Digital Banking

Consumers Still Drawn To The Branches Banks Are Trying To Shut Down

Though often written about and praised highly, the digital-only world may not have quite the number of converts the tech press would lead one to believe. Case in point?


Despite banks’ best efforts to move more of their customers online – and thus lessen the need for overhead-heavy branches – consumers are turning out to be way more into visiting the local branch than initially imagined.

Which is a bit of a problem, since there are objectively fewer banks now than there were even five years ago. According to the FDIC, banking branches are at their lowest level in a decade with only 93,283 left open. Physical banks reportedly hit their peak in 2009 and have declined 6 percent since then.

The number of FDIC-insured banks has fallen by more than 25 percent over that time even as industry assets have grown, indicating room for greater branch consolidation – leaving analysts questioning if the banks have been aggressive enough in leveraging closures to offset the various hits revenue has taken since 2009.

Banking execs argue that branches fill a key role for customers – and closing them en masse runs greater odds of further lowering revenue more than it would save costs.

“Our customers still want to visit us,” Jonathan Velline, Wells Fargo’s head of ATM and store strategy, told Reuters in an interview. “They’re still coming to our stores and our ATMs at pretty consistent rates.”

Digital banking in the U.S. has caught on with something of a medium level of intensity. Branch closures have been less aggressive in the U.S. than they’ve been in Greece, Spain, Ireland or Italy – but more aggressive than has been the norm in Germany, France or Canada.

“This thesis…that we have mobile banking and high-tech banking, therefore the branch offices are dinosaurs and going away appears to be substantially overstated,” noted FDIC Chief Economist Richard Brown, who said he often fields questions about why the industry still has so many branches.

The traditional branch costs roughly $2-4 million to set up and $200,000-400,000 per year to operate, according to Ed O’Brien, an analyst at Mercator Advisory Group. But that is balanced, according to a JPMC executive, by the $1 million in annual profit a branch brings in – once it’s reached full potential after a decade.

“Often I will be asked why don’t we just accelerate closings. Why don’t we close 400 or 500 branches?” said Gordon Smith, JPMorgan’s head of consumer and community banking. “The answer is that customers won’t go there.”



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