Deloitte & Touche came up with some hard numbers in its recent forecast of banking consolidation: a 50% decline in branches and a parallel reduction in employees - amounting to hundreds of thousands - within five to 10 years.
The figures, which attracted widespread press coverage over the last two weeks, added a dose of harsh reality to the expectations of many industry observers. But some of the experts wonder if the numbers tell enough of the story.
For example, will "ultra-large-scale automation" and "digital money," the great technological forces emphasized in the Deloitte & Touche research, bring about so much change so fast?
And how can an industry that has learned to live with the Community Reinvestment Act and associated political pressures simply walk away from half its retail offices?
"A lot of their focus on why this is happening has been on technology in terms of hardware and software, but it's more than just that," said Stuart Feldstein, president of SMR Research Group in Budd Lake, N.J. He pointed to "structural reasons," such as nonbank competition and political sensitivity, that are equally important factors.
But Deloitte's projections, while sufficiently eyebrow-raising to get the global consulting firm's name in the papers, may not have been as radical as they appeared.
Mr. Feldstein, who has a reputation for conducting rigorous financial industry research, said that the 50% branch-reduction prediction "is a little too strong," but that "directionally, that certainly is the trend."
"It might not hit 50%," Mr. Feldstein said, "but it might get close."
One of Deloitte's underlying assumptions came from a 1994 publication by the Bank Administration Institute and First Manhattan Consulting Group that only 23% of consumer transactions would occur in branches by the year 2000, down from 40% in 1993.
Ultimately, branches will serve only those who want to, and can afford to, pay for personal attention.
"This sounds like a lot of what we've said already," said a spokesman for Andersen Consulting, citing the Chicago-based firm's 1991 study "Vision 2000: The Transformation of Banking," also a joint effort with the Bank Administration Institute.
"Vision 2000" projected a 20% reduction in branches and employees by 2000, as well as a growing degree of specialization as institutions abandon the tradition of being all things to all people.
The BAI-First Manhattan study, "The Future of Retail Banking Delivery," predicted a 20% drop in the number of branches and said the decline in branch-dependence would accelerate through the end of the decade.
That accelerated time span raised questions at the industry's largest trade association. "While recent mergers and acquisitions will likely necessitate some closures and consolidations of bank branches, a 50% loss in the time frame given seems like an ambitious scenario," said the American Bankers Association.
What is more likely, the ABA said, is an evolution "from traditional stand-alone bank offices to nontraditional locations" inside grocery and retail stores.
Frank Woosley, Deloitte & Touche's national director of financial services consulting in Wilton, Conn., is standing by his thesis. He called on banks to heed its message to reexamine priorities - or risk extinction.
"There's a misguided time and energy spent on doing things that might not have the highest return," Mr. Woosley said in an interview. "People that run traditional retail banking have a traditional retail outlook. They think getting people into the store is best."
Mr. Woosley argued that banks should consider new approaches. He said many are wasting their resources building "giant infrastructures that could be outsourced or joint-ventured."
In trying to transform themselves from a conservative, risk-averse past, bankers can run into some difficult, practical problems, the consultant said.
"Some banks want to transfer out of branch system, but capital constraints are a large problem," Mr. Woosley said. "For example, if you close a branch, you have to write off the cost of the branch.
"But banks are flush with capital right now. Maybe this is the time then to change."
Indeed, several banks have taken high-profile steps to teach customers new technology.
"Some major banks are now, for the first time, viewing home and personal computer-based banking as a means to build relationships and loyalty, and not just as a means of selling a service," said Robert Skolnick, executive vice president of BAI Mail Monitor in Tarrytown, N.Y. "People are increasingly turning to broader use of automated teller machines and negative reactions to them are shrinking, particularly among young folks."
Mr. Woosley said some banks are giving customers 25 cents for each ATM deposit. First Chicago Corp. even began charging for some teller transactions. Such incentives and disincentives are a "tip of the iceberg," said Mr. Woosley.
"Absent a compelling economic interest, habits might be hard to break. But if you put a sign in a bank saying "put $2 in this can" - that would change fast."
Deloitte & Touche's report also has been criticized by some for not addressing or glossing over certain relevant issues.
"We have seen the emergence of specialty banks, such as credit card banks, that really have no branch system," Mr. Feldstein said, citing Advanta Corp., First USA Inc., and Dean Witter, Discover & Co. as examples. "These institutions have grown dramatically in number and size.
"Suddenly, bankers find themselves in this industry where everyone used to look the same, up against specialized companies that have no branches and a lower cost base."
The likelihood of branches' closing in large numbers and customers' being charged for using tellers raises some delicate political issues, particularly in inner-city and poor communities.
"The whole notion of closing branches is so sensitive from a CRA and fair-lending perspective," said Warren Traiger, a New York City attorney and expert in CRA law. "Business-wise, the report makes sense, but political realities and community realities make this hard to foresee. If business realities were all that mattered, a lot of this would have already happened."
Mr. Skolnick, who specializes in monitoring bank marketing campaigns, also raised questions about community responsibility. "I think there is something to that, and banks need to be careful how they consolidate," he said.
He added that banks would run few legal risks if they took a rational approach to branch closings. "To say that half the number of branches will go away doesn't mean they will disappear from whole areas," Mr. Skolnick said. "If they had that plan, there would be regulatory and political plans to stop it. You can't abandon neighborhoods."
Mr. Woosley said he doesn't see any roadblock. "I don't think there's been a branch action (invoking the CRA when an office closes) in about four or five years," he said. "Let's say a bank has 400 branches - maybe four or five are CRA-sensitive. If you want to close 150 of them, CRA is not going to stop you."
Beyond perceptions and laws, the question remains whether the benefits of new technology will be shared by all Americans. Obviously, for as many as 450,000 financial institution employees who may be thrown out of work, technology is no benefit at all.
Martin Block, professor of integrated marketing communications at Northwestern University in Evanston, Ill., warned of the evolution of an "info-rich, info-poor social dichotomy." Those on the poor end, he predicted, will find themselves increasingly alienated from the mainstream.
"Everyone is excited about the Internet," Mr. Block said, "but right now only a small percentage of people participate in it."
Mr. Woosley said fees for teller transactions and other banking changes will not be visited only upon the rich. He described those who would pay for a previously free service as "price insensitive" - they may be rich or poor, and don't mind paying for personal attention.
Concerns about a headline-making fee schedule like First Chicago's obscure the big picture, Mr. Woosley said, which is that as technology moves forward, bankers must run with it or perish. The banking industry is not the first to have to change with the times, he said.
"In Russia, they had a store that sold shoes, and a store that sold hats," the consultant said. "Now they sell both in the same store." The lesson for bankers: Branches should not limit themselves to selling just financial products.
