Bank Branch Closures Forecast to Surge Again (Here’s Why)

The record number of branch closures in 2021 is far from the end of branch consolidation. Not only are high costs in the crosshairs as banks and credit unions face economic headwinds, but digital banking — especially digital sales — continues to change the role and relevance of the in-person channel. Excess capacity remains.

After the record bank branch closures in 2021, banks continued putting more locations on the chopping block. For some this is the last remnant of the Covid fallout, while for others it is the next round of an ongoing trend.

While branches remain important for marketing and market presence, particularly when entering a new market, financial pressures are leading some banks and credit unions to cut the cord on their least important locations.

Banks will likely continue shuttering stores at a rate of 2% to 3% annually, predicts Andrew Hovet, Director at Curinos.

“I anticipate there is going to be financial pressure leading to a second round of Covid closures because CEOs are going to want earnings numbers. And a good place to start is with cost savings from closing more branches,” Hovet told The Financial Brand.

Across the Board:

Branch closures are not strictly a big-bank phenomenon. On a percentage basis community bank closures outpace those of larger banks.

Data from S&P Global Market Intelligence at the start of 2022 found net closures were up 38% from the previous record of 2,126 in 2020. The greatest numbers of bank branch closures came from Wells Fargo (267), U.S. Bancorp (200), Bank of America (166), and JPMorganChase (129).

However, community banks are far from immune from the trend. Data from FDIC’s 2021 deposit survey found that branch closures among community banks in metropolitan areas on a percentage basis exceeded those of non-community banks (14.2% to 10.6%). Even in rural areas, community bank branches declined by 7.2%.

“Banks have accelerated plans to consolidate their branch footprints as the Covid-19 pandemic encouraged consumer adoption of mobile and digital channels,” S&P Global noted in early 2022. “Further, banks have faced a tough operating environment with low interest rates pressuring margins and forcing a reconsideration of expenses.”

Targeting Unproductive Branches

While consumers have flocked to digital channels in the past couple of years, many still want in-person options, says Jamie Eads, Director of Retail Staffing and Branch Strategy Consultant at Bancography. “If they want to sit down and talk to a banker, those face-to-face channels are paramount for staying relevant in the lending game,” she states.

But that doesn’t mean all branches need to exist in their current state and size, says Eads. Some banks are still cutting branches they deem unnecessary while shrinking the footprint of existing locations.

At a time when many banks and credit unions are spending more on digital technologies,” say Eads, they’re also cutting other expenses and making greater use of their talent by cross-training customer service representatives and creating universal bankers.

Reconfiguring Branch Staff:

Community banks and credit unions are finding ways to repurpose employees among fewer (and smaller) branches.

As some large banks moved to a “hub and spoke” model with smaller satellite offices surrounding larger branches in major markets, some smaller institutions have been expanding their locations with smaller footprints and floating staff to bounce between locations. “The community banks and credit unions are more heavy on the service end of things whereas larger regional and national banks are looking for efficiencies,” says Eads.

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Pressure Grows on Branch-Based Sales

Even though the industry has aggressively trimmed branches the past two years, Curinos believes excess capacity remains in the system. The research firm analyzed the relationship between branch share and the share of new customer acquisition represented by new-to-bank checking sales per population. It noted higher levels of branch share don’t necessarily deliver a higher share of acquisition.

In fact, several institutions were able to achieve higher levels of sales performance with fewer branches. “With continued pressure on earnings, retail teams will be asked to identify another round of branches for closure,” said Curinos.

The still-large number of banks and credit unions in the U.S. has led to an abundance of brick-and-mortar locations in many markets, observes Hovet. “With the pace of digitization, banks haven’t been able to close branches fast enough because no one wants to give up their front-line sales outlet,” the analyst states.

“Many branches now face declining sales activity and operate with skeleton crews just to keep the doors open.”

— Andrew Hovet, Curinos

Curinos’ benchmark data, representing 22,000 bank branches and 20% of the consumer bank marketplace, found that transactions are down 25% since the start of Covid. While many bankers await the rising rate environment to increase margins and revenues, loans are not growing as quickly as expected.

This comes at a time when the industry is also facing labor shortages and rising wages. Bank of America announced in 2021 that it would raise its U.S. minimum hourly wage to $25 per hour by 2025.

Higher labor costs will lead many banks and credit unions to focus less on transactions and clerical roles and more on how they can use their talent to better serve their customers, Hovet maintains.

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Digital Sales Growing in Banking

Digital banking transactions are commonplace in banking now, but many institutions have lagged in digitizing their lending practices. The rollout of PPP loans during the pandemic plus competition from fintechs, however, did push many institutions to quickly adopt new digital lending tools, Hovet observes.

Increasing numbers of banks are continuing to expand these platforms and processes, further reducing the need for in-person interactions that branches served just a few years ago. “The clerical stuff is all being digitized, and the interaction with the loan officer can be digital. It doesn’t always have to be in the branch anymore,” says Hovet.

Loan by App:

Digital lending, spurred by the pandemic and fintech competition, is reducing the need for branch loan officers.

For the remaining branches, activity will continually shift from transactions to advice. While consumers used to visit a branch twice a month, it’s now typically twice a year and only when advice or personal interaction is needed, says Hovet. As a result, many banks no longer need multiple locations in the same market. “You need to have bank branches reasonably accessible to people, but when you have those needs, you no longer need them on every street corner,” he adds.

Some, mostly large, banks provide a counterpoint to the declining branch scenario. JPMorgan Chase, for example, still considers branches to be an essential part of its retail banking strategy. Most new Chase customers come in via one of its 4,800 branches across the U.S. But the megabank is also investing massively in digital capabilities.

Few can match that all-out physical plus digital strategy. The majority of banks and credit unions will most likely continue to trim their branch networks. In doing so they will have to be strategic in where and how they make cuts to ensure they have the right mix of digital options to meet consumer and small business needs, while maintaining an optimal distance to the nearest physical location for the customers that want or need in-person service.

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