In the past couple of years, there’s been a flood of stories describing—or celebrating, or bemoaning—the eminent demise of the local bank branch. It’s a symbol of the past, a relic, a lumbering dinosaur crushed by modern advances like mobile technologies.
That’s the story for sure, but what if it’s not the whole story? What if the real surprise is not how many branches have been shut down, but how many have not? Is that a sign of bad business, or an indication that the issue is more complex, and deserves greater examination?
No one denies that online and mobile tools—particularly the deluge of apps that banks have developed and released—have changed many customers’ interaction with the local retail outlet. In fact, as a recent piece in American Banker incisively explains, transactions at local branches have plummeted since 1992 by more than 45%. Even though that mostly predates not only mobile but even online banking trends, there’s no question that each digital capability brings greater convenience and changes customer habits.
But here’s a more relevant statistic that goes almost exactly in the other direction. Teller transactions at bank branches have fallen by less than 2% in the past five years. For the record, credit unions have it quite a bit worse, with a decline of 12.2%. But the overall picture does give rise to an odd question: Given how many digital capabilities have been released and adopted in this time frame, why have the numbers not fallen much, much further? Why are no many people still doing what they did before?
These stats come to us from the 2015 FMSI Teller Line Study, a “detailed annual study of teller activity volumes” that features a “compilation of statistics from community banks and credit unions in geographic regions ranging from all across North America.” This effort spanned more than 16 million transactions covering transaction volumes, pay rates, labor costs per transaction and more, and offers a near-perfect comparisons to similar analyses done each year for the
The research typically uses the month of March as its benchmark, which means that what we’re roughly going through now will be the foundation for the next effort. And while it may seem unusual to evaluate the prospects of a study before it’s even been done, it’s also an ideal setting to make predictions.
One aspect of this equation that has been criminally overlooked is that there may be fewer branches now because there were too many before. In between 1970 and 2014, there was a stunning disparity between the launch of new branches and corresponding population growth. In fact, branches grew by nearly 300%, while the population increased by barely half that.
It’s strange how in all the talk of mobile advances, we seldom hear about banks being ‘over-branched.’ But they were, and that’s one major reason why there are fewer branches now.
That said, it’s not the only reason—in the digital universe, all things must change. Branches won’t survive just because they have so far. They must embody the transformation taking place in every other corner of the economy, and that mandates a break from the past, no matter how successful that past was.
On this blog, we’ve offered numerous examples of branches seeking to become something different, and perhaps something more. We’ve seen how some offer teller pods and games, while others mutate into party lounges. We’ve documented the rise of alternate spaces such as grocery stores and the post office. And we know there are many other options.
The FMSI study referred to above documents this process as “becoming much more sales-centric than deposit-centric,” but each institution will have to define for itself exactly what that means. What we do know that in a few months, this study and others like it will relate both quantifiable and anecdotal evidence that more branches have gone under. The over-branching has largely been corrected—the main reason for failures now is that those outlets couldn’t keep pace with the changes. By contrast, it’s a safe bet that those that remain bear the fruits of innovation and transformation.
So here’s the key question going forward: What might those new features be at the institution in your neighborhood?