As financial institutions emerge from the economic shutdown, many are opening their lobbies to customers for the very first time since mid-March, and some are evaluating operations with consideration for decommissioning certain branches. It's the latest evidence that no industry has been entirely invulnerable from the pandemic's impact.
Prior to the novel coronavirus outbreak, decommissions were already on the rise in some geographies, primarily driven by financial institutions' reallocation of resources and changes in customer behaviors. Indeed, from 2010 to 2019, the number of full-service bank branches nationwide fell from 95,000 to 83,000, according to evaluation of Federal Deposit Insurance Corporation data by Quartz.
"From 2010 to 2019, the footprint of full-service bank branches fell from 95,000 to 83,000."
It should therefore be no surprise that decomms haven't disappeared from consideration. Since January, banks overall have remained healthy, with a major influx in deposits from accountholders topping $2 trillion, based on separate data also from the FDIC. In April alone — a month in which virtually all of the nation was on lockdown — deposits rose by approximately $865 billion, CNBC reported. That's not only a record-setting figure; it's more than the previous record for an entire year. Nevertheless, some physical branches have fared differently than others, prompting the conversation about efficiencies.
Reevaluation of priorities
Alex Rampell, general partner at Andreessen Horowitz, told Business Insider that banks' ability to remain profitable despite their inability to operate at full capacity has indeed led banking executives and management reevaluate their branch networks. As a result, some are considering prudent decommissioning as part of their master plan — not necessarily because they have to but because they choose to.
Consider the growth in online banking, which up to now was a key driver for decommissioning decisions. In a recent poll conducted by Business Insider, almost 90% of respondents said they use mobile banking on a regular basis. Among millennials, 97% take advantage of mobile banking services.
"Almost nobody is suffering from an inability to enter a physical branch," Rampell explained.
Chris Britt, chief executive officer for the mobile financial service app Chime, told Banking Dive that as a result of this, the pandemic merely hastened the pace of decommissioning for some, as many FIs were already headed that way.
"I think everything that's happened over the last 60 days or so is probably accelerating a trend that's already happening, which is the reliance on traditional bank branches will continue to go away," Britt said.
Generally speaking, densely populated counties with dozens of physical locations have been more likely to experience branch closures than those communities with fewer, meaning between one and five, based on FDIC figures evaluated by Quartz. Given the fact that people tend to be creatures of habit, decommissions are also a symptom of a new normal, where customers have grown accustomed to banking entirely remotely. While before they opted for a hybrid model new banking habits have taken hold, said Renaud LaPlanche, co-founder and CEO of mobile payment firm Upgrade, in an interview with Banking Dive.
Other rationales for decommissioning
Decommissioning isn't always about profitability or a loss in foot traffic. Technology is in a near constant state of advancement, where state-of-the-art software and hardware becomes obsolete within years. Keeping up can be costly for some branches. Indeed, a 2019 report conducted by ATM Marketplace we wrote about at the time found that banks highly prioritize the addition of improved functionalities in their ATM fleet. This is just one of numerous investments required to keep pace in the market, and not all branches may be deemed worthy of the investment.
BranchServ Account Support Manager Linda Haig, who specializes in efficiencies and decommissioning, noted that when the decomm route is pursued, it may be a bank's best interest to keep legacy equipment for future use, as they can often be optimized with new features and enhancements. This is something many banks did once Windows 10 was introduced.
Mergers and acquisitions are another reason why banks choose to decommission. Earlier this year, Odeon Capital Chief Financial Strategist Dick Bove told CNN Business that he anticipates more regional banks will join forces to stay competitive with larger banks. Low interest rates are fueling M&As as well.
"The nation's biggest banks have set a target to increase their market share by taking business from the biggest regionals," Bove said in an email to the cable news organization. "The competitive battle is likely to force the regionals to merge to gain the cash flows and scale necessary to ward off the attack."
They aren't letting up either, as majors FIs' recent success has been fueled by the surge in bank deposits. For example, deposits grew 10% for Bank of America in first three months of 2020 compared to the closing quarter of 2019, CNBC reported. The increase was even higher for Citigroup at 11%, with JPMorgan Chase outperforming them all at 18%.
"The sudden surge in deposits may further incentivize regional banks to consolidate."
The sudden surge in deposits may further incentivize regional banks to consolidate and decommission certain branch locations after evaluating which ones have experienced a drop in foot traffic or account volume.
"The culture of banking has changed," Haig said. "To save on costs while at the same time better serving customers, banks will often join forces. While they may close locations as a result, they often open new ones up as well. Decommissioning is a key component in these decisions."
Decommissioning is a strategic decision as much as it is an economic one. If you're considering making this move, BranchServ is here to help. We provide complete project management solutions, including site surveys, branch equipment removal, safe deposit box drilling and so much more. Contact us today.