The bank branch is dead, long live the bank branch!
The chief executives of several large U.S. banks offered diverging views about the future of brick-and-mortar banking on Thursday, reflecting a split between institutions that still have a big physical footprint and those that never had one.
On one side of the divide is JPMorgan Chase, which operates more than 5,000 branches across the country. "The branches are critically important," CEO Jamie Dimon said during remarks at an investor conference in New York. "Facts are the facts, folks."
On the other side is Ally Financial, which does not have physical branches. "Because we have no branch operating expense, we can share those efficiencies with our customers, in the form of better rates and lower fees," argued Ally CEO Jeffrey Brown.
For several years, traditional banks have been facing difficult choices over what to do with their physical locations. The rapid rise of mobile banking – a survey by the Federal Reserve Board found that 43% of mobile phone owners with bank accounts used mobile banking in 2015, up from 33% two years earlier – makes the issue more urgent today.
Last year, 93,283 bank branches were in operation, which was the lowest total since 2005, according to data from the Federal Deposit Insurance Corp. Branch count peaked at 99,550 in 2009.
In recent years, banks with scores of branches have promised to make those locations smaller and more dependent on technology. But they also argue that branches will remain important as ways to gather low-cost deposits, dispense financial advice and serve as billboards for the bank.
U.S. Bancorp CEO Richard Davis, who once worked as a bank teller, is among those who believe that the industry would be foolish to abandon its storefronts too quickly.
"We have 3,200 branches, so we are not trying to make a statement of closing locations," Davis told the audience in New York.
"The average branch in America is 53 years old. The average branch has got that much legacy."
Davis acknowledged that U.S. Bancorp could become more efficient in the short term by closing a few hundred branches. But he argued that the Minneapolis company would eventually pay a price for that decision, in the form of higher funding costs.
JPMorgan Chase, which has one of the largest branch networks in the country, finds itself in a similar situation. Dimon said that the megabank would adapt in the face of changes in customer behavior.
"While the branch will get small, and the headcount may drop a little bit," he said, "the advisory part of the branch may grow a little bit. Think of small-business advisers, mortgage loan officers, investment officers."
The CEOs of online-only banks argued, though, that their banks would have the upper hand in the future.
Brown noted that Ally Bank was built from the ground up for the internet. The bank had $55.4 billion in retail deposits in 2015, up from just $21.8 billion five years earlier.
"We've been able to differentiate ourselves because we don't have the baggage or cost load of brick-and-mortar institutions, nor the unfriendly approach of endless fees," Brown said.
"And we're not saying that branches are completely going away, but they are shrinking every day," he added. "The traditional banks know that branches are the way of the past, and digital is the way of the future."
David Nelms, the CEO of Discover Financial Services, made basically the same argument. He said that many transactions are now being originated through direct not channels, not branch visits.
"That's going to be a challenge for the traditional banks," Nelms said. "They are going to have to close branches. They are going to have to put other products through branches to try to keep the capacity utilization up."
One banker who spoke at Thursday's conference, Capital One Financial CEO Richard Fairbank, came down somewhere in between the incumbents and the upstarts.
Capital One Bank operates branches in eight states plus the District of Columbia, but the McLean, Va., company also has an online franchise called Capital One 360. Fairbank argued that many consumers still want a tangible connection to their money, and predicted that impulse will continue for a long time.
But he also said that the number of visits to branches is plummeting, and a majority of Americans now prefer to transact digitally.
"There will be physical distribution. The physical distribution will have value. But that physical distribution has to be reinvented around a very technology-first kind of architecture," Fairbank argued.