US branch networks set for steep decline - Celent

US branch networks set for steep decline - Celent

After 40 years of branch building, the US will witness a dramatic 30-40% reduction in the number of operating branches over the next decade, forecasts analyst house Celent.

In the report Branch Boom Gone Bust: Predicting a Steep Decline in US Branch Density, Celent argues that the US retail banking branch network has yet to respond to the obvious migration of customers to new digital alternatives.

Since 1970, the US has seen 281% growth in the number of FDIC-insured bank branches, with growth rates averaging 3% CAGR. Branch growth over the last 40 years has dramatically exceeded US population growth. In 1970, there were approximately 107 branches per million individuals. By 2011, that had grown to 270 branches per million.

"There is every reason to suggest branch densities would be substantially lower now than 30 years ago, but just the opposite has occurred. Given this trend, a slow, but inexorable reduction in US branch density seems unavoidable," says Bob Meara, Senior Analyst with Celent's Banking Group and coauthor of the report. "Beyond simply reducing the number of operating branches, what is needed is a fundamental redesign of retail operating models. Rather than resisting the trend, banks should welcome it and reinvest the savings."

While Celent's logic is inescapable, the nation's largest banks appear to be taking wildly divergent paths, with JPMorgan Chase committed to a branch expansion programme and Bank of America conversely determined to right-size its estate.

A better glimpse of the future may be offered by Wells Fargo which recently outlined plans to open a series of technology-packed mini-branches in neighbourhoods that cannot support full-sized outlets.
At around 1000 square feet, the new sites will be around a third of the size of normal branches.

A similar strategy is being adopted north of the border by BMO, which is test-marketing smaller 'studio' branches in Quebec.

Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 20 May, 2013, 09:30Be the first to give this comment the thumbs up 0 likes

"To gird for battle, Moynihan is reconfiguring thousands of branches from sales-and-teller outlets into full-service centers that offer a wide range of sophisticated products and advice." This and many more extracts from this recent FORTUNE magazine interview with BofA's CEO should put to rest any doubts that BofA is reenergizing "BofA's core business and historical strength: branch banking". It's still possible to reconcile Celent's guidance with the reality prevailing on the ground by recognizing that many banks - including BofA itself - are trying to push their "mass retail" customer segment to lower cost mobile banking after Frank-Dodd-Durbin made them unprofitable while, at the same time, bolstering their branch networks to attract and retain their profitable "mass affluent" customer segment.