Where have all the branches gone: Citi explains


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Where have all the branches gone: Citi explains

In most of the world, it’s getting harder to find a local bank branch.

That’s because financial institutions are finding it increasingly harder to rationalize keeping them open. As more consumer financial activity moves to mobile and to the web, banks are shedding branches the world over.

Some recent branch closure announcements include:

  • JPMorgan slashed 195 offices, PNaC closed 94, and Bank FAmerica 88 in 2015 (BizJournals)
  • HSBC, RBS, and Barclays plan to close 400 branches in the UK (Reuters)
  • Banco Santander plans to close 450 branches in Spain (BBR)
  • Lloyds Banking to cut 29 branches (The Guardian)

Overall, there are 1,614 fewer bank branches in the United States today in early 2016 than there were a year ago.

What we know

As more national and regional bank chains in the EU and the US close local branches, the trend is set to accelerate, according to a recent report published by Citibank’s Global Perspectives and Solutions group. In Digital Disruption: How Fintech is Forcing Banking to a Tipping Point [.pdf], the authors forecast that the incumbent branch networks may reduce their physical footprints by up to 50 percent by 2025.

bank branch closure forecast to 2025

Indeed, as more consumers migrate digitally to do general banking activities, banks with large branch footprints are working rapidly to stem the damage. According to the report, European customers are taking up digital banking channels in greater numbers compared to American bank clients. And banks are responding similarly — European financial institutions are closing retail locations more quickly than their American peers. Nordic banks may have already reduced their branch count by 50 percent.

What’s the future of the branch

Most incumbent banks believe there’s still a valuable role for bank branches even as customers spend less time in them. A few bulge bracket banks recently discussed the topic of branch closures on their recent earnings calls. Some banks have chosen to experiment with new formats for their local presences. Much like the evolution of physical books stores, these consumer financial institutions are playing around with the idea of using their locations as social meeting places. For example, Virgin Money is remaking its branches into “lounges”, where customers can chill and get coffee.

Others, like Bank America, see the writing on the wall. It’s using its branches and newly-appointed “digital ambassadors” to educate customers inside their branches on the various digital options at their disposal. Seen from this perspective, the bank is actively encouraging customers to use its digital channels to conduct their business.

For its part, the authors of the Citi report advise banks to take the long view. While customer behavior is changing and tilting in various degrees towards digital, we still have a long way to go. The report recommends banks take a panoramic view on managing their customer touch points:

This [digital] shift in customer behavior is making banks rethink their channel strategy. In our view, an omni-channel strategy is the winning solution for incumbent banks over the next decade because customers interact with their main bank via multiple channels rather than a single channel. The omni-channel strategy should be built around a competitive digital banking offering, a reduced and modernized branch network and lastly, a targeted channel strategy for different segments of customers.

Not all customers are having an easy time saying goodbye to their bank branches: they’re organizing protests in the UK to help protect the elderly who aren’t digital natives. In some locations, local businesses report that they’ve seen a drop in their businesses as their community banks have closed. But there seems to be general consensus that for certain banking transactions, there will always be a need to meet a banker in-person.

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