How big banks are rethinking the role of the physical branch

With many banks reporting branch closures, it’s easy to assume the death of physical banking is approaching.

Bank-earnings results this month showed continued progress toward reducing the footprint and making it more efficient. On Friday, Wells Fargo — which earlier this year announced a plan to cut 800 branches by 2020 — reported that in its third financial quarter of this year, the bank consolidated 93 branches, and it’s on track to consolidate a total of 300 branches this year. Citi, which also reported third-quarter earnings Friday, reduced its branch numbers by 11 since the previous quarter.

It’s a response to the current shift toward digital and mobile banking. But instead of killing off the branch, banks are closing locations as they rethink their roles. When customers carry out more day-to-day routine transactions like check cashing and deposits through digital channels, the bank branch needs to change.

“Bank branches aren’t dead industrywide — we just don’t need them as much,” said Celent senior analyst Bob Meara. “Big banks are continually looking at how their channel spend mixes with utilization, and they read those tea leaves carefully.”

For Wells Fargo, branch consolidations coincided with a decline in teller and ATM transactions — down 6 percent from a year ago — reflecting the continual migration of customers from physical to digital channels, CEO Timothy Sloan said Friday on the company’s third-quarter earnings call.

Similar to what’s happening among home improvement retailers, like Home Depot, which are aiming to turn physical locations into support centers for big projects, banks want to turn branches into places where customers can talk through larger transactions like mortgages or investments. Customers who don’t want to make major, higher-risk financial decisions through online or mobile channels can consult knowledgeable staff members in a comfortable setting. It’s not going to counteract the move to online banking: According to Aite Group, there are currently 173 million digital banking users in the U.S. But the rise of digital banking is pushing banks to focus on value-added transactions in branches.

“They’re focusing [the branch] on value-added activities and relationship building,” said Aite senior analyst Tiffani Montez, who added that banks want to take day-to-day simple transactions out of the branch to focus on customer acquisition for higher-margin products.

In response to the trend, over the past year, CitiChase and Bank of America rolled out physical locations resembling Apple Stores equipped with tablets, video-conferencing capabilities and other tech that help customers and employees on staff solve problems more quickly. Equipping the branches with enabling technology is an important part of this, meaning while there may be fewer branches overall, each location will pack in more services.

Not all banks believe quality comes at the cost of quantity. JPMorgan Chase announced plans in January to open 400 new branches over the next five years, adding to its 5,100 current locations. The bank said the move is about building relationships and establishing a foothold in new markets.

“To us, this expansion is so much more than building a branch. This is about new relationships with customers, communities and employees,” said Thasunda Duckett, CEO, Chase Consumer Banking, in a statement announcing the bank’s plans to grow its physical imprint in and around Philadelphia.

Despite an apparent anomaly to the trend of branch reductions, Meara said Chase’s moves don’t stray away from the industrywide trend of using the branch as a focal point for discussion; for Chase, new branches mean the bank can establish footholds in new geographies, which could result in an overall lift of customers online and off.

“Chase is not increasing branch density, but they’re increasing their geographic footprint,” he said. “Chase invested more than others in modernizing the network through a substantive physical redesign.”

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