Sure, Bank Branches Are Declining – But Let’s Keep Things in Perspective

Aug 9, 2018

Here we go again. We can probably count on a replay of these headlines with every quarterly bank earnings release cycle. Here’s a recent one, courtesy of CNN: “Why Bank of America Branches Are Disappearing.”

The article begins with the concise statement, “The future of banking is here- and it’s mobile.” I agree wholeheartedly with this claim.

The balance of the article, however, recycles the familiar “death of the branch” trope. CNN cites branch closures not only at Bank of America but also JPMorgan. And although the data is factually accurate, it lacks context.

US bank branch counts are undeniably in decline, after reaching irrationally high peaks in the pre-crisis early 2000s. However, as Deluxe explored in a recent webinar, The Future of the Branch: Data-Driven Trends and Insights on an Embattled But Essential Bank Channel, the underlying story is far more nuanced.

Since 2005, the decline in bank and credit union branches has roughly mirrored the decline in the number of banks and credit unions. Therefore, it could be argued that much of the decline stems from a broader consolidation trend, and the resolution of overlapping geographic footprints. The decline in the overall number of FIs began a couple of decades earlier, most of it through mergers, so it’s conceivable the need for branch rationalization has been building up for some time.

The article’s most eye-popping stat involves the 28% drop in Bank of America’s branch count from June 2008 (6,131) to June 2018 (4,411). That’s a big number, even if it constitutes only a -3.2% CAGR. But bear in mind the conditions surrounding that June 2008 starting point. B of A had just completed the most aggressive acquisition string in US banking history, culminating in the purchases of LaSalle Bank, Countrywide Financial and Merrill Lynch. Even without the pressures of the financial crisis that swept the sector soon after, the rapidly expanding organization was already poised to execute on the “scale efficiency” portion of the integration process.

What’s happening is better characterized as the “reinvention of the branch”- a future brick and mortar location will likely require less square footage and yes, there will almost certainly be less of them as the need for customers to access face-to-face interactions with their institution on any given street corner will diminish. The key will be for FIs to seamlessly integrate the high-touch service and lead generation benefits of the branch with the “anywhere, anytime” appeal of digital channels. Deluxe’s webinar, The Future of the Branch: Data-Driven Trends and Insights on an Embattled But Essential Bank Channel, sheds more light on this challenge.

B of A’s and JPMorgan’s branch counts have declined by 2.9 and 2 percent, respectively, over the past year- figures more in line with a melting iceberg than a “cliff event.” And although CNN mentions it in passing at the tail end of the article, it glosses over B of A’s and JPMorgan’s early 2018 announcements of plans to open 500 and 400 NEW branches, respectively. Such moves by market leaders are hardly consistent with a dying channel.

So why are we destined to repeating cycles of these “disappearing branch” stories? For journalists, the “sudden death” storyline is a much better attention grabber than a gradual, orderly evolution. The banks themselves are incented to trumpet the closures, since they’re under pressure to demonstrate cost reductions. They’re also driven to emphasize digital channels in investor statements, to allay fears that tech giants like Amazon and Apple will steal their core business.

Much like the long-term trend in check volumes, I expect the rate of branch decline will eventually flatten rather than accelerate, and for them to continue to play an important role in FI’s overall service model- particularly for small business customers. I fear anyone looking forward to a wholesale disappearing act will be disappointed.

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