The Future of Bank Branches in the US

The demise of the branch has been prophesised for decades, yet it still remains a crucial access point for bank services, valued by most bank customers. However, the question about the future of retail branches looms large as mobile and online banking are becoming ubiquitous, most routine retail banking services that do not involve cash are becoming available remotely, and as customers are ever more comfortable with the new technologies for accessing them.

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According to a recent survey conducted by the Federal Reserve, over 80% of bank account owners have visited a branch in the preceding 12 months, despite the fact that online and mobile banking has secured a strong presence in the multichannel service delivery mix. The purpose of most of these in-branch visits has been to deposit a cheque or cash (77%) and/or to withdraw cash or cash a cheque (65.9%).  The study does not show the likely decrease in the number of branch visits for the average retail banking client over time. However, a study conducted by FDIC analysts does arrive to the following conclusion: “The rise of RDC (remote deposit capture), more sophisticated ATM terminals, and the proliferation of smartphones appear to be reducing the frequency with which bank customers are visiting their local branch to perform simple transactions. Moreover, the frequency of visits is lower for younger individuals.”

The U.S. banking industry will continue shaping the branch network on the basis of economic and demographic trends, technology and customers’ preferences. Therefore, bank branches are not going away any time soon as branches are still a crucial factor for customers when choosing banking service providers. Banks will continue opening new branches, particularly where there are opportunities for strong deposit growth.

However, this trend will be limited given the law of diminishing returns, which entails low marginal returns in markets that are saturated with branches. Despite new branch openings, the overall declining trend in the number of branches relative to the volume of real deposits and population is likely to continue due to gains by the online and mobile service delivery channels, and changing customers’ preferences that no longer favor branches or favor them less.

As a result, banks will continue using new technologies and other tools at their disposal to boost branch profitability and value-added for their customers and to ensure that their branch networks are optimally sized and thus profitable, even if it means more branch closures. A successful transformation of the branch model will not only increase banking profitability but will also benefit customers and economic growth.