Why we don't need bank branches anymore?
According to a popular website that provides bank locations and statistics: usbanklocations.com, there are over 92,000 bank branches in the US. The top eleven banks have more than 1,000 branches each and in total these banks have over 31,000 branches or about 33% of the total. The remaining banks have an average of 10 branches each!! As you can see, the top national banks drive the footprint when it comes to bank branches.
If you are in your 30’s or 40’s when was the last time you went to a branch? That’s right you probably can’t even remember. You probably need to think twice before going to a branch, finding parking, waiting in line, and then talking to the teller. This process is outdated and that’s why I believe that most of the existing 92,000 bank branches will be closed in 20 years. Here is why:
Changes in customer demographics
In my opinion, bank branches are primarily serving Baby Boomers and small businesses with retail needs. In 13 years the last batch of Baby Boomers will retire and the next generations, Gen X and Millennials, are a lot more tech savvy and entrepreneurial than Baby Boomers. With further advances in technology as it relates to mobile banking I don’t foresee that the next generations will have any need to go to a branch. As a result, the old brick and mortar bank branch model will be as obsolete as typewriters.
Retail banking has become a non-scalable commodity
The products/services that banks offer are pretty much a commodity: checking accounts, savings accounts, IRA, CD’s etc. Obviously, low interest rates do not help with any differentiation. Very hard to say that a Bank of America checking account is better or worse than a Wells Fargo account. For small businesses that don’t have access to loans the situation is the same. The only differentiation may be which banks are really in the lending business and which banks are not.
In the case of loans, companies like Quicken Loan have perfected the ability to provide mortgage loans without the need of having to physically interact with the customer, their internal processes and technology have allowed them to save millions of dollars by not having to have a physical location to assist customers. In addition, this process/technology has further allowed them to scale their business nationwide.
Banks that don’t transform their brick and mortar business by leveraging technology in order to satisfy customer needs and to differentiate themselves will suffer the most. As an example, Sports Authority just became the latest victim to on-line shopping as the recently announced the closure of all of their 463 store locations.
Compliance with regulations
I opened a business account on line not too long ago. The process took about 10 days and at the end I remember getting a package of disclosures and regulations which I quickly threw in the back of the closet. Well, that package of information contains all of the regulations that banks and customers are obligated to follow, from avoiding illegal transactions, money laundering, to all of the various fees that banks can charge you. This level of compliance has clearly increased the cost to service customers to the point that small customers are no longer wanted by the big banks.
The value of paper currency and checks is decreasing
How many people, especially millennials actually carry coins? Not many I would imagine. How many of them actually carry paper currency? Same answer, in today’s electronic economy, where you can use your debit card for any purchase, the value of carrying physical currency has diminished dramatically. At the same time the use of checks has decreased dramatically due to advances in technology and legislation. See check 21 article. As a result the need to go to a branch to obtain cash or cash a check will continue to decrease to the point that customers will no longer go to a branch for these mundane tasks. Specially, when you can get cash in many points of sale without paying any fees.
The branch elimination process already began
The top 11 banks with the most branches have eliminated 1,400 branches from 2011 to 2015. All of them have reduced branches except for US Bank and Branch Banking. Bank of America leads the group by closing 929 branches in the past 4 years. See Bank of America article
Security concerns over digital media is one of the concerns that will clearly hamper the growth of electronic transactions. However, this issue alone is not enough to slow down the downsizing and elimination of bank branches as we know them today. Millennials will not carry checks or money, instead, they will demand that transactions be done electronically and the need for branches will continue to decrease dramatically over the next decade.
Banks should take the time to de-leverage themselves from the costly brick and mortar model and re-invest those funds into technologies that will provide a true differentiation. Today, retail banking is simply like buying gas, it is the same gas on every corner. The only difference is pricing and sometimes location.
Ricardo Lowe, B2B CFO Partner (954)632 3939 ricardolowe@B2BCFO.com
About B2B CFO Founded in 1987, B2B CFO is the largest CFO and Exit Transition Services company in the nation. We have a nationwide presence with more than 225 CFO and Transition experts that serve privately-held companies. Contact Ricardo Lowe for a complimentary Discovery Analysis at 954 632 3939 or via email at: ricardolowe@B2BCFO.com