Why the branch banking controversy will continue

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26 February 2015
Bob Meara
The branch is dead, long live the branch! Controversy around the wisdom (or not) of investing in the branch channel amidst rapidly growing digital banking adoption is showing no signs of letting up. Consider three articles published in the past week:
  • Bank Innovation covering Associated Bank branch closures to fund digital channel initiatives.
  • BTN coverage of Wells Fargo branch/digital convergence alongside the banks’ steadfast advocacy for maintaining its massive branch presence.
  • Brett King’s Op Ed in Banking Exchange, critical of the recent FDIC report, Brick-and-Mortar Banking Remains Prevalent in an Increasingly Virtual World
I’ve observed that most advocacy is binary; either branches are next to worthless or the branch is king. Where is the middle-of-the road position? I’d like to offer one. For starters, retail banks serve a diverse market with diverse needs and preferences. Why then do so many critics insist banks must react to digital banking’s growth in lock-step? How many times have you heard the comment, banks are lemmings? Well, this time they’re not. Get over it! We will continue to see a diverse response to the digital ascendency. But, I do struggle with the sustainability (or even desirability) of the current branch density in many markets – particularly in the US. I don’t think it will be defensible for very long. Let’s put it into perspective. Between 2000 and 2010, US bank branch density grew from 230 to 270 branches per million. Celent looked at a dozen other retail categories and couldn’t find a single one (except banks) that grew store density over the same period. Just the reverse happened, even though digital commerce remains less than 20% of total retail sales. [caption id="attachment_4764" align="aligncenter" width="655"]Source: US Department of Commerce, FDIC, Datamonitor, Celent analysis Source: US Department of Commerce, FDIC, Datamonitor, Celent analysis[/caption] Like retailers, banks have certainly embraced digital channels. But, unlike retailers, banks have not invested in digital engagement. Until recently, digital channels weren’t about sales and servicing (that’s what branches are for…) but about facilitating transactions. Rare is the retailer of any size that does not have a digital presence designed to conduct commerce. But, the significant majority of banks do not yet have that capability. And, in some cases, the user experience is poor. Why? In part, because banks have focused on transactions, not sales and service in the digital channels. As this changes (and it is), I believe we will see a corresponding contraction in branch densities – just like in most other retail segments. Until banks demonstrate the ability to sell and service customers digitally, they will be overly reliant on the branch channel. [caption id="attachment_4701" align="aligncenter" width="600"]Source: Celent survey of North American financial institutions, October 2014, n=156 Source: Celent survey of North American financial institutions, October 2014, n=156[/caption] The next few years will be telling. What do you think?


  • The US branch density is ludicrous. Great chart Bob. What is crazy is that economic modeling supported the over branching for years. I wonder if digital/online/mobile were ever part of the equation when banks were building branches during the last decade. I poke fun at Chase since in the NYC Metro area there are too many Chase branches. Here they not only over built they also absorbed the Bank of New York branch system in an asset swap years ago. That led to situations where they have branches practically next to each other that they kept open. Here are links to two such examples:,+ny/@41.2045075,-73.7303904,14z/data=!3m1!4b1

    If you look at these Google Maps and start to zoom out you will see a lot of Chase branches. Are all of these really necessary? Mt Kisco and Somers, NY do not need two branches yet they have them.

    Chase is also turning its branches into Private Banking centers. They no longer have the feel of the old retail branches they had. This leads to what is a branch. They are not all created equal.

    When I worked at Provident Bank in NY, we opened several business offices but had to list them as branches with the regulators because they accepted deposits. These were not locations that a person off the street could walk into and do banking. They were for business clients only. Additionally, they used these offices as hubs to support an ever increasing team of commercial relationship managers. Instead of building branches, they hired teams of people. Decades ago branches were one thing. Today, many are something entirely different. The challenge is still how do we expeditiously close branches and reorient them for the future. Banks and credit unions made it difficult because they, as Brett King cleverly points out, "embraced digital currently only for transactional activity." The pace at which this is changing is slow but at least it is happening. The tools to drive the digital engagement you describe are mature but not implemented by most banks and credit unions. I am sure that will change quickly as well. But for now, as I drive through Mt. Kisco, NY and Somers, NY I will still see a Chase branch practically next to another Chase branch.

