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.
Graphics Source: Economist.com
Below is my response in favor of Brett’s argument.
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My numbers come from my recent Backbase presentation.
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.
What’s your view? Post a comment for or against at the Economist
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