching Melrose Place (or in today’s equivalent, The Real Housewives of Albany). Self-reported income data are notoriously inaccurate, too, and no doubt self-reported branch channel use data are, too. A colleague at a top 20 bank shared a statistic with me that more than 70% of their customers use a branch at least 2x per year. How many of these same customers would claim “I never use a branch”? In their minds, twice a year = hardly ever = never. But the reality is, while branch utilization may remain below all-time highs it’s hardly nonexistent, and when the branches are used, the consumer certainly values their presence greatly.

As long as there is no cost to the consumer of choosing a bank with a broader network, there is no disconnect between the expressed desire for branches and the modest utilization of those branches. It is perfectly rational to choose more over less purely based on the possibility (but not certainty) of future need, given no difference in cost. And this is exactly why smaller institutions, if they hope to win their markets, must find differentiating attributes, be it superior pricing, service, or products, to mitigate the vastly larger networks of the regional/national banks.

So branches are a security blanket? An underutilized comfort? An insurance policy for unknown and uncommon contingencies? If the primary role of branches is one of psychological reassurance, then you could make the case that branch density should mirror that of hospitals. Do you really need one on every corner if you only go when there is an emergency?

The level of importance consumers continue to place on branches does not match their current/projected utilization. This is a discrepancy. One can argue about the language used to describe this discrepancy, but a discrepancy remains nonetheless: consumers are saying they think they need branches more often than they actually do. So what should a financial institution use to make its branching decisions — consumer perception, or actual utilization? If utilization is divorced from the equation and FIs build branches purely to win relationships with consumers who think branches are important, then aren’t branches nothing more than a marketing tool — giant and very expensive billboards?

I don’t think consumers contradict themselves as much as you think. They say that branch availability is important in selecting an institution—and the actual enacted behavior of the typical consumer bears this out. Subsequent reliance on e-channels for handling routine interactions does not alter the fact that branch presence shaped the all-important institution-selection decision.

It is not inconsistent or irrational for consumers to ascribe value to the availability of branches, regardless of their subsequent channel choices. The perception that branch utilization is a measure of branch value is, itself, the cause of much confusion for financial institutions. Just as one can place a high value on, for example, health insurance coverage even if hospitalization is only rarely called for, it is perfectly rational for customers to value access to a wide variety of channels when considering the best institution to meet their various current, and unknowable future, needs.

Consumers exhibit hypocrisy in that they say one thing, but do another. They say they that branch proximity is hyper-important when choosing a banking provider — thinking they will need/use a physical location more than they do/will — but then they don’t follow through. It’s a contradiction, a conflict between perceived expectations and reality. As The Financial Brand has speculated before, perhaps the reason consumers crave branches nearby is the emotional comfort thinking their hard-earned money is “close at hand,” and they can walk in and get it at any time.

Whatever you call it, there are inconsistencies between consumers’ stated needs/intended behaviors and their actual actions that confuse financial institutions. That’s all that’s intended by “hypocrisy” reference. It isn’t intended to be a slam on either branches nor consumers. Just drawing attention to the psychological/behavioral contradictions.