  • Bob, insightful stuff as always!

    I do have a slightly different take on future branch viability, particularly as it relates to community banks. Larger FIs can close branches without much ado (see articles just this week on Chase and Associated closing branches to focus on the digital channel). But a community bank with 3 or 5 or 8 branches will find closing even one may carry more negative PR than its worth.

    So rather than just suffering with low transaction counts in oversized branches that are wildly understaffed (ever show up to a party and there's hardly anyone there, not a good feeling ...), I advocate for branches to change their focus related to the customer's attitude regarding a branch visit from a "I have to ..." to "I want to". The change in branch purpose is from transactions to engagement. The three primary drivers of in-branch engagement would be Consultative Selling, Education and Problem Solving. Its the model that make Apple Stores crazy busy at 11:00 on a Wednesday when the rest of the mall is dead. I believe that although for most FIs it will be hard to make the transition, and most of the employees they currently have will either refuse to be retrained or fail to become adept at engagement. But for those institutions with great strategic insight, who are looking 8 years out and understanding what type of engagement tomorrows customers are expecting, and who will press for the transformation on both branch function and engagement focused staff, there will be great rewards.

    Close some branches if you can. But better to have a strategy for making the branches you have, always in a great location in whatever town they are placed, into a center of engagement. Solving someone's vexing problem still trumps a great mobile app from a loyalty perspective. And no, you don't need physical offices to get good at solving vexing problems. But since the real estate sits there, greatly underutilized, why not create a place that is more fun, more engaging, more useful for both the aging baby boomers that make up nearly 80% of current bank deposits and the millions of millennials that will be replacing them as bank's primary relationships in the next 20 years?

  • Bob,

    Agreed. I did a similar analysis in my last book Breaking Banks coming up with the estimate that we'd lose 40% of branches by 2025. It's perhaps a little aggressive, but only by a little. I think that once the new economics of banking are understood and there are established players like Moven, Lending Club, Betterment and others demonstrating dramatically lower acquisition costs and better customer engagement, that branches will simply become a luxury for most banks, especially listed companies who are likely to get downgraded once the market makes the same deduction.

    I think the key issue that will be the catalyst is that banks have embraced digital currently only for transactional activity. Once players embrace digital for revenue + relationship, the increasingly limited role of the branch will become clear.


  • […] Celent recently published this interesting chart highlighting retail location density trends between different industries.  It raised some questions around why banking branches have increased while other retail industry locations have not.  Are banks not adopting digital channels as readily as the other industries?  Are there differences in how consumers interact with banks vs. other industries?  Is it some combination of both? […]

  • Great approach. I was reading these cited articles and others and thinking the same thing: the debate is far from the end. But I think there is still some questions to be addressed: the size, the architecture and the location of the "survivors" branches. The example of m-Bank is interesting.

  • Jeffry, you nailed it. Chase needs to eliminate branches but if a small Credit Union or Community Bank wants to grow, they will have to seriously consider building branches. Not last centuries branches, but branches for the next century.

  • You're absolutely right Bob. It’s not a black-or-white, either/or choice. The conversation surrounding branching and branch densities is nuanced — unique to each institution’s geographic footprint, business model, target audience and business strategy (long- and short term). Too many folks rush to condemn branches because footfall is down and digital is up. Likewise, too many traditionalists and conservatives are intractably wedded to a model that simply won't work and can't be sustained.

    For an industry comprised of over 12,000 constituents in North America alone, I resist almost any blanket advice. It's impossible to say that each and every one "must use social media" or "close branches" or needs "big data." I think when people offer advice to the financial industry, they are most often thinking about the biggest players — BofA, Citi, Chase, Wells — not the $600 million credit union or the $1 billion community bank.

  • Well said, and thank you for weighing in. 40% reduction does sound dramatic, but several Western European markets have already seen a larger reduction, no? It's not a binary thing. ABN AMRO's branch network is very important to the bank, for example, but it operates less than half the number of branches it once did and is enjoying the fruits of that savings daily. Meanwhile, it offers a physical presence where doing so makes sense.

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