If you spend time reading trade publications like I do, you’ll see a lot of articles declaring the death of things … direct mail, community banking, debit rewards, and even checks (how dare they!) One that I see quite frequently though is the death of the bank branch. I think this declaration is a little premature though and I’ll share more about this later in the blog.
Our latest webinar cuts through the headlines for a data-driven look into branch dynamics. Glen Sarvady, a retail banking and payments expert, finds that much like the coverage of paper checks and direct mail, these tales of demise are rather overstated. While branches are in the midst of a much needed transformation, their role as a key component of consumer and small business strategy remains secure for the foreseeable future.
If you follow the headlines, you already know that the number of bank branches in the U.S. has fallen to its lowest level since 2005. In fact, one real estate analyst predicts that 20 percent of branches will vanish over the next five years. Let’s take a moment to break down these points:
The number of bank branches continued to increase until as recently as 2009, when they reached a peak of roughly 100,000 (by comparison, the Fed estimates that check volumes marked their all-time high over a decade earlier).
Note also that the expansion of branch networks continued well beyond the point when standalone banks and credit unions began a steady decline in the mid 1980s, falling by roughly two-thirds since that time. It could be argued that the number of branches had become unsustainably high by the late 2000s, setting the stage for a natural adjustment.
In the eight years since 2009, the number of bank branches has declined by a total of 8 percent- at a rate that does not appear to be accelerating. Therefore a decline of 20 percent over the next five years seems implausible- especially when two of the nation’s largest institutions, Bank of America and Chase, recently announced plans to open thousands of new branches.
At the same time, the number of consumer interactions with their FIs through remote channels (mobile and online) is growing dramatically. As a result, the overall number of engagement opportunities is on the rise even while the average number of branch visits per account holder is declining. Moreover, remaining branch visits are less likely to be purely transactional, instead migrating toward “moments of truth”- sales opportunities and dispute resolution, for instance.
In fact, the branch remains FIs’ single most fertile source for cross-sales and new account openings. With this in mind, FIs must make every effort to optimize the omni-channel experience and ensure its branch personnel are equipped to handle increasingly complex requests. Research confirms that account holders do not confine themselves to a single channel. It’s essential that handoffs between channels be executed seamlessly, without requiring steps already completed to be retraced.
Conceptually, it’s plausible that 20 percent less branch square footage will be necessary within five years, since each location will necessitate a smaller footprint to accommodate lighter traffic. This poses its own set of challenges, as security factors can make it difficult to subdivide and sublet portions of a branch.
To be clear, we are not suggesting that the number of branches will return to growth mode. As mid-size and community banks and credit unions continue to consolidate, overlapping locations will be eliminated. Regional banks are also likely to reevaluate their branch networks. The numeric impact will be more nominal that many expect, however- the bigger story will be the redefined role of the branch, and the technology tools and employee skill sets needed to operate them.
If you would like to hear more from Glen Sarvady on this topic, listen to our on-demand webinar “The Future of the Branch: Data-driven trends and insights on an embattled but essential bank channel.” We’d love to hear what your financial institution is doing to adjust its strategy in light of this shift in consumer preference.