Are branches making a comeback?

Bank moving inIn recent years there has been a glut of headlines the likes of Wells Fargo to close 900 branchesBanks Will Be Obsolete Within 10 Years, and 6 Banking Services That Will Be Obsolete in 10 Years, on which the first item was “Bank Branches and Bank Tellers.” Indeed, a scant two years ago, none other than Yours Truly wrote for The Financial Brand, “… nearly twice as many consumers prefer remote banking as opposed to branch banking—and the vast majority of those prefer digital channels.”

So it’s no wonder that JPMorgan Chase just opened one of its largest branches in the U.S., announced plans to open 400 more in 20 markets, and has begun construction of its new headquarters in the not exactly low-rent district known as Manhattan.

Say, what?

It’s true. For some banks, branches are a thing again. 

JPMorgan isn’t the only financial institution on which the building bug has left bite marks. Bank of America plans to put up 500 new branches. Even local banks, such as San Antonio’s Frost Bank, are getting in on the act. According to the Houston Chronicle’s Al Lewis, Frost is “… planning on opening a branch a month over the next couple of years.” 

One might ask, what madness is this? “Some find that decision puzzling,” wrote Aaron Elstein for Crain’sNew York Business. He continues:

Banks nationwide have shut 5% of their branches since 2012. Digital, which has long been banking’s future, has become such a part of its present that the number of ATMs declined last year for the first time since they were introduced in 1969. Digital-only rivals, such as Goldman Sachs’ Marcus and BankMobile, are gaining traction by offering savers low-cost accounts with higher interest rates than most traditional banks.

Yet proponents argue that yielding to the building bug is not madness but sound strategy. After all, in the above-referenced article, I warned, “Don’t close your branches yet,” pointing out that …

… buildings still matter. More than half of respondents reported visiting a physical branch in the month prior to [a Fiserv quarterly consumer trends] survey. Over a six-month period, that figure jumps to 80%. The most common reasons for visiting a branch include depositing checks (61%) or cash (40%) and withdrawing cash (44%). It is notable that none of these transactions requires a branch visit. There appears to be either an emotional component (comfort in a face-to-face meeting) or an educational gap around digital capabilities that keeps people visiting physical structures.

But, enough of me quoting myself. Per Reuter’s, here’s what JPMorgan management had to say on the value of building: 

“Seventy-five percent of our deposit growth comes from customers who use our branches,” Thasunda Duckett, chief executive of Chase consumer banking said in an interview. “Customers still visit branches, on average, four times a quarter.” 

… JPMorgan has found that people who want to open new accounts look to see which banks have convenient branches even though they will do most of their transactions electronically. Duckett said branches are critical to establishing the bank’s presence locally and serve as hubs for mortgage lending, asset management and services to small businesses, such as accepting daily cash deposits.

Lewis points out that …

Bank branches serve as billboards. We know the brand Mattress Firm because the company seems to put showrooms on every block. For Frost, building branches is an essential step in its Houston expansion. 

… “Sixty percent of our accounts in the Houston market are within 5 miles of an existing branch today,” he told reporter John Roper. “I think this is true of consumers: They want to know that a branch is nearby if they need anything.” (Chronicle, op. cit.)

Bank of America CEO Brian Moynihan said, “A digital-only institution, in our mind, is not the way that you should go.” And JPMorgan Chase CEO Jamie Dimon said, “Every time we open branches in a new market we bring the full force of JPMorgan Chase to that community.” (Yahoo, op. cit.)

American Banker also cites Moynihan:

Speaking at at the Economic Club of Washington in mid-February, [Moynihan] said that most of the bank’s retail sales originate in the branch and that some 800,000 people visit Bank of America’s branches every day. The branch is also where many bank customers turn to for financial guidance. A survey released by J.D. Power this week found that most consumers seeking financial advice prefer to receive it in person, and not through digital channels.

Still, not everyone is convinced. 

“Chase has very smart people, but what they’re doing here doesn’t make any sense to me,” said Charles Wendel, president of Financial Institutions Consulting. “People are done with branches.” (Crain, op. cit.)

Notwithstanding Chase’s, Bank of America’s, and other banks’ renewed commitment to building, more branches are closing than opening. Time will tell whether JPMorgan et al will cheer or rue the building spree.

But one advantage of physical branches is certain, and Lewis nailed it: “When you bank online, you don’t get a free sucker.”

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