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Harland Clarke | CX Best Practices for Growing Revenue

Will Branches Ever Die?

Few topics in the banking industry ignite a more fiery debate than the subject of branches. Do they have a future? If so, what is it? How many do you need (if any)? How big should they be? For the time being, data suggests the significance of the brick-and-mortar channel may be steadily diminishing, but branches are a far cry from dead and irrelevant.

Subscribe TodayA recent poll from Bankrate found that 45% of Americans had visited a bank branch for personal business within the past 30 days. In fact, their research revealed that only about one in five Americans has gone an entire year without visiting a bank branch.

Somewhat surprisingly though, loyalty to branches cuts neatly across all demographic lines, according to Bankrate. In their study, they found that 4 in 10 Millennials have been in a branch within the past month. That number jumps only slightly to 48% for people between the ages of 50 and 64.

“There is no major distinction among those who are branch loyalists. They are going to branches because of consumer financial behavior, not because they are younger, more educated or have more money,” says Dan Geller, Ph.D., behavioral finance scientist at Analyticom, a behavioral economics and finance firm.

Affluent people seem to have more banking chores. People with higher incomes visit banks more often than people with lower incomes, according to Bankrate’s survey. More than half, 54%, of people earning more than $75,000 per year reported a visit to a bank within the past month compared with 40% of those earning less than $30,000 per year.

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branch_channel_preferences

An SNL Financial analysis shows that in 2015, U.S. banks continued to shrink their collective branch count, trimming it by an aggregate of 1,614 locations.

According to the FDIC, the number of bank branches peaked in 2009 at 99,550 and had dropped to 97,337 by 2012. SNL says that the U.S. banking sector finished 2015 with 92,997 branches.

Bank Total Branches
(Dec. 31, 2015)
Net Change
in 2015
% Change
in 2015
Wells Fargo 6,272 -39 -0.6%
Chase 5,459 -195 -3.6%
Bank of America 4,769 -88 -1.8%
US Bank 3,209 -35 -1.1%
PNC 2,745 -94 -3.4%
TD Bank 1,321 -1 -0.1%
Fifth Third 1,282 -36 -2.8%
Capital One 814 -67 -8.2%
Huntington 803 48 +6.0%
Associated Bank 224 -13 -5.8%

Bankrate says that huge banks that have historically depended on having large networks of national branches to drum up business are cutting back. In 2012, Bank of America had 5,656 U.S. branches; now it has less than 4,800 branches. In 2013, JPMorgan Chase had 5,694 bank branches in the U.S.; now it has less than 5,500.

“In 5 or 10 years, it seems pretty likely that branch networks will start to become significantly smaller,” says Greg McBride, Chief Financial Analyst with Bankrate. “People who like to bank in person will need to either switch to a bank that has prioritized keeping physical branches in their area, or just bank online like everyone else.”

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Fewer Banks Means Fewer Branches

Bankrate is keen to point out that there are fewer banks now than there were 20 years ago. There were 6,270 commercial banks and savings institutions at the end of September 2015. In 1995, there were 11,971, according to the FDIC.

“We are seeing a reduction in bank branches in rural areas,” says Bert Ely, a consultant to the banking industry and founder of Ely & Co. Inc. “Bank consolidation is leading to a drop in bank branches. A lot of that drop-off is in small towns and rural areas. That is happening across the country,” he says. People in rural areas in Bankrate’s survey were more likely to have been to a bank in the past month than those in urban areas — 50% compared with 44%.

What do rural folks do in the face of branch closings?

“They have to drive further,” Ely says.

banking_branch_strategy

Transaction Volumes Down

FMSI says average branch monthly teller transaction volumes for financial institutions have declined more than 45% in the past 20 years. Their ongoing study continues to reflect a steady drop in branch teller transaction volumes. Credit union teller-transaction volumes per hour decreased 20% between 2007 and 2013 (from 10 down to 8), while teller-transaction volumes per hour at banks decreased more than 32% (from 7.1 to 4.8).

In 2007, FMSI says the average cost per-transaction among community banks and credit unions was 85¢. But by 2013, it had risen to $1.08, an increase of more than 25%. Banks suffered the worst with this metric, with their average cost per-transaction rising 34% from 2007 to 2013. By 2013, it was $1.22 for community banks.

monthly_branch_transactions

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The Impact of Digital Channels

Many financial institutions offer the ability to open bank accounts online, and some even allow users to do so on mobile. Even so, just 23% of new checking accounts are opened online, according to a November 2015 report by Aite Group. Consumers open 28.3 million checking accounts in person annually, but only 7.2 million of those were through a bank or credit union website, and less than 2 million originated on smartphones and tablets, according to Aite’s research.

