While shutting down branches has been a favored solution among banks looking to save a bit of money, new data out from Bain & Company indicates that it might not be the best way.
Customers can, of course, use their phones to do most of a bank branch's services for themselves — and for far less than it costs the bank to maintain physical banking locations. And in the era of low interest rates, emerging Fintech competition and slowing underwriting, cost saving is key for many FIs.
However, those closures apparently come with future risk included. Some customers prefer banking by device — but those customers are already doing so. Those who are not prefer the branch for a variety of reasons — which means the change won't thrill them. Moreover, many banks rely on cross-selling (a model that Wells Fargo assured will be getting a good deal of regulatory attention) — moving customers out of the branch makes that more difficult.
Customers who don't want to be moved to mobile will often take a closing branch as a reason to switch banks, Bain noted. And mobile customers aren't quite as loyal as physical ones and are thus more likely to shop around for loans, cards, and other services. That means banks get to keep offering checking accounts — but find themselves losing their customers to others for the bigger, more profitable products.
“It’s a scary time for banks,” said Gerard du Toit, who leads consulting for banking practices in the Americas at Bain. “They run the risk of being the dumb regulated utility with all of the costs, while all the high-margin juicy stuff is hollowed out.”
However, the counter-argument is that there are too many branches in the U.S. — about 32 for every 100,000 adults. Bringing the U.S. branch density closer to what it is in parts of Europe (about 24 banks per 100,000 people) would save around $11 billion a year for the 25 largest U.S. banks.
Plus, Bain notes, mobile use is not growing at its old pace. The percentage of bank customers using their bank’s app leapt from 32 percent in 2012 to 52 percent in 2015, Bain found. But it inched up to just 55 percent this year. That means the enthused and interested have jumped, according to Bain. What is left are the most bank-committed customers. Closing branches on those folks tends to make them flee. About 40 percent of customers whose main branch closed in the last 12 months switched banks or started new products with other banks, according to Bain's figures.