Despite the rising popularity of online and mobile banking, you can find large banks still having a brick and mortar presence. In big cities, you would find these bank branches clustered as close together as Starbucks coffee shops. In New York, there are 20 bank branches within six blocks on Madison Avenue. The justification from the financial services industry is that “Consumers want human contact”. Really?
With the migration to an increasingly cashless society wherein most purchases are made with a credit card and most bills are paid online, how often will one use the ATM or write checks in the future, forget needing to go a bank’s branch office?
But, big banks are rolling out futuristic branches to keep up with the technology. Not too long ago, Citibank rolled out a 10,000 sq ft flagship branch in Union Square in New York, in an attempt to redefine retail banking in the U.S replacing mahogany walls and plush leather chairs with ‘Smart Banking’ technology and differentiated customer experience. Not to be left behind, a new 12,000-square-foot HSBC Liat Towers Orchard branch in Singapore opened, covering two levels, to deliver a unique customer experience and an environment where customers can spend time discussing their financial needs.
With these larger banks slow to embrace technology and develop mobile services to increase customer acquisition, customer retention and most importantly, lower the cost of delivering services and products, virtual banks such as Ally Bank and financial services firms like Charles Schwab and Fidelity that also offer banking services have gained customers as increasingly people care less if a bank has been in business for 100 years or 1 year.
But, some banks have begun to accept the fact that expenses related to lease on the property, manager and teller salaries etc. simply does not justify servicing the handful of people who walk into a bank branch to withdraw cash and walk out. The U.S. bank branch model, which peaked at a total of roughly 95,000 branches, is now down to 85,000 branches. Fifth Third Bancorp recently closed 100 branches and intends to sell branch properties. Bank of America, Citigroup and JPMorgan Chase closed 389 branches over the past year. By the end of this decade, the number of bank branches in the US will likely be cut in half and will ultimately join the likes of Blockbuster, Circuit City and others at the local morgue by 2030.
Future Wealth’s View
Mobile banking and the shift to a cashless society, while still at its infancy, will eventually kill the retail banking industry. Near term, this trend favors credit card companies such as Visa and mobile payment companies like Paypal. However, the era of having to carry a wallet with credit cards and cash will soon disappear giving way to ubiquitous use of the smartphone for purchases, transfers, payments, loan services and overall commerce. The players are likely going to be very different from the current crop of big banks. The company that successfully addresses this market in the coming decade could be the next Google or Amazon. And if one still needs a bank branch for “human contact”, then a trip to the local psychiatrist may be in order.