With a 40 percent decline in U.S. bank branches since 1991 and a projected continuing decline of 25 percent by 2018, according to banking industry business intelligence firm FMSI, it’s a fair question to ask. In a wide-ranging study, FMSI says the drop-off in branches may prove to financial institutions that keeping bricks-and-mortar local banking centers running isn’t sustainable or cost efficient.
“Our study reveals a declining branch transaction trend of which senior management at financial institutions should take note,” says W. Michael Scott, chief executive at FMSI. “With transactions dropping and staffing levels remaining the same, the inevitable outcome is costly overstaffing in the branch environment.”
Obviously, the rise of online and mobile banking has taken a toll on bank branches, but that’s not the only reasons for the decline. “We suspect this trend has to do more with the market correcting itself from an over-branched environment, as opposed to alternative channels replacing the branch,” the report says. “Regardless, online and mobile banking are on the rise, with no signs of letting up.”
FMSI analysts aren’t sold on the notion of branches drying up completely. Instead, they see banks morphing their branches eventually from deposit centers into sales centers. “The complete transformation of the typical branch to a more sales-centric operation will not happen in the near future,” FMSI reports. “Today, the significant majority of interactions in the branch are still simple deposits and withdrawals.”
“The reality is, no matter how simple the other channel technologies are, there will always be some that will never adopt it. If you continued the rate of decline as recorded by our study out another 20 years, you would still have an average [monthly] branch transaction volume of approximately 3,500.”
Banking customers seem to agree. “I still walk in to cash in checks for my business,” says Anthony Simola, CEO of Simola Technologies, a New York City technology consulting firm. “It’s convenient and quick.”
Others see bank branches moving toward a hybrid customer service location, as in the supermarket models of recent years.
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“Banking has gone the way of the self-service supermarket checkout through a combination of mobile and online portals, as well as more convenient ATM access, meaning less need for physical branches and less need for staff,” says Dan Blacharski, spokesman at MoneyLend.net. “In addition, the traditional bank loan officer has long been deprived of discretion in decision-making and has been reduced to serving as little more than an application-taker in a suit. Those looking for consumer loans are instead turning to online lending portals which offer more variety, access to a wider selection of lenders and lending products and even access to alternative lending vehicles like peer-to-peer options.”
While the number of bank branches in the United States has fallen in the past 15 years, and suggest a further decline, says Kartik Ramakrishnan, a senior vice president at Capgemini Financial Services, the trend suggests an “evolution,” not “elimination” of the branch model. “Despite the growth of low-cost Internet and mobile channels, branch usage hasn’t decreased, contrary to the expectations of the banks,” Ramakrishnan says, referring to customers relying on branches for more complex transactions and advice, adopting mobile for simpler interactions.
Most likely, bank branches will still be around, although you soon may not recognize one when you walk into the building.
“There is further evidence that banks are updating their branch experience and recognizing this trend,” Ramakrishnan says. “For example Vancouver-based North Shore has a spa-like experience in their branches, while Metro Bank refers to their branches as stores.”
–Written by Brian O’Connell for MainStreet.