Coronavirus Pressures, Transforms Branches

Rumors of the bank branch’s demise have so far been greatly exaggerated — but that may be about to change.

In my 20 years of covering the banking industry, the most common prediction for the future has been that the traditional bank branch is doomed. Yet the number of branches has proven remarkably resilient, even in the era of online banking. There were around 64,000 branches in 2000, but that number jumped roughly 20% to 77,000 by the end of 2018, according to Federal Deposit Insurance Corp. data. The stubborn persistence of branches is in part because many regional and large banks have invested heavily in expanding them, but it’s hard to see that trend continuing. Even as institutions have largely reopened branches in a limited capacity following a nationwide shutdown in March, customers who might have been resistant to digital banking appear now to have learned to live without the branch.

“Consumer behavior has changed, and my belief is, in a lot of ways, it’s changed permanently with this adoption to digital,” said PNC Financial Services Group Chairman and CEO William Demchak on the company’s quarterly earnings call. “We’ll have to adjust the way we serve our clients, and it is likely that that will mean less physical space.”

He’s not alone. U.S. Bancorp recently disclosed it is eying further cuts to its branch network in the wake of Covid-19 beyond its planned reduction of 10% to 15%.

In discussions for Promontory Interfinancial Network’s Banking with Interest podcast, bankers told me in the virus has significantly accelerated adoption of digital banking. Customers’ desire to go to a branch is fading.

“Bank branches as a distribution model have been under pressure for quite some time, and that pressure is going to accelerate,” said Harit Talwar, who runs Marcus, Goldman Sachs Group’s digital-only bank, as the firm’s global head of consumer business. “People are willing to question the need for branching.”

Malia Lazu, the chief experience and culture officer at $13 billion-asset Berkshire Hills Bancorp in Boston, said it was clear well before the current crisis that branches were no longer as valuable.

One of the reasons why banks need to figure out how to redefine branches is because they’re an expensive notion that people don’t use anymore,” she told me.

Some community banks are imagining alternatives. Lazu helped Berkshire launch a free co-working space and is planning others, including one in a branch it is shutting down. Local nonprofits, small businesses and startups are invited to work in the spaces, called Reevx Labs, generating connections with participants and the community. The bank also created a service called “MyBanker” in which a banker travels to or near a customer’s home to take deposits and offer other banking services.

“Reevx Labs gives us an affordable way to come into the community to get to know our potential customer, to build an authentic relationship with our potential customer and then to bank them from adulthood to inheritance,” she said.

Berkshire’s effort was partially inspired by an idea from the Bank of Ireland, but other community banks have also waded in with similar plans. In 2018, Jill Castilla, chairman and CEO of Citizens Bank of Edmond in Edmond, Oklahoma, had her staff transform vacated office space into a shared workspace. Citizens Bank’s effort doesn’t require those who use the space to be customers, but they hope the gained goodwill with businesses translates into more business.

Despite innovative ideas like these, it seems unlikely that the 77,000 branches in the U.S. can all be remade into shared-work spaces. Many companies are increasingly embracing working from home in the wake of the coronavirus. Ultimately, it’s may be too easy for customers to find other ways to bank.

“The only reason you have to go into a branch today, in my opinion, is maybe to get change,” Richard Hunt, president and CEO of the Consumer Bankers Association, told me. “You can pay your mortgage online, your auto [loan] online. … The one product that was lagging was small business application and now more banks allow you to do that application online as well.”

Still, Hunt, Lazu and others said they can’t conceive of a world when the branch is ever truly dead.

“Branches are important in part for when everything goes wrong and you need to walk in and see a face” Lazu said. “You want to know it’s there.”

But it’s clear that we’re going to see far fewer of them — and more innovative uses of that space. “The branch will always exist,” Hunt said. “But the number of branches that we have today will not exist, and the size of the branch will be much smaller.”