Of course, not all banks and credit unions offer online or mobile account-opening. For those institutions that do, Bankrate says consumers have a wide variety of reasons why they still prefer to open an account in person: concerns over security, ease of use, lack of awareness, and a desire to meet the people they’re entrusting their money to face to face.

digital_banking_branch_users

“While the rise of online and mobile banking have made it convenient to do most of our routine financial transactions remotely, it doesn’t mean that bank branches are about to go on the endangered species list,” says McBride with Bankrate. “They’re not going to go away, but the function is going to change, the number is going to change.”

The tide is definitely shifting to digital channels though.

In a survey fielded by Javelin Strategy & Research encompassing 3,100 U.S. adults, roughly 30% of adults in the U.S. used a mobile banking service weekly, while just 24% availed themselves of a physical branch service as often.

Anne Pace, a spokeswoman for Bank of America, told the Wall Street Journal that branches are still an integral part of their retail delivery model. “Customers want to pay their bills online for convenience. They are using mobile banking to check their balances. They are using ATMs to deposit their checks,” she says. “The banking center is becoming more and more a place not only for basic transactions, but for people to discuss complex issues.”

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Comments

  1. Interesting topic. As I was reading it, an analogy came to mind. I feel like a bank branch is equivalent to a desktop/laptop computer in comparison to a tablet or mobile device. The latter two are great but when you need to get serious about something, the desktop is preferred.

    I thought maybe it was just me that starts to transact for something on the mobile then says, :I’m going to wait until I get on a “real” computer. But this weekend, my 28 year old, tech savvy daughter brought up the topic of mobile vs desktop. I’m happy to say, I’m not alone in my thinking.

    Sometimes, I think we all get caught up in the hype (digital/social/viral) and forget that sometimes the old ways can be the best ways. I agree, branches are far from dead. The question is, can we add even more relevancy to them. I think we can and should. We could start by creating environments you want to come to. Bank branches are too stiff and formal. The cultural feel needs to echo the core audience you are trying to attract.

    Like the “Go Rving” campaign or the “Got MilK?” campaign, I think it is time that banks unite to sell their virtues to an under educated audience. Let’s face it, banking was asleep at the wheel while the digital generation was coming to be. Many of these people are now old enough to be customers and they hold many misperceptions about brick and mortar banks vs the online only model. They need to be attracted to you long enough for you to tell your story. Yes, digital aged people want and appreciate a good story. All banks usually have one. Share it.

    There’s still plenty of time for pre-digital institutions to gather their glory of days gone by. But “change” (no pun intended unless you like it) is the key word for sustainability and growth. Many times a good place to start is with educating or disrupting your board members. After all, if the foundation has cracks, it is only a matter of time before the build collapses. Fresh, open-minded thinking isn’t a luxury, it is a requirement. To create a solid foundation of leadership, consider other job titles that would make good board members (CTO of a financial focused firm, Tech strategist, Social Strategist) and take the next step.

    Go banks!

  2. Chris Yaldezian says:

    Branches are physical stores representing the brand. The people inside are sales and service personnel, representing the bank’s brand. Make sure that your branches (and most importantly, your people staffing them) make the best lasting impression of representing your brand. Modernize them, including systems supporting the branches. AND, train your staff to be knowledgeable, and polite. There is a role for branches as a face-to-face channel. Make sure that your face is both pretty and smart.

  3. Bank branches exist only because banks have made the business of of managing finances complicated to the point where often you have to talk to someone to achieve a task, and it can be preferable to do this face to face. Reinventing banking using digital and data – the focus of Fintech – is starting to show that once demystified, banking is pretty simple and doesn’t require you taking time out of your busy life to visit a branch. Unlike other high street retailers, banks also don’t have any physical products – it’s all about the conversation. This human experience will happen more and more at the customer’s place of convenience rather than the banks, via mobile bankers, video and all support by AI. Banking is just a commodity to most customers and if you’re relying on physical branches to support your brand, then you’re in trouble in an industry that is being disrupted by digital and data.

  4. Jeff Hibbard says:

    As someone who spent 15+ years in the banking industry, the role of branches has been a hotly debated topic for many years now. I frame this issue based on what role the branches will play in the future vs. what they have done in the past. It’s clear that many banks view branches as a key piece of their customer service strategy. For that reason along – branches will continue to exist. Other banks prefer the digital model – some with very few branches, others with no branches. These are key points of market differentiation that will continue to evolve.

    What is a common point of thought across many banks is the role that branches will play going forward and the experiences that customers will have in those branches. Customer engagement will continue to transition to digital, and the need for some ‘face to face’ interaction will persist. The bank that spends the time and finds the right mix of the customer service experiences could really develop a winning proposition for customers, and wind down a significant portion of their internal cost structure over time. My view is this is a huge opportunity for disruption and is overlooked by banks.

    More fuel for the fire…

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