Since I became an online banking proponent twenty years ago, literally betting my family’s future on it by starting Online Banking Report, I’ve been a bit pessimistic about the future of branch banking. My personal experiences both as a consumer, and small biz owner (one of the segments that supposedly needs the branch the most) have ranged from pleasant to mind-numbingly frustrating.
Yes, consumers like having branches around. Yes, consumers still go there to open checking accounts. And yes, consumers still value branch location when deciding where to bank.
All those things are nice. And even the biggest branch bear recognizes that those are powerful positive attributes. And for the record, I’ve can’t recall anyone saying that branches will quickly disappear or "die" (at least not in the pre-Brett King era). Most of the doubters have simply said they expect branches to become less relevant over time (note 1).
My main problem has always revolved around the branch’s cost effectiveness. Sure, you open a few accounts every week at the branch, but what would happen if you had 50% fewer branches? Would you lose 50% of your new accounts? Or would 90% of those would-be-customers just go to one of your other branches or open via online/mobile (especially if you offered state-of-the-art online account opening technology). What’s the ROI of a branch network with 50% lower costs that opens just 5% fewer checking accounts? And could those cost savings be moved into efforts that more than made up for the 5% fewer accounts?
There isn’t a single answer to that question. Some segments need the branch more than others. As Ron Shevlin pointed out two weeks ago, it depends on your strategy and execution.
But for the mass market, especially the next generation of parents, homeowners, and car buyers, the branch’s ROI (if it’s positive at all) will lag a similar investment made in alternative channels. Can I prove it? Nope, there are too many variables. It’s an exercise that must be carried out by each and every participant based on your market and strategies.
Bottom line: The bank branch will still be relevant for another few decades at least. But I’m willing to bet a copy of Bank 4.0 that the number of United States bank branches will fall at least 20,000 (20%) by 2020. Although, it’s not really about the number, it’s about reducing their overall cost. So if banks dramatically downsize the footprint, such as Wells Fargo’s new 1200 sq. footer in Washington DC, the total number of branches may stay at a relatively high level.
1. In my 2006 report, The Demise of the Branch, I called it a "40-year cycle," specifically projecting a 40% decline in number of U.S. branches by 2025, with total square feet falling by 55%.