Moves By Chase and PNC Re-ignite the Branch Versus Digital Debate

As JPMorgan Chase, Bank of America, PNC, Frost and others commit to branch build-outs, other institutions consider their own moves. Digital banking advocates just don't get it.

In the space of eight days in February, JPMorgan Chase announced plans to open yet another 500 new branches and renovate approximately 1,700 locations over the next three years, while super-regional PNC Financial Services Group said it would build 100 new branches and renovate about 1,200 branches — about half of its network — over the same period. This comes on top of ongoing branch building by other institutions, including Bank of America and Frost Bank.

These developments have reignited a long-standing and sometimes contentious debate in banking circles: In crude terms, which drives customer acquisition and retention better, branches or digital?

The debate is not just theoretical: Executives at other banks who already have their own long-term plans in place for the role of branches may now be prompted to reconsider in the wake of these large institutions’ moves. No one can just sit on the sidelines.

Bolstering the need to act is research from Accenture that suggests that no matter what banks or experts think or would prefer, people have their own thoughts about branches. The firm queried 44,000 consumers around the world about retail banking issues. Across all age groups and in many countries, two out of three respondents said they wanted a branch near them.

“I think what you’re seeing is some gravity, the fundamentals of banking, coming back,” says Michael Abbott, senior managing director and global banking lead at Accenture.

We’ll look at two sides of the debate as brought out by banks’ recent moves, along with some thoughts on strategy, from experts interviewed, for other institutions.

A Scan of the State of the Bank Branch Market as Real Estate

Bobby Magnano, president of JLL Financial Services, part of real estate services firm Jones Lang LaSalle, spent two decades overseeing related matters at Capital One, where skinny networks are the ideal. He says that the days of “slap a branch on every corner we can find” are long gone, but that the pandemic, digitization and the quest for efficiency are having increasing impact on branching today.

“There’s a desire to be more strategic in the management of branch networks, with an eye toward getting out of lower-performing sites,” says Magnano. “That may mean taking down three stores and building a new one. You’re down two but netting a single, more-inviting space.”

Magnano says it is hard to generalize from what his team in the field sees because different institutions are taking varying approaches. In some cases, floor plan sizes aren’t changing but there are differences in how space gets used. Often, two-thirds of branch layouts are now devoted to consultation, the remaining third to tellers and other transactional services – reversing old formulas.

And there are demographic shifts, according to Magnano: Major institutions have been watching the southward movement of many consumers in recent years and are following the money. This not only impacts where they are opening retail banking offices, but also specialized locations like wealth management offices. Of the latter, says Magnano, “those investments are being made disproportionately in states like Texas and Florida versus Massachusetts and Rhode Island.”

[Dig Deeper with “Why Bank of America Is Covering the Country with Branches” and “Touch of Frost Spreads Over Texas, with More Branching and Marketing in the Forecast.”]

Branches: Who Needs Them?

Anti-branch voices quickly objected to descriptions of the large banks’ efforts as “expansions” of branch networks, because that would imply that all players are increasing the number of locations in their networks.

“Even though Chase talks about all that branch activity, the reality is that Chase themselves have said that they are about 20% down in their total branch numbers.”
— Brett King

“Even though Chase talks about all that branch activity, the reality is that Chase themselves have said that they are about 20% down in their total branch numbers. They have said that they are running out of branches to close,” says banking futurist Brett King in an interview with The Financial Brand. “This is evidence of their rationalization strategy on branching, rather than their ‘doubling down’ on branches.”

King, a noted industry disrupter, made his initial reputation in the 2010 book “Banking 2.0,” by predicting that digital channels would transform branches into consultation centers. By the time his “Banking 3.0” came out in 2012, his view had evolved enough that he subtitled it, “Why Banking Is No Longer Somewhere You Go But Something You Do.” After some intervening titles, including 2018’s “Bank 4.0: Banking Everywhere, Never at a Bank,” King is working on a new book, to be released this summer, that will make a case for the overall shrinking reliance on branches for all but a few brands.

[Dig Deeper: Brett King’s interview with “Banking Transformed” podcast and the companion Q&A article based on the interview.]

King compares the mega-bank’s strategy to Monopoly: “They’re selling off their cheaper properties and consolidating them into locations where branches would work more effectively for them. But Chase has been very clear that most of their new account opening is digital.”

King adds that the top bank has done well melding physical and digital. “Chase is very clever at doing that stuff. But I think Chase is an exception.” He says the company proves adept at using digital to guide consumers to branches for more complex products such as home loans.

In his Forbes blog, Ron Shevlin, managing director and chief research officer at Cornerstone Advisors, points out that Chase’s yearend 2023 branch count stood at 4,897 — 733 locations fewer than in 2013.

