Could bank branches become extinct? According to FMSI, a banking industry business intelligence company, since 1992 branch transactions declined by 45%, with a 15% reduction in transactions in just the last four years. Most financial firms ignored the decline, as well as the cost of branches because at the same time adding branches seemed to be the right strategy to achieve growth, according to FMSI CEO W. Michael Scott. The report concludes that in 20 years bank branches will still be around, but they are likely to be more sales-centric than deposit-centric.
The report has created a buzz about the fate of bank branches. The 2015 Consumer Banking Insights Study commissioned by BancVue found that 86% of consumers would prefer to do at least some banking in person and only 10% of Americans use online-only banks. Forty-four percent said it’s not likely that they will no longer need to go to a physical bank location five years from now.
With the emergence of mobile, online and ATM banking, is a branch still essential? "As an avid online banker, I definitely think that bank branches are on the way out. There is still a strong class of bank branch user, and the brand recognition is certainly useful. Regardless, fewer and fewer of my (and everyone’s) interactions with a bank need to be done in person," says Trevor Ewen, a blogger for pearoftheweek.com.
But there are differing opinions. "Bank branches will not disappear anytime soon," says Jaime Dominguez, director, strategy for Retail Bank and Channels at Fiserv.
Furthermore says Trevor Knott, vice president of services at Saylent, "The bank branch is not going away for one very fundamental reason – at its core, ‘banking’ is not a transaction. It touches far too close at all the things that matter most in the long-view of individuals’ and families’ lives: car ownership, home ownership, education, retirement or simply finding effective ways to make ends meet today to keep the dreams of tomorrow alive and beating."
What most agree on is that the branch as it is today will be decidedly different. "What we will see are branches converting into three main types: self-service (a virtual branch that may or may not have a physical footprint), assisted (a hybrid model with a limited number of staff assisting with services provided primarily virtually), and full-service," says Dominguez. In the assisted and full-service models, "We will see the branch staff serving in an increasingly consultative role, providing advice and facilitating more complex, higher-value activities such as lending.
Banks that convert their existing branches into assisted or self-service models could experience significant operational savings, and have an opportunity to expand their presence at a lower level. However, says Dominguez, if branches disappeared completely, that could have a negative impact on a bank’s brand, their visibility and their ability to attract new customers.
Sales and relationship building are other critical reasons bank branches will continue in communities. "Trust between a banker and customer are built better and more confidently in person," says Hillary Kelbick, president of MKP, a bank marketing company.
Branch closure not a panacea
As branch traffic continues to decline and branch costs march upwards, community bank executives are feeling the pressure to shave some money off the bottom line, says Roy Karon, president and CEO of BVS Performance Solutions.
Closing branches may seem like a solution, and for the first year or two it can seem like a good idea. Expenses for these now defunct branches are wiped off the books. Deposits may roll off, but they’ll do so too slowly to hurt the bank, he says. Interest from loans generated by these defunct locations continues to roll in. "The numbers look pretty and the executives are sitting pretty," he says.
But the physical branch is where banks gather the majority of their deposits, via new accounts. These deposits are the lifeblood of commercial loans, which are a core part of a bank’s business model. Likewise, branches are where consumers often get their consumer loans.
The better option, says Karon, is for executives to resist the urge to cut branches immediately, and instead, rethink how to better staff and reposition their current branches to attract and maintain business will put themselves in a prime position. "Lower costs, steady flow of loans, starved competition."
The new breed of branch
The days of branches with 20 teller lines are over, as branch transactions are falling double-digit rates each year, now both the physical design of branch, and the required skills sets of the branch personnel need to be re-examined for service effectiveness over transaction efficiencies, points out Paul Schaus, president of CCG Catalyst, bank consulting firm.
Change is already in the air. This past spring, McGraw-Hill Federal Credit Union opened a Financial Wellness Center in New York City. It is a drastic departure from a traditional big bank branch. The Center provides a range of goal-focused savings, spending and financial planning services. Every member is provided with a financial services consultant, not a bank teller, who explores with them their personal financial position and goals. There is an online Financial Wellness University that has financial education programs that span a range of day-to-day member financial issues and challenges.
Republic Bank is taking a contrarian approach to banking growth. While more than 1,400 branches shut their doors in 2014, Republic Bank is investing in branches. After building three new all-glass stores in Southern New Jersey in 2014, it is preparing to open two more stores in July and projecting opening more than 15 additional new stores by the end of 2017, according to Rhonda Costello, chief retail officer.
"It is true that technology has introduced new ways for customers to complete transactions, but we believe that online banking will never replace the desire and need for traditional brick-and-mortar banks," says Costello. "This is evident from our investments in our store network and innovative technology, and our belief that the coupling of these services, with best in-store practices results in exceeding customer expectations every time."
Says Kelbick, "Branches will never disappear. The style of purpose of branches is changing and will continue to evolve, but we think bank branches are here to stay for the foreseeable future."