Bank of America’s business model is in the midst of a dramatic shift, as increased adoption of mobile banking is allowing the nation’s second-biggest bank by assets to trim its physical branch count.
As can be seen in the accompanying chart, these two trends are headed in opposite directions. While Bank of America has closed 953, or 15.8%, of its branches over the past four years, active mobile banking accounts have increased by just under 10 million, equating to a 130% boost.
Although other banks are flirting with the idea of strategically expanding their branch networks, there’s little question that digital banking represents the future of financial services.
FMSI, a consulting firm that tracks the financial performance of bank branches, estimates that transaction volumes at community banks and credit unions have dropped 45% since 1992. Over the same period, the hourly pay rate of branch employees has increased 90%. The net result is that the cost of each in-branch transaction has risen 133.3% in just over two decades.
Digital and mobile banking offer a potent tonic for these troubling developments. JPMorgan Chase (NYSE:JPM) says it costs $0.65 to handle a deposit transaction in a branch. The cost falls to $0.08 per transaction conducted on an ATM. And customers who deposit checks using JPMorgan Chase’s mobile app cost the bank just $0.03 per transaction.
With the surging growth of digital banking, the fundamental role of branches is being evaluated, and in many cases, redefined. Many of the initial reductions in branches were due to rightsizing as a result of redundant locations that were the result of earlier M&A activity. Some of the more recent reductions are the result of business requirements analyses and branch reconfiguration efforts, often done in conjunction with a review of business needs across full-, self-, and assisted-service channels.
Branch conversations are increasingly about how banking customers want to transact and interact with their bank or credit union. This often means reduces fewer basic transactions at branches, but more informational, relationship-building, and advisory discussions occurring there. The result is the potential for fewer traditional branches, but the creation of networks of hub-and-spoke branches that include a mix of digital solutions and mini and reconfigured traditional and flagship branches to meet evolving customer and member needs.
Overview by Ed O’Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group
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