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.

Graphics Source: Economist.com

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.

Like what I have to say? Please recommend it on the site.

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

About the Economist Debate series and Oxford Style Debating

Economist Debates adapt the Oxford style of debating to an online forum. The format was made famous by the 186-year-old Oxford Union and has been practised by heads of state, prominent intellectuals and galvanising figures from across the cultural spectrum. It revolves around an assertion that is defended on one side (the “proposer”) and assailed on another (the “opposition”) in a contest hosted and overseen by a moderator. Each side has three chances to persuade readers: opening, rebuttal and closing.

In Economist Debates, proposer and opposition each consist of a single speaker, experts in the issue at hand. We also invite featured guests to comment on the debate’not to take sides, but to provide context and informed perspective on the subject.

Those attending an Oxford-style debate participate in two ways: by voting to determine the debate’s winner and by addressing comments to the moderator. The same holds here. As a reader, you are encouraged to vote. As long as the debate is open, you may change your vote as many times as you change your mind. And you are encouraged to air your own views by sending comments to the moderator. These should be relevant to the motion, the speakers’ statements or the observations of featured guests. And they must be addressed directly to the moderator, who will single out the most compelling for discussion by the speakers.

Source: Economist.com

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s