Customers Keep Coming to Branches as U.S. Banks Want to Close them down

The banking industry’s efforts to slim down are getting complicated by many U.S. customers who are not ready to give up regular visits to their nearest branch despite the banks’ nudging toward online tools.

According to Federal Deposit Insurance Corp data, since its peak in 2009, U.S. banks have trimmed the number of branches by 6 percent. The lowest level was reached in a decade at the end of last year with 93,283 branches open.

Yet to offset the pressure on revenue from low interest rates and regulatory demands, banks should have done more, say analysts who have examined the data.

Even as industry assets have grown, room for greater branch consolidation was indicated by the number of FDIC-insured banks which fell by more than 25 percent over that time.

Doing more business with existing ones and acquiring new customers are two aspects where the existence of branches are crucial, argue bank executives. Revenue would be hurt rather than reduce costs by closure of branches, they claim.

“Our customers still want to visit us. They’re still coming to our stores and our ATMs at pretty consistent rates,” Jonathan Velline, Wells Fargo’s head of ATM and store strategy, told Reuters in an interview.

The view is shared by bankers across the industry. Few banks have gone fully digital, even as online banking complements traditional services for U.S. customers, they say.

According to the International Monetary Fund’s population-adjusted data, in terms of how aggressively its banks have been slimming down, the United States falls somewhere in the middle among developed nations. While more branches have been cut than Germany, France or Canada, it is not as much as have been done by in Greece, Ireland, Spain or Italy.

Rick Spitler, managing director at consulting firm Novantas said that one difference is that U.S. customers still routinely use checks and need branches to process them even while other factors are at play.

He often fields questions why the industry still has so many branches, FDIC Chief Economist Richard Brown said.

“This thesis…that we have mobile banking and high-tech banking, therefore the branch offices are dinosaurs and going away appears to be substantially overstated,” he said.

According to Ed O’Brien, an analyst at Mercator Advisory Group, the traditional branch costs $200,000-400,000 per year to operate and roughly $2-4 million to set up. It can be expensive for big banks that have thousands of branches  and with many clustered in pricey urban centers.

Each branch earns about $1 million in annual profit, but takes a decade to reach its full potential, say executives at JPMorgan Chase & Co, the country’s largest bank. Executives at the bank insist that branches remain essential for JPMorgan’s relationships with customers even though it has shut 265 locations since 2013, roughly 5 percent of its network. According to Gordon Smith, JPMorgan’s head of consumer and community banking, many products and services ranging from mortgages to investment advice are best sold through branches.

“Often I will be asked why don’t we just accelerate closings. Why don’t we close 400 or 500 branches? The answer is that customers won’t go there,” Smith said at the 2016 investor day.

However the banks are getting more digital and even reducing costs at the branches by reducing the number of tellers and installing ATMs that can perform more sophisticated and have developed nifty mobile apps for routine banking needs.

(Adapted from Reuters)

 

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Categories: Economy & Finance, Strategy, Sustainability

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