Bank branches, as we know them, are changing. Transactions, the backbone of branches for many decades, are moving out of bank buildings to online banking options, mobile apps and intelligent ATMs, leaving many banks to weigh the costs and benefits of keeping those branch offices open.
“Our online traffic just keeps on growing. We have more customers than we’ve ever had enrolled in Internet banking and our mobile banking products,” said Steve Kelly, vice president of marketing and sales at Lexington-based Central Bank. “We’ve had an uptick in the number of people who are doing online bill pay and online transfers. We’ve added mobile deposits that can be done by phone,” Kelly added.
There are approximately 95,000 bank branches in the United States, according to the Federal Deposit Insurance Corporation (FDIC). That’s the lowest number since 2005. The banking giants — Wells Fargo, JP Morgan Chase and Bank of America — operate the most branches with their nationwide presence.
But many banks are simply facing reality and closing branches that have become strangely quiet due to low traffic counts in the lobby and drive-through lanes.
“What banks do is calculate the profitability of the branch so they know which branches are losing money for them. Those are the ones likely to be closed down,” said Don Mullineaux, emeritus, duPont Endowed Chair in Banking, at the University of Kentucky.
Mullineaux said banks closed about 1,500 branches nationwide last year. He recalled going into his own bank and spending ten to 15 minutes in the lobby without ever seeing another customer enter the branch.
Bank mergers, which create overlapping markets, are also affecting the number of branches. Some have to be closed to cut costs. For example, PNC Bank acquired National City Bank and shut down dozens of branches.
There’s a reason for the slower foot and vehicle traffic at branches. Mullineaux said nearly 10 percent of all checks processed by Bank of America come from customers who now use their phones to photograph their check and deposit it electronically. That number is expected to grow dramatically for all banks.
PNC president William Demchak has told investors that in the future, PNC “will be weighted far more in the direction of technology than teller lines.”
It makes sense: Technology saves banks money. Demchak emphasized that point by saying each time a customer snaps a picture of a check and deposits it by phone, it saves PNC $3.88 over depositing that check at a teller window.
For Central Bank, “the number of transactions overall is certainly growing, but the growth is coming on the electronic side,” said Kelly. “We know our younger customers much prefer to bank online, use our call center and use our ATMs. We don’t see them in the banking centers very often.”
Central Bank’s mobile customers are predominantly between the ages of 18 and 35. The average volume of use is 41 times a month.
“They’re checking their balance all the time to make sure transactions are O.K. before they do them. Or if they’re getting ready to go to a restaurant or do something, [and] they’re checking their balances. They are very mobile-oriented,” Kelly said.
But not just young people are handling their banking needs electronically. The average age of an online Central Bank customer is roughly 45. “That’s clearly not the kids. We’re seeing more people using computers at work, so they’ve grown up with them and are comfortable using them to transact,” said Kelly. The bank’s average customer is accessing his or her online account 16 to 17 times a month, “which we think is quite a bit,” said Kelly.
Jobs are changing in the retail banking industry. As tellers become less transaction-oriented, they are retraining to cross-sell the bank’s products and services. Kelly doesn’t like to talk about possible job cuts in the future, but he admits tellers will learn to do more things.
“We’ll repurpose some of those branches. You may see a mortgage lender, insurance agent or broker at a branch. We do some of that already, but we may do more, because [those services] don’t lend themselves to the online experience, especially when establishing a new account or asking for assistance with a mortgage or investment. That’s still more of a face-to-face transaction,” Kelly said.
New branches are physically getting smaller too, said Mullineaux, “with fewer numbers of people working inside with a heavy reliance on technology to provide the service in the branch itself,” he said.
While some banks are reworking their branch numbers, all still want to remain competitive, even if it’s just for show. A 1.9-mile stretch of Sir Barton Way in the Hamburg area, for instance, has 11 different bank and credit union branches represented on it, most of which are fairly recent additions to the neighborhood.
In spite of the expense of operating such branch offices, there are still times, it seems, when the visible presence is worth the investment — and no bank wants to be left out.