The banking crisis struck in 2008, but the number of bank branches in the U.S. kept climbing for another couple of years, as lenders big and small were hooked on a storefront approach to attracting deposits and writing mortgages.
But since then, branch closures have picked up, and the trend looks sure to continue, as ecommerce encroaches on banks just as it has on other retailers.
“It’s almost surprising in many ways that we continued to grow the number of branches until 2010 in this country, given what’s going on with technology,” Keefe Bruyette & Woods research director Frank Cannon says in the attached video. “Because today, with smartphones, just how much do people need to go into branches?”
Among the largest dozen banks, 10 of them have shrunk their branch networks in the past two years, closing more than 1,000 locations on a net basis. This represents about a 4% decline in branches for this group of 10.
Bank of America Corp. (BAC) was down more than 400 branches in the two years through June 30, leaving it with just over 5,200. Citigroup Inc. (C), de-emphasizing U.S. retail banking, is down 123 locations, or 10% of its 2013 base. Only Wells Fargo & Co. (WFC) and U.S. Bancorp (USB) have bucked this tend, with slight branch-network expansions.
Along with post-crisis rules requiring more capital held at banks, years of low interest rates have pressured bank profit margins and prompted constant cost-trimming by the largest players.
Even if the Fed does eventually deliver some relief with a rate increase in coming months, the technological shift in consumer banking will continue to make branches less profitable and more expendable.
Check deposits by smartphone have seen rapid adoption. Mobile banking accounts have more than tripled at Bank of America the past four years. The average number of teller transactions per month across the industry is down by a third since 2007. Total number of checks processed has been halved in the past decade.
Yet cutting branches is not only a matter of eliminating costly real estate and migrating customers to ATM kiosks and their phones. Branches are also one of the main ways banks build and market their brands.
Cannon notes that Wells Fargo CEO John Stumpf is committed to its growing retail footprint and likes to say he’d like to shift toward “a smaller-sized branch with a bigger billboard” – the billboard being mostly virtual, in the form of better digital branding campaigns.
JP Morgan Chase & Co. (JPM) CEO Jamie Dimon recently told analysts he’s not retreating from branch banking in a general way at all. He says the bank will look to open, say, 100 branches over a couple of years in cities where it’s not a big player, such as Nashville, in a bid to win market share through convenience.
And, of course, the big guys will not likely go away from a Main Street presence entirely.
Cannon says, “One of the things we learned in the financial crisis is, when people get really nervous about their money, they actually like to see some kind of physical presence.”