Bank Branches In Decline: Last One Out, Turn Off The Lights

Consumer visits to retail bank branches are set to drop 36% between 2017 and 2022, with mobile transactions rising 121% in the same period, as customers increasingly shift to accessing their banking information via apps and secure, responsive sites on their mobile devices.

According to research from CACI, the typical consumer will visit a bank branch just four times a year by 2022. Currently, consumers are averaging around seven visits to a branch per year.

Younger Millennials between the ages of 18 and 24 will visit their bank around six times this year, but this will dip to just two visits annually by 2022.

Branch traffic won’t be the only metric to suffer, as mobile devices become the primary mode of contact. Desktop banking will also shrink. CACI predicts that banking interactions on laptop and desktop devices will decrease by 63% between 2017 and 2022.

On a brighter note, the net number of interactions consumers have with their banking providers are forecast to increase, presumably because mobile devices are (1) convenient — people always carry them wherever they go, and (2) easy — accessing information is quick and simple, requiring just a tap here and a swipe there.

In the next five years, CACI estimates that 88% of all interactions will be mobile. The increases predicted over the next few years will likely be driven by those who are still clinging to physical branches, and have been slower to embrace mobile.

CACI’s analysis also revealed that the shift towards mobile banking isn’t happening at the same rate across every demographic. Notably, CACI says 42% of high-income professionals will be moving away from desktop banking to mobile channels within the next five years. And the number of mature consumers using mobile banking will increase fivefold over the next five years; CACI says those age 50+ will account for almost a third of all mobile banking logins by 2022.

Read More: Rethinking Branch Networks Without Killing Sales or Growth

Don’t Waste Energy On Branches

The decline in branch footfall has already yielded one particularly interesting outcome. J.P. Morgan Chase announced it will be working with General Electric on a new energy management system to help minimize the banking giant’s power bill.

The new system will use digital lighting controls tied to motion detectors that sense when a room is in use. When people aren’t present, the lights will be turned off automatically.

In other words, there are so few people now using its branches, J.P. Morgan Chase figures it makes sense to just turn out the lights. (Okay, it’s not quite that simple, but you get the idea.)

The energy optimization plan also includes systems that will reduce energy, gas and water consumption. This new energy management strategy will first be pilot tested in 10 branches in the New York City area, and plans to roll it out to its 4,500 branches nationwide in the second half of 2018.

According to their estimates, J.P. Morgan Chase figures it can shave between 15-20% off its costs, yielding a savings of up to a couple hundred million dollars over the next decade — an undeniably significant amount.

In an earlier phase of the project, 2,500 of the bank’s branches were retrofitted with LED lighting, which helps cut Chase’s energy consumption for lighting in half — the equivalent of taking nearly 27,000 cars off the road.

Publicly, J.P. Morgan Chase likes to frame its new energy initiative with an eco-friendly spin:

“As we think about the future of our branch and workplace, we’re always looking for smart strategies that make our business and buildings more sustainable,” said David Owen, Chief Administrative Officer at J.P. Morgan Chase.

But there can be no doubt that such cost-cutting measures reflect the new reality of operating branches in a mobile-first world. Retail banking providers will be forced to go to new extremes and pursue increasingly innovative ways to run branches profitably.

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So How Many Branches Do You Need?

“The explosion of digital channels means that, branches will still be important in the future as brand anchors, they just won’t be needed everywhere.”

While the number of visits people make to branches will decline, the relative percentage of consumers who use branches — however infrequently — is forecast to remain steady.

“With more than half of the population still likely to visit a branch in 2022, the branch still has an important role to play,” says Jamie Morawiec, associate partner at CACI. “Banks and credit unions must ensure that the function of the branch remains relevant, complements digital channels, and meets the specific needs of the demographics that use them.”

As part of its analysis, CACI constructed a fascinating model. In their hypothetical illustration, they conclude that if a financial institution needs Y-number of branches to cover 45% of its customer base, it would take four times as many branches to cover 80% of customers (Y x4), and 15 times as many branches to cover them all (Y x15). Obviously this suggests a classic economic principle: diminishing returns.

For instance, for a bank in the UK to cover 10% of the population, it would only need branches in 19 different locations. It would take 50 branches to cover 20%, 96 locations to cover 30%, and so on.

CACI seems to feel the appropriate level of coverage retail financial institutions should shoot for spans between 45% and 80%. Why such a wide range? Because the correct number of branches will be highly dependent on the specific situation and strategy for each bank/credit union. A credit union serving 20,000 members distributed across six rural counties may require a greater branch density than a bank with 100,000 customers concentrated in just a couple urban centers.

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