Many fintech startups talk about a revolution in banking, wax on about how online and mobile banking transactions are soaring, and claim a branch is already in most consumers' pockets or purses. Often, the branch is compared — in the age of streaming — to the near-extinction of movie rental outlets and retail music stores.
But in the case of bank delivery channels, age does not beckon death's door. Claiming branches are almost extinct exaggerates the decline in the channel's transactions, ignores the effect that strategic errors — such as too many branches in a region — have had on branch performance and is ultimately a misleading story. Not all bank visits can be replaced with a swipe across a smartphone. Furthermore, a closer look at consumer preferences and behaviors indicates that “branch vs. mobile” is not an either-or scenario: A brick-and-mortar presence will remain a core element of financial services delivery for decades to come.
Over the past five years, teller transactions at bank branches have decreased by only 1.9% on average, compared with a 12.2% decline at credit union branches, according to FMSI's 2015 teller line study. If a mass exodus in favor of remote access were really underway, this drop would have been much steeper over what has been the most digitized half-decade to date.
Some of the steady decline in transaction volume at banking facilities — down 45.3% overall since 1992 — may be attributable to the introduction of online and mobile services. But overbranching — building too many branches in the first place — is also very likely a factor. The brick-and-mortar infrastructure of U.S. financial institutions nearly tripled from 1970 to 2014. Over that period, the ratio of population per branch fell from 9,340 to 2,970.
Some branch consolidation is in order, but bank customers still value convenient access to a full-service physical outlet. Even many consumers who embrace mobile access for routine transactions appreciate the option to stop by a branch for guidance on managing their personal finances. There's a big difference between choosing which movie to stream for the evening and which mortgage to buy to fund your first home. Trust is of the utmost importance in banking, and people continue to value personal interactions as they seek guidance in achieving their financial goals. Indeed, the typical branch continues to facilitate an average of 6,500 transactions per month.
Sure, industry pundits forecasting the demise of the branch point to surveys like the January report from Javelin Strategy & Research, which found that in 2015, for the first time, the number of consumers in the U.S. who used a mobile device to bank once a week exceeded the number who went to a branch. Or they cite articles in The Wall Street Journal and The New York Times as evidence of the rise of mobile banking, e-payments and marketplace lenders.
But while some pastimes are going digital, the choice of remote versus in-person access is not mutually exclusive. Even with the rise of online shopping, e-commerce represents only 10% of all retail sales, for example. Similarly, consumers do and will appreciate online and mobile options, but they will also prefer to conduct some financial business in person.
That's not to say technology won't play a bigger role in the branch over the next two decades. Smart ATMs, video tellers and cash recyclers will streamline routine transactions so associates can focus on higher-quality interactions with customers. Sharper business analytics will also likely steer banks away from a one-size-fits-all branch approach in favor of designing each office to better serve the demographics and socioeconomics of its market. Some branches will support a greater investment in self-directed technology, while others will thrive by offering an upscale personalized experience for customers accustomed to white-glove treatment.
Evolution in branch delivery is likely. Extinction is not.
Meredith Deen is president of Financial Management Solutions.