Its Numbers Declining, the Branch Is Undergoing a Remake

You’ve got to admire the pluck and resilience of the branch. First, the internet was supposed to kill the need for physical locations, then the mobile phone. While the overall numbers continue to edge downward, reports of the branch’s demise have been greatly exaggerated. Indeed, in some ways it’s going through a renaissance, though it’s not clear if that’s to everyone’s benefit. 

“People have been talking about the death of the branch forever, but it hasn’t happened,” says David Schiff, a senior partner for West Monroe, a consulting firm. “What you’re seeing now is a move back toward branches. We’re seeing less right-sizing, more right-purposing.” 

The latest numbers from S&P Global Market Intelligence and recent news highlight the ongoing, sometimes-complex evolution of thinking about the branch’s role in a digital world. In 2023, the industry shuttered a net 1,409 physical outlets, bringing the total number to 77,536 at year-end. That’s a decline of 1.8%, continuing a trend of net branch closures that’s run for 15 years now. 

Wells Fargo & Co., the nation’s third-largest banking company, led the pack with a net 293 fewer branches at the end of 2023 than it had at the beginning, bringing its total to 4,413. U.S. Bancorp and PNC Financial Services Corp. – No. 5 and 6 in size respectively – closed more than 220 branches each, or about 10% of their total networks. 

Signs of a Branch Rebound
Yet 2023 also saw the lowest number of net closings since 2013, and less than half the 2,928 net branches shuttered in 2021 at the peak of the COVID-19 pandemic. JPMorgan Chase & Co., a retail leader with 4,905 locations, saw its branch count rise. So did TD Bank.

And then February came. JPMorgan Chase announced plans to open 500 new branches and renovate another 1,700 as part of a “multi-billion-dollar commitment” to expand its footprint into new markets. A week later, PNC, one of 2023’s closing leaders, said it would spend $1 billion adding 100 new locations as part of a national build out. Suddenly, it seems, the branch is regaining some of its luster.

“A couple of years ago, I would have said the industry was unequivocally in branch-reduction mode,” says Scott Siefers, a managing director at Piper Sandler & Co. who follows large-cap banks. 

“But these larger banks have concluded that [branches] are still excellent customer-acquisition vehicles … and that customers are more profitable the closer they are to a branch,” he adds. “Now they’re devoting more time and investment to them.”

Give-and-Take
M&A-related cost-cutting and the ongoing repurposing from transaction hub to advice-and-service center/billboard are the primary drivers behind the decline in branch numbers. 

Digitalization has reduced branch foot traffic, and the teller window has already become a thing of the past in some locations. “Customers aren’t coming in every Thursday to cash a check,” says Brendan Coughlin, vice chairman and head of consumer banking for $222 billion Citizens Financial Group. “They’re coming in two or three times a year for advice or help.” 

Without regular transactions, branches don’t need to be as close to customers – a few miles, not just down the block, will do fine. As Coughlin says, consumers “want the security of having a physical presence someplace nearby, but the meaning of ‘nearby’ has expanded. You don’t need as many branches as in the past.” 

On the other hand, the branch’s role as a customer-acquisition vehicle is widely embraced. For example, many of PNC’s new branches are slated for Texas, where the Pittsburgh-based company is pursuing growth. Even the announcement of branch openings in a new market can spur growth, Schiff says.

Providence, Rhode Island-based Citizens illustrates the give-and-take. With just shy of 1,100 branches in 14 states, it shuttered 62 offices in 2023 and will likely close 50 more this year. Even so, don’t try to tell Coughlin the branch isn’t important to achieving strategic objectives.  

Earlier this decade, Citizens bought 66 New York City branches from HSBC Bank, and acquired Investors Bancorp, largely for the 134 outlets it had in the nation’s biggest market. Coughlin calls 200 branches “a relatively thin network” for the Big Apple, but it serves as an anchor for marketing and sales initiatives that have turned Citizens into a top-10 player in the market. “We couldn’t grow without that physical presence,” he says.

Community Impact
The consequences of branch closures for local communities are getting greater attention, as well. In February, the Federal Reserve Bank of Philadelphia published a report highlighting how branch reductions are contributing to so-called “banking deserts” – census tracts that lack access to a branch within a radius of two miles in cities, five miles in the suburbs and 10 miles in rural areas.

The study found 12.3 million Americans live in banking deserts and another 11.1 million live in “potential banking deserts” that could lose access as branch closures continue. Many disadvantaged groups that lack broadband connections or have other access issues live in those communities, creating possible public policy concerns down the road. The recently revised anti-redlining rule for implementing the Community Reinvestment Act includes a test to ensure banks maintain a physical presence in low- and moderate-income communities. 

“Banks can rightfully argue that most banking services can be provided online,” Schiff says. But many customers aren’t willing or able to execute key financial decisions, such as taking out a mortgage, via phones or computers. “The industry has to ask if it has gone overboard on what digital can do. How many customers are sophisticated enough to interact that way?”

More Change Is Coming
Schiff says he’s having more conversations with bankers about digitizing their branches to offer experiences that look and feel the same as those from other channels. “They’re looking at their physical channels and saying, ‘We need to make that experience uniform with what customers are getting digitally,’” he says.

That focus on a higher purpose could enhance the branch’s value, but will it halt the decline in its numbers? Branch counts are ultimately about striking the right balance between expenses and revenues. As long as the cost benefits of reducing physical locations trickle to the bottom line, the right-sizing of branch networks will continue.