Branch Decline Is Not A Myth
Whenever I think of the future of banking and the role that the traditional brick and mortar branch will play, I am reminded of my favorite scene in Monty Python and the Holy Grail where an armless knight challenges another knight to a fight, explaining that his injuries are just “flesh wounds.” In my ever so humble opinion, the fundamental shift away from brick and mortar branching is already taking place. Financial institutions have the option of deciding what impact this development will have on future growth or ignoring it at the risk of saddling themselves with expenses that their more nimble rivals won’t have.
The latest proof of branch declines comes in the form of a report from the financial consultancy SNL, which is getting a lot of play this morning. This report just analyzes bank trends, but it reflects changes that are also impacting credit unions. This analysis shows that in 2013 total bank branch closings and openings resulted in a loss of 1,487 branches. Furthermore, the report points out that even banks that are maintaining branches are reconfiguring them to reduce the average branch size.
Those of you who want to pretend that branch decline is just a myth promulgated by reactionary bloggers should read this post by The Financial Brand, which suggests that the number of branch closings has in fact stabilized, but even if one wants to rely on this more sanguine analysis, the number of credit union branches still declined last year.
Supporters of the branch argue that the dramatic decrease in branches over the last several years is primarily a result of the economic downturn, as the economy gets better, things will get back to normal.
But this analysis misses the point. Of course economic downturns exaggerate negative economic trends. But it doesn’t mean that the underlying dynamics should be ignored. We have a financial sector with increasing mobility where virtually everything that could be done in a branch can be done from the comfort of your own home or in the middle of a busy workday. For example, Bank of America reported that slightly under 10% of its checks were deposited remotely during the last quarter.
Now, to be clear, I am not saying that the decline of the branch is a harbinger of doom for the credit union industry. For example, part of the reduction in branches reflects the consolidation of community banks as these banks are gobbled up by regional and national behemoths. This makes the argument that credit unions are the only true remaining community banks all the more salient. Furthermore, credit unions are as capable as banks are to modernize branches to reflect the modern financial marketplace. My only concern is with those credit unions that ignore what is an increasingly obvious reality. Technology, demographics, and economic trends have created the conditions for fundamentally altering the way in which banking services are provided.