The abundance of messages of branch obsolescence can be confusing, and may reflect the authors' employers. In suggesting that as many as half of current branches will be shuttered in coming years, such pundits base their views on the high cost of branching, overbanked markets, and growing utilization of advancing alternative banking technology. Is this consensus?
A 2004 FDIC study on banking's future concluded that "despite technological advances ... it seems that consumers like the convenience of a branch" and "the general trends suggest that branching will continue." Such expectations were realized as branches peaked at over 99,500 five years later - but this study preceded the introduction of many of today's delivery channel technologies. For perspective, 20 years ago, the 13,000 banks and thrifts had more than 81,300 branches - today the number of institutions has been halved, branch deposits are 3 times greater and there are 94,700 branches (13,400 more). The recession, industry consolidation and technology led to a 4,800 branch reduction from 2009's peak. In contrast, the small decline at the 10 largest banks, with 30% and 50% of the nation's branches and branch deposits, respectively, primarily reflected Bank of America's decision to close nearly 20% of its branches and actively promote mobile banking (for an industry leading 13% customer utilization).
True, banks need to seek ways to reduce costs to offset higher compliance expense and decreased fee income in the current environment, more effectively embrace technology, consolidate services and improve utilization of office space. What does this mean for established branch networks and new branch openings? Overall, it is a case of the "Re-". Re-evaluate. Re-locate. Re-tool. Re-size. Re-cast.
It is reasonable to expect many branches to close and some strategic openings with more efficient office design to capitalize on technology. We note that our client banks generally agree that the branch's historical transaction focus is becoming outmoded as improving technology and greater customer acceptance thereof reduces branch visits. Although customers may choose their bank based on convenient branch locations, branchless banking capability may be the deciding criteria.
What keeps branches relevant? The answer: the business which requires human interaction and relationship-building. Winning branch strategies will require management to: re-evaluate the branch purpose; in some cases re-locate to more efficient space; re-tool and re-size the floorplan; and re-cast branch personnel's role. Some banks will struggle to profitably re-position branches and fully embrace digital delivery channels. For some banks this presents an opportunity to acquire those who cannot cost-effectively re-position and manage the related risk.
Our clients are increasingly seeking assistance to evaluate questions such as: Does our traditional branch network adversely impact franchise value? Are we facing shrinkage or increased wholesale funding if we are slow to adapt? Is the increased cost of managing the elevated technology risk greater than operating an inefficient branch network? Will our stock value decline due to the branch re-positioning investment?
There are no easy answers, and every bank's solution will be different. For how we can help, please contact me at (703) 647-6543 or firstname.lastname@example.org.