The Customer Effect

Reality check: Branches are still going away, despite Chase’s flashy investment

  • Customers may still love branches, but perhaps no bank has provided them a completely digitally competent banking experience that could change their perception and dependence on them
  • Reports may say branches are important but earnings reports from banks' vendors like NCR and Diebold Nixdorf show a different story
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Reality check: Branches are still going away, despite Chase’s flashy investment

It didn’t take very long for the narrative about banking’s retailpocalypse to do an about-face.

Earlier this year JPMorgan Chase announced it’s investing $20 billion in 400 new branches and last week at the company’s Investor Day CFO Marianne Lake said 75 percent of its deposit growth comes from customers that visit its branches. Research published last month by Novantas shows 60 percent of Americans would still prefer opening a checking account at a branch than on digital channels and a September report by Deloitte similarly found 56 percent of people prefer to open bank accounts in branches (based on a survey of 3,000 consumers who had opened a deposit wealth management or consumer loan between January 2016 and May 2017).

Branches are becoming more compact and digitally oriented and incorporating new technology to help branch employees focus on improving the customer service they provide — sure. It may be important to maintain a branch presence for certain customers and to offer choice, but it’s still hard to justify the investment in so many when they’re becoming less and less necessary and relevant, as digital banking becomes more sophisticated.

Branches are still closing
JPMorgan Chase may be opening hundreds of new branches, but that hardly suggests every bank will follow. Chase has been one of the more aggressive of the national banks when it comes to fintech investment and innovating for customer experience and convenience. Last year Chase said it would launch a sub-branded mobile-first bank, called Finn, for customers in markets where it doesn’t have a footprint, and as of last week Chase ranks highest in customer satisfaction with retail banking advice, according to J.D. Power’s retail banking study. Advice is important; it’s the reason banks facing consolidation and transformation at all: to transition from a place to do transactions to a place to get advice.

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Branches may still have value, but they still continue their downward trend. U.S. banks closed 1,700 bank branches between June 2016 and 2017, which is the largest one-year decline on record. Citi cut 34 percent of its branches between 2012 and 2017; Capital One 32 percent, SunTrust Banks 22 percent and Regions Financial cut 12 percent. Wells Fargo, which has also created a sub-branded mobile bank and has also maintained the largest branch network over the years, has cut it 451 percent in that period, 204 percent just in the last year and has said it plans to close another 800 branches by 2020.

If you build it they will come
Apparently customers are “attached to bank branches” despite the fact that if they bank with a big brand bank they probably have adequate digital banking options by now, at least for routine transactions.

However, it’s not clear how much of that attachment comes from the fact that they haven’t experienced a completely digitally competent banking experience. Banks in the U.S. took a while to catch up to fintech and U.S. digital banks like Moven and BankMobile don’t get nearly the same amount of recognition and fanfare as U.K. challenger banks. Incidentally, more than half of customers in the U.K. say they would rather open a new bank account digitally.

“We have always known that if you build it they will come,” Lake said at JPMorgan’s Investor Day last week — quoting the mantra of innovators lifted from the movie Field of Dreams as she began the portion of her presentation dedicated to highlighting its many digital strengths and capabilities.

Legacy vendors have been losing revenue
Global financial services and ATM producer NCR has been watching revenue fall over the past year where ATM sales and software licenses are concerned as revenue from services and cloud has shown a slight uptick. Diebold Nixdorf, another manufacturer of connected commerce and self-service products in the banking and retail industries, reported a 9.6 percent decline in revenue from banking sector services to $3.4 billion from 2016 to 2017.

“The likely reality here is that despite the press reports — and various consumer research studies — branches really are in the dying process,” said Ron Shevlin, director of research at Cornerstone Advisors. “If there really was a mass branch transformation effort taking place within the industry… wouldn’t the revenue prospects of leading vendors like NCR and Diebold look good?”

Diebold has been in talks with potential U.S. bank customers about how to innovate the physical branch as digital banking becomes a more dominant channel and is testing a slew of new hardware technologies that would add purpose to branches, like lockers for small business owners’ cash pickups.

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