Are Bank Branches Obsolete? Join the Debate with Brett King

Are Bank Branches Obsolete?

That’s the current Oxford style debate going on at the Economist right now.

It’s Brett King vs. Mark Weil

Here’s the argument and my response on the site below.

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Read the rest of the arguments for and against branches being obsolete here. It’s also an amazing magazine to get every week. Always insightful. You can learn how to subscribe here.

Below is my response in favor of Brett’s argument.

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My numbers come from my recent Backbase presentation.

Dear Sir,

Branches will eventually succumb to the fate of books and media outlets. As we saw in the U.S. market with increasing numbers of Barnes and Noble and Best Buy locations, we’ve hit that peak in banking. In the U.S., we had 98,201 bank branches in Jan 2011, up 21% from the 81,273 in Jan 1994. But the largest institutions have plans for a mass liquidation as the market contracts.

By the end of this decade, it’s projected that there will be 40% fewer banks and 50% fewer credit unions. We’re seeing mass consolidation of services, as our largest 100 banks (1.5% of the total number of financial institutions) hold ~ 80% of deposits, 75% of all loans. The total number of banks, in fact, declined from 18,000 in 1984 to 7,357 at year end 2011. 2020 projections show only 4,490 banks remaining. The consolidation of credit unions is even more dramatic — virtually a straight line 27 straight years. There were 15,193 in 1984 but only 7,094 at the end of 2011. This number will drop to 3,500 in 2020.

Brett King proposes that a major and disruptive shift is occurring to banking’s distribution model. Banking is now something you do, not somewhere you go.

Something does seems different now. Recent innovations in mobile, in payment, are coming from more than just Paypal, payment issuers, and traditional non-bank rivals. Disruption is coming from within established financial networks, and from well funded startups like Square and Dwolla. They are shifting bigger and bigger payment volumes every month, poking into bank’s income streams, and more importantly into the way bank customers access and move their money.

Are banks going to end up like movies, music, and books? Are banks going to simply offer financial advice in 99 cent downloads? Are banks going to become “dumb pipes?” Ubiquitous mobile payments are not only possible but almost inevitable. Can banks change their model enough to justify the number the size of the existing branch networks?

Like the airline industry, the number of “banking” players will likely get much smaller, and with that the need for so many physical locations.

It’s inevitable.

What’s your view? Post a comment for or against at the Economist

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4 thoughts on “Are Bank Branches Obsolete? Join the Debate with Brett King

    1. While I think most people can appreciate what NAB, Umpqua, and other bank brands are doing in the space, I would say that even new forms of branching are really pushing a big rock up the hill of eventual obsolescence. Branches will need to change to meet the changing behaviors of customers…I haven’t been in a branch to do business for years, and am annoyed at the thought of it. I’m not alone, and even a great couch and lots of space age televisions (or good coffee) isn’t going to change my mind. Yet I’ll gladly walk into an Apple store I’ve never been in, just to check out what I already know is there. So maybe it’s simply that banking services are really just do pedestrian, so ‘just part of my day’ that a physical space, regardless of how ‘pretty’ is really becoming unnecessary.

  1. This is an intriguing dialogue. I used to be a big proponent that branches still remained a vital part of the financial experience, if for no other reason than security/peace of mind and the occasional massive customer service issues. I have since switched entirely to online banking.

    To break down this argument, I think it is more of an 80/20 than an all or none. 80% of branches will no longer be needed because they’re outdated or don’t fit the new normal, but the 20% with fewer locations, less transactions, smaller spaces will remain relevant and a key touch point.

    A non-banking industry to consider: The start-up and business community in New Orleans is booming. Why? When Katrina hit, everything was wiped out. People had to rebuild from scratch which forced them to look at new models. It was like the recession hit early in 2006. Now they are 2-3 years ahead of the rest of the country because they were forced to change everything.

    What if a hurricane wiped out every one of your branches tomorrow? Would you rebuild each one?

    1. Very good points Bryan. I think branches are evolving and will be used more and more as places for consultation, community meetings, and eventually will morph into something entirely new. I worry about the downtowns of some cities that are already hard-pressed to maintain local businesses today – when (not if, when) many of these branches close/consolidate, what do you do with more empty buildings as the economy recovers? Maybe more yogurt shops?

      Join the debate at the Economist as well. See you when you return to the Bay Area Bryan. Continued success.

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