Both King and Shevlin refer to their own research that indicates that neobanks, challenger banks and other modern competitors — all historically branchless — have been building revenue and customer/member bases at a higher rate than traditional players. Shevlin says that newer players simply do better at matching what consumers want today.

“The data is unequivocal that all of the fastest-growing financial institutions in the world are digital players that don’t have branches,” says King. “There’s no future in branching if you are looking to grow your business.” At most, he says, physical location builds community connection and provides some branding benefits — the “billboard effect.”

“Chase is very clever about using branches to continue to differentiate in local markets where it makes sense, and rationalizing their branch network,” says King. “But that’s only because they know they can’t yet close their branches because it’s not socially acceptable” for the number-one U.S. bank.

Read more: Trends 2024: Is Record-Breaking Pace of Bank Branch Closures Easing?

All That Said, New Branches Keep Going Up: Why?

Not everyone is so cynical. Gina Bleedorn, president and CEO at brand-experience company Adrenaline, says “We’re human and that’s ultimately what keeps us coming back to why human presence in banking matters.”

Bleedorn says the Chase and PNC plans are “huge moves,” not only planting new locations but spending heavily to update existing offices. She and several other experts interviewed have concluded that digital banking in all of its forms has become “table stakes,” the term all used.

“Large banks copy each other quickly. We’re talking weeks, not years.”
— Jean-Pierre LaCroix, Shikatani Lacroix

“When you look at bank app ratings across U.S. institutions, they are all at 4.8, 4.9,” says Accenture’s Michael Abbott. “It is a sea of sameness. Banks have become functionally correct and emotionally devoid.” Hence, he says, the value of branches for roles such as advice and troubleshooting.

Even when a bank introduces a new digital advantage, it doesn’t last long, says Jean-Pierre Lacroix, president of Shikatani Lacroix, a strategic design firm whose specialties include banking offices. “Large banks copy each other quickly,” says Lacroix. “We’re talking weeks, not years.”

It’s All About the Benjamins (and Lincolns and Hamiltons and …)

Meanwhile, both Lacroix and Abbott stress the importance of branching to deposit generation. Abbott believes that 17 years of effective interest rates of 0% broke a key connection in banking – one that has now rebounded as comparatively higher rates put a premium on deposit gathering.

“In a world of zero rates, to a banker branches look like pure expense,” says Abbott. But in a time of 5% interest rates, branches’ ability to raise deposits at lower betas begins to look attractive.

“Branching lowers betas, and it acts as a marketing capability,” says Abbott. “It gives a sense of stability during times of crisis. And furthermore it gives you the opportunity to cross-sell, upsell, and have a conversation.”

As Chase has spread its branches over more of the country, officials have made a point of saying during investor events that even openings of accounts done digitally have tended to rise when the company establishes a physical presence in a city.

Read more: JPMorgan Chase Defends Contrarian Branch Strategy as Deposit-Gathering Machine

Closing the Gap Versus Widening Distance Between Branches

Ideally, pro-branch observers and analysts believe finding the ideal balance of branch and digital service can help lead to optimized branch networks and also enable institutions to make forays into other markets.

A mid-2020 study by Simon-Kucher found that consumers in urban areas would be willing to travel nearly 37 minutes by foot to get to a branch and, in the case of suburban and rural areas, consumers were willing to drive 27 minutes. (Some perspective: A key proviso was that these times would only be acceptable if the consumers were experiencing top-notch digital service — which the same research indicated many didn’t feel they were getting at that time.)

Looking back on that research today, Leo D’Acierno, senior advisor at the firm, notes that such a shift away from expecting to find a branch on every corner seems to be taking hold.

D’Acierno says retail banks that have become top-tier players can use this evolution to enable them to prune existing branch networks. This frees up resources for extending the branch network elsewhere, while revamping and renovating locations that remain. He says that this is clearly what’s behind the new announcements from Chase and PNC.

Cities of the South and West are becoming “growth magnets for expansion-minded banking,” says D’Acierno. They have many young, professional, well-educated consumers who make profitable retail banking customers. He notes that Denver has been a special focus for him, as he has been helping a client institution plan for a buildup in that city.

Accenture’s Abbott says he’s been hearing about more institutions planning such moves, and experts interviewed indicate that even smaller institutions have started to extend their brands on a more local level following similar principles.

“I know of lot of it has been happening quietly,” says Abbott. “I find it quite interesting that they’re talking about it publicly now, which is encouraging.”

Adrenaline’s Bleedorn says planning and conversations are happening in institutions with 25 branches, 50 branches, 200 branches as they watch institutions like Chase, PNC, BofA and Frost making their moves. Smaller players have an advantage in that they can still bring a more localized approach to a market extension than the national players can.

“They are engaging in branch optimization decisions so they can use the savings to fund new market entry, market penetration and growth,” says Bleedorn.

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