Branches Refuse to Die

It seems that at least once a year, someone somewhere declares that bank branches are dead. The alleged murder weapon? The internet. Despite the fact that such stories are largely based on circumstantial- or anecdotal evidence, they are widely circulated and receive a disproportionate amount of coverage in the media.

This inevitably forces branches into a familiar defensive spotlight — an annual exam, of sorts — where reasoned and rational analysis invariably yields the same diagnosis: branches are still “not dead.” (Monty Python fans can click here.)

“Rumors of the death
of the branch are
greatly exaggerated.”
New York Times

This year, the event that triggered scrutiny of branch networks was a story in the Wall Street Journal reporting that BofA was closing 10% of its 6,100 branches. It was later proven that the report was an exaggeration, one person’s liberal interpretation of comments made during a shareholder conference call.

But that didn’t stop the story from spreading like wildfire. All the headlines screamed, “BofA to close 10% of its branches.” People speculated that banks across the country would follow in BofA’s footsteps, closing branches to save money.

Reality Check: As Rob Cox and Antony Currie wrote in the New York Times, “Rumors of the death of the branch are greatly exaggerated.”

“The absolute number of transactions at branches has remained stable while the average number of customer visits at a branch in Europe and the United States rose during the period,” the New York Times piece noted. “A survey by BofA this year of its own branches shows that trend has accelerated.”

“The preference for face-to-face interaction and concerns about online security still give branch banking an edge in collecting and retaining customer deposits,” the authors wrote.

If branches aren’t dead, what are they?

In an article for BAI, Dave Kerstein, explores the question, “Are US Banks Over-Branched?” Kerstein’s conclusion: no.

“For most banks, bank branches are the key distribution channel,” he notes. “And the one most preferred by consumers and small businesses for sales and service despite significant momentum behind internet, mobile and remote banking.”

Among many of the excellent points Kerstein makes about the role and future of branches:

  • If you don’t grow your distribution network, you are not likely to grow customers and revenue.
  • Bankers in the US, UK, Spain, Sweden and other countries who have tried to pare their branch networks discover that growth stops.
  • You don’t need as many iconic free standing branches. You need more, smaller facilities that serve tighter, more compact trade areas. These facilities need to be built and managed differently.
  • More utilization of universal staff, with fewer specialists
  • Tighter integration with hub branches or call centers to provide specialized expertise.

Does Kerstein think BofA’s branch closings reflect a change of consumer preferences?

“Most likely not.”

“No doubt there are large percentage which are no longer efficient or effective,” he says. “I suspect this is a straight forward efficiency move, and not the start of a significant industry wide correction in total banking facilities.”

Perhaps what people really mean when they say “branches are dead” is that your traditional branch model must evolve.

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