There has been a steady drumbeat about the pending disappearance of bank branches for almost two decades. It wasn’t long after I became a banker that I began reading columns and listening to pundit after pundit talking about why branches would soon be unnecessary.
After all, it would be possible to conduct practically every aspect of banking without stepping foot into a branch. Keep in mind that these predictions were being made long before anyone knew what a smartphone was.
Even then, I argued that just because something was possible didn’t mean it would be preferable. Yet, all throughout the early 2000s, many experts told us not to believe our lying eyes.
Bankers saw branches remaining busy, with the majority of new accounts and loans being made within their branches. They witnessed a phenomenon that Steven Reider of Bancography has extensively researched and written about called the network effect: Larger branch networks capture a disproportionate share of balances.
In an industry in which physical locations were supposedly becoming unnecessary at best and an albatross around our necks at worst, the real-world results have not backed up the hypothesis.
There are now 15% more branches in operation than 20 years ago. Sure, that’s down about 10% from a peak of 10 years ago. However, the per-household branch ratio is nearly identical to what it was two decades ago.
Basic teller transactions have fallen noticeably over that period, yet the ratio of branches to households has remained almost unchanged. You don’t have to be a pundit to surmise that there may be something customers value about branches beyond the processing of basic teller transactions.
In fact, the Federal Reserve Board’s most recent Survey of Consumer Finances found that 43% of respondents cited “location of branches” as the most important reason for selecting their primary checking provider. This was the No. 1 reason given and over twice the percentage of the next reason.
Even customers who do not intend to visit a branch very often tend to choose a bank with a physical branch location convenient to them. Yes, there is data to suggest that the acceptable distance to a branch considered “convenient enough” is growing. This suggests a less-dense branch network than before may be needed to serve any individual market.
All other things equal, however, the closer and more dense branch networks still tend to attract disproportionate market share.
After a recent spate of columns and predictions that the pandemic may have caused a permanent shift away from branches, many community bank leaders have asked me if I concur. Were the past 18 months the catalyst that finally brings about the branch apocalypse so many have (wrongly) predicted for two decades?
Sure, it’s possible. All heretofore predictions of a mass branch exodus were always possible.
Is it likely? That’s a different kettle of fish.
I’ve suggested to several banker groups that most of the changes to operations and branch closures by some banks were things that had been on the drawing board for some time.
These moves weren’t a reaction to a once-in-a-lifetime event. If anything, the sudden (and shifting) pandemic protocols placed on American business simply accelerated these moves.
One senior manager I spoke with said: “Most of these moves and closures were planned to happen over time. Instead, we figured it was time to rip the Band-Aid and get on with it.”
Tellingly, along with closures and consolidating of some branches, the executives at that bank are investing in and opening new branches as well.
Were their moves the right ones? Time will tell. I don’t pretend to know anyone’s business better than they do. However, I do know that there isn’t a one-size-fits-all branch and product mix for institutions.
A competitor may be making the exact opposite moves than you, and both strategies may be absolutely appropriate for each institution.
But what is it that keeps branches a fundamental banking element to most customers?
It’s not branch design. It’s not in-branch technology. It’s not the marketing pieces in and around a branch.
Sure, those things matter. But in the end, customers do not visit branches.
Customers visit bankers.
The quality of the assistance and levels of attention, empathy and appreciation bankers deliver overwhelmingly define the branch experience.
Branch personnel job titles and roles are evolving, but the value of quality people personally serving customers continues to matter as much as ever.
