Why Bankers Won’t Ditch Branches, Despite Digital’s Explosive Growth

The numbers don't lie. There's been a massive contraction in branches overall. Yet the reasons are not uniform and many banks and credit unions continue opening branches. If you've concluded that in-person banking will never recover from COVID's body blow, better read this report before you finalize any long-term plans.

“U.S. banks shutter record number of branches in 2020.” That S&P Global headline in January 2021 put a dramatic exclamation point on the pandemic year’s impact on retail banking.

With millions of people avoiding public spaces and many branches closed or reverting to appointment-only or drive-up operations form many months, use of digital banking channels soared while in-person banking transactions and visits sagged.

Some observers will pounce on these facts as proof that COVID wrote the final chapter of that anachronism, the bank branch.

Quite a few people in the industry are not buying that, however. Steve Reider, Founder and President of bank research firm Bancography, for one, disagrees with the premise that COVID is the major reason why 2,300 bank branches were shuttered in 2020. “A sizable proportion of those closures are merger-related overlaps,” he tells The Financial Brand. “Others are pure expense-reduction plays. COVID may have given cover to close branches with less community awareness and adverse impact, but the cause of those closures likely reflects multiple factors.”

Whether they felt COVID provided cover or not, quite a few, mostly larger, institutions took an axe to their branch networks last year. The five closing the most branches are shown in the table below. (U.S. Bank closed another 128 branches in January 2021, bringing its total net closures to around 475. It still has close to 2,400 in operation, however.)

Banks most active opening or closing branches in 2020

Total active branches* Net change
Net increase
Cullen/Frost Bankers Inc. (CFR) 167 +12
Gate City Bank 46 +7
Pinnacle Bancorp Inc. 168 +6
Net Decrease
U.S. Bancorp (USB) 2,498 -349
Wells Fargo & Co. (WFC) 5,147 -331
PNC Financial Services Group Inc. (PNC) 2,860 -163
Capital One Financial Corp. (COF) 378 -92
JPMorgan Chase & Co. (JPM) 4,959 -81

Source: S&P Global Market Intelligence
Excludes credit unions
* FDIC June 30, 2020 data

“Branches are still important, but they’re going to be less of a place where people go for transactions and more for advice and consultation,” U.S. Bank CEO Andy Cecere said at the Goldman Sachs U.S. Financial Services Virtual Conference. “Therefore, there don’t need to be as many, and they don’t need to be as large.”

As the table also shows, some financial institutions were net openers of branches during the pandemic year, with Cullen/Frost Bankers leading the way.

Branches Are New-Market Sales Machines

Even current branch-closing champ U.S. Bank continues to open a few branches, notably in Charlotte. And JPMorganChase is still on track to add about 400 branches over a five-year period ending in 2022. It will open 150 in 2021, according to CFO Jennifer Piepszak.

During the bank’s fourth quarter earnings presentation, CEO Jamie Dimon observed that when they began the expansion, “we were very conscious that the world needs less branches. … But we still have almost a million people today who visit branches — it’s down, but it’s a million people a day.” He also noted that 60% to 70% of Chase’s new accounts are still opened in branches, and that small businesses still need them. “The new branches that we opened in Boston, Philadelphia, D.C., have been doing quite well [particularly] in cards, consumer, investments and small business,” Dimon said.

Branch Bottom Line:

60% to 70% of Chase’s new accounts are still opened in branches.

Ditto for Bank of America. “If you look at the markets we’ve expanded our branch system into, we’re averaging $100 million or more in deposits per branch in the ones that have been open a couple of years,” CEO Brian Moynihan told analysts

At the other end of the size spectrum, Oklahoma-based True Sky Credit Union’s approach to growth is quite similar: branch into new markets. It’s opening two in the spring of 2021 and is considering several others as well. “We need to have an anchor in our markets,” says CEO Sean Cahill referring to a physical presence. The main difference between True Sky, with $800 million in assets, and many of the big banks is that it isn’t closing any of its nine existing locations. “We don’t have three branches in a two mile radius,” says Cahill. “We have three branches within maybe a 10 to 12 mile radius.”

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But What About Those Empty Lobbies?

Branch traffic figures vary greatly by market and institution. Nevertheless, data from Novantas measuring branch traffic patterns from the beginning of March 2020 through the beginning of August 2020 is informative because it looks at various types of branches.

Branches located primarily where people live saw traffic fall by nearly half (47%) from early March to the low point in late April, Novantas found, but then regained much of the loss by early August. Branches located primarily in areas where people work but don’t live, however, fell much further and recovered less during the same period.

Brank traffic patterns during pandemic period

A similar pattern could be expected as the spread of the pandemic increased again in the fall and then began to abate again in midwinter. Comments from several bankers in different parts of the country, however, suggest that the pattern may have altered.

Cahill told The Financial Brand that branch traffic in early February was “definitely higher” than six months earlier or even three months, despite the fact that COVID infection rates had spiked in Oklahoma in December and January. “Whether that branch activity is because of pandemic fatigue or just that people want to have some kind of human interaction, I don’t know, but we have a higher number.”

Key Question:

When COVID spiked a third time, the impact on branch traffic was noticeably less. Was it pandemic fatigue, digital fatigue or poor digital? Maybe some of all.

Steve Reider says that anecdotally he’s hearing clients cite a return to 70% to 80% of pre-pandemic transaction levels upon reopening their branches.

A study of 1,000 consumers by fintech banking platform Oxygen found that despite the many restrictions imposed by the pandemic, almost seven in ten Americans (69%) overall had visited a bank branch in the past 12 months, including 63% of people under the age of 55 and fully three quarters of Baby Boomers. All age groups, however, said they had visited a branch less during 2020.

The accelerated adoption of digital channels has likely permanently reduced the need for “legacy” branch teller transactions, says Joe Sullivan, CEO of Market Insights, but he believes there are two reasons why consumers in all markets — rural, suburban and urban — will keep in-person banking alive for the foreseeable future.

One is that despite the availability of new digital banking options, “some consumers will seek the comfort of the familiar, personal interaction with their banker for no other reason than to restore some degree of pre-pandemic normalcy to their life,” says Sullivan. “They may not make that choice every time, but they will not surrender the in-person option entirely.”

Sullivan’s second reason isn’t exactly a plus for the industry. Namely that digital banking capabilities are still too often lacking or cumbersome, prompting consumers to use a branch or at least drive-up.

Few in the industry believe that branch traffic will revert to pre-pandemic levels. True Sky’s Cahill thinks it will be at about 90% of what it was. Huntington Bank’s head of consumer banking, Andy Harmening, expects that branch transactions post-pandemic will be down about 10%.

( Read More: How Huntington Bank Has Quietly Become a Digital Powerhouse )

Retail Banking Will Become More Like Medicine

Routine transactions have not been the main reason people go to branches for some time, observes David Horton, Managing Director and Global Head of Innovation for Thynk Digital. He maintains that the most successful bank branches are those where the bank or credit union has “embraced the need to create relationships and offer something that digital channels have never been good at — trusted and friendly advice, along with dealing with complaints and exceptional circumstances.”

What it Means:

Branch visits, like visits to a doctors office, will be reserved for things that don’t translate well to an app or video chat.

Horton sees a perfect analogy with how healthcare has evolved during the pandemic. “When you are feeling unwell now, you video chat on your phone with a doctor. But if you are injured or seriously ill you go see the doctor or go to the hospital.” Bank consultancy SRM agrees: “Envision a ‘doctor’s office’ model for the branch of the future,” it writes in a blog. “Customers will visit less frequently but with more complex cases (or perhaps requesting an “annual checkup”) requiring more thorough consultation.”

“Going to the branch will be for problem solving that digital can’t do, and for advising new members or for handling more complex types of loans,” maintains Steven Page, VP of IT, Marketing and Digital Banking at SafeAmerica Credit Union.

“The human connection consumers crave is less about technical proficiency. They want to know that you hear them, understand them and will do all you can to help them.”
— Joe Sullivan, Market Insights

A broader point is raised by Matthew Lemke, EVP, Chief Retail and Deposit Officer at Wisconsin’s Investors Community Bank. “The pandemic has reinforced the desire of consumers to be able to conduct their banking on their time and their terms. The branch will need to be an extension of a greater customer experience.” As a result, when a person decides to come in person, “they will have the expectation that whatever their need is can be solved when the arrive,” Lemke notes.

The one people skill that will be absolutely essential for in-branch staff is empathy, Joe Sullivan emphasizes. “The human connection that consumers crave is less about the technical proficiency,” he says. “Consumers want to know that you know them, hear them, understand them and will do all you can to help them.”

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What Will Improve In-Person Banking Going Forward?

In addition to the shift to more advisory interactions, the experts offered these suggestions:

Emphasize safety. Consumers are going to want to feel protected, whether it’s from COVID 19, the flu or whatever the next big thing is. People will appreciate that we’re not just protecting their financial health, but their physical health as well. — Sean Cahill, True Sky Credit Union (Note: True Sky uses thermal mirrors, UV cleaners and other technology to keep its staff and members safe.)

Be welcoming. Making a branch a destination space is not a new idea, but will increasingly resonate. This can take many forms, including a café branch, a community hub, or a casual work space. To make this work, financial institutions must not only provide staff with the knowledge to give advice, but with hospitality skills to provide a welcoming experience. “It has never been so important to show the human side of doing business.” – David Horton, Thynk Digital

Three keys to success. To keep in-person banking profitable, banks and credit unions must accelerate their digital transformation, right-size their branch footprint and rethink their staffing model. — Joe Sullivan, Market Insights

No one right approach. Branches will vary by market. In a large city, a branch may do better with more self-service technology, whereas in a smaller market customers may still very much value personal interaction. — Matthew Lemke, Investors Community Bank

Speed is expected. While location is still a critical element of branch success, fast and quick service is equally important. Everything else in a consumer’s life is going that way and they expect it in-person as well. — Steven Page, SafeAmerica Credit Union.

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