A lot has changed in the past 10 months, and banks are among those most impacted by shifts in consumer’s habits. The COVID-19 pandemic has accelerated trends that were already happening within the industry, such as the adoption of technological capabilities.
At the same time, banks continue to shutter physical retail locations left and right.
For example, a recent report found that the U.S. has seen a 5.13% loss of bank branches across the United States from 2017 through the third quarter of 2020, according to an analysis by the National Community Reinvestment Coalition (NCRC). More than 4,400 branches were closed across the country since 2017, bringing the total number of branches closed to over 13,000 since the Great Recession started in 2008. Nationally, 81,586 branches were in operation as of June 30, 2020.
In recent months alone, numerous banks have announced branch closures. In mid-October, U.S. Bank revealed plans to close another 400 branches or 15 percent of its locations by early 2021. That’s on top of shuttering about 300 in the year prior.
Truist said it plans to shutter 800 branches as part of a strategy that we delve deeper into below.
Also, Wells Fargo has said it plans to reduce its number of branches from 5,400 to 4,000 eventually, after announcing the closure of 65 branches during the first two weeks of July 2020. And, PNC Bank said it will double the number of branch closures it originally planned for 2020 for a total of 160.
Why are all these closures happening and what does this mean for the future?
Case Study: Truist
Truist is an interesting case study on this trend that seems to keep gaining traction. As mentioned above, the banking giant previously announced plans to close 800 branches according to an S&P Global Market Intelligence report. The bank is the resulting entity of the merger between BB&T Corp. and SunTrust Banks Inc.
Truist spokesperson Miguel Sepulveda told FinLedger in an email interview that the bank is expecting to close or consolidate about 150 branches in December 2020 through January 2021 and expects to close about another 225 in March.
“It’s also important to note that branch consolidations and closings don’t mean job losses,” he stated. “We’re able to manage that through attrition over time.”
Truist has taken a number of factors into consideration when closing branches, Sepulveda said, primarily its customers preferences and patterns.
“Like many industries, we’re seeing our clients’ preferences and behaviors change as more and more of them choose to bank with us digitally,” Sepulveda said. “This trend has accelerated even more due to COVID-19. So far in 2020, clients who are active on mobile apps have grown 8%; and mobile check deposits have grown 23% for SunTrust and BB&T. This has a gradual effect on client traffic patterns and branch usage.”
The branch consolidation/closing strategy is part of its “blended branch concept,” which Sepulveda explained “is a natural next step for the many SunTrust and BB&T branches that are very close in proximity, many across the street or even in the same parking lot, so we combine both branches into one.”
Truist plans to be “more aggressive in terms of the closings,” once branches and client service capabilities return to normal, the S&P Global report noted citing Truist Chairman and CEO Kelly King on a conference call discussing third-quarter results.
Going forward, the bank is investing to build a new Truist online and mobile banking experience from the ground up, Sepulveda added.
Why is this happening and what does it mean going forward?
Although digital and mobile banking are referenced as main drivers of bank branch closures, this NCRC report finds that it’s more likely because of the rapid consolidation within the banking industry since the Great Recession.
NCRC Senior Policy Advisor Adam Rust said that banking M&A activity contributed to the shuttering of bank branches in addition to increasing digital adoption. When banks acquire other banks, he pointed out, they may have two branches in the same area. This creates unnecessary redundancy.
“We’re seeing a hollowing out of the mid-sized bank,” Rust said. “A lot of those banks are growing either organically through or either through acquisition or they’re being purchased by the very large banks.”
However, the bank closures seem to be affecting certain areas more than others.
“Now, there are more people in cities, and more economic activity in cities,” Rust told FinLedger. “The loss of branches is almost entirely in rural areas.”
Meanwhile, Eric Taylor, director of UX Research at digital bank Varo, said that in general, argues that the accelerated movement toward increased mobile banking, is also playing a huge factor in banks’ decisions to shutter physical locations.
“I think that this is a major issue for big banks who have a tremendous sunk cost in their branches,” Taylor told FinLedger. “Right now, they’re keenly aware of just how the fintechs are essentially gobbling up market share.”
In addition to the pandemic, younger generations are also very much digital natives, so banking on a mobile app wasn’t a big transition for them, he said.
“If you look at digital immigrants, people who came of age before mobile phones were ubiquitous, those folks were maybe a little more attached to their local bank branch,” Taylor said. “But even in the context of the COVID-19 crisis, a lot of people have had to adapt to a world in which they couldn’t just walk into a bank branch.”
At the same time, Taylor believes the bank branch experience will be transformed into something very different from today’s experience. As to how that will look? Taylor’s not sure.
Going forward, he believes there’s a new paradigm shift that big incumbent banks are aware of and are “going to have to invest in technology in a huge way to remain competitive.”
Although the future isn’t certain, Rust said that there’s no doubt digital banking is here to stay.
“It’s becoming easier to do a lot of things with your phone,” Rust said. “That kind of convenience is going to continue to offer value for consumers. We’re not going to lose digital. The question is whether or not we’re going to lose branches.”