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. These banks have over 31,000 branches or about 33% of the total. The remaining banks have an average of 10 branches each. 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 This process is outdated, and that’s why I believe that most of the existing 92,000 bank branches will be closed in 20 years.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:
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.
The products/services that banks offer are pretty much a commodity: checking accounts, savings accounts, IRA, CD’s, etc. 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. Also, 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 online shopping as the recently announced the closure of all of their 463 store locations.
I recently opened a business account online and the process took about ten days. I remember getting a package of disclosures and regulations, which I quickly threw in the back of the closet. That package of information contains all of the rules 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 increased the cost to service customers to the point that the big banks no longer want small customers.
How many people, especially millennials, actually carry coins? How many of them carry paper currency? In today’s electronic economy, where you can use your debit card for any purchase, the value of carrying real money has diminished dramatically. At the same time, the use of checks has decreased significantly due to advances in technology and legislation. See check 21 article. 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, especially when you can get cash in many stores without paying any fees.
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 four years. See Bank of America article.
Security concerns over digital media are one of the concerns that will hamper the growth of electronic transactions. However, this issue alone is not enough to slow down the downsizing and elimination of bank branches. Millennials will not carry checks or money; instead, they will demand that transactions be done electronically 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 real 